Document:

Exhibit 10.1

 

 

 

AMENDED AND RESTATED

SECURITIES PURCHASE AGREEMENT

by and among

PROSPECT GLOBAL RESOURCES INC.,

CERTAIN GUARANTORS NAMED HEREIN,

and

THE PURCHASERS NAMED HEREIN

for

$100,000,000

in

10% CONVERTIBLE SPRINGING SECOND-LIEN NOTES DUE 2020

Dated as of December 21, 2012

 

 

 

 

TABLE OF CONTENTS

 

	
 
    	
Page
    
	
ARTICLE I AUTHORIZATION OF NOTES
    	
2
    
	
 
    	
 
    
	
ARTICLE II SALE AND PURCHASE OF SECURITIES
    	
2
    
	
 
    	
 
    
	
2.1
    	
Sale   and Purchase
    	
 
    	
2
    
	
2.2
    	
Fees   and Expenses
    	
 
    	
3
    
	
2.3
    	
Purchase   Price Allocation
    	
 
    	
3
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE III CLOSING
    	
3
    
	
 
    	
 
    
	
3.1
    	
Closing
    	
 
    	
3
    
	
3.2
    	
Deliveries
    	
 
    	
4
    
	
3.3
    	
Apollo   Warrants
    	
 
    	
4
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE IV JOINT CONDITIONS TO CLOSING
    	
4
    
	
 
    	
 
    
	
4.1
    	
Shareholder   Approval
    	
 
    	
4
    
	
4.2
    	
No   Order
    	
 
    	
4
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE V COMPANY CONDITIONS TO CLOSING
    	
4
    
	
 
    	
 
    
	
5.1
    	
Representations   and Warranties
    	
 
    	
4
    
	
5.2
    	
Performance;   No Default
    	
 
    	
5
    
	
5.3
    	
Officer’s   Certificate
    	
 
    	
5
    
	
5.4
    	
IRS   Forms W-8/W-9
    	
 
    	
5
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE VI PURCHASERS CONDITIONS TO CLOSING
    	
5
    
	
 
    	
 
    
	
6.1
    	
Representations   and Warranties
    	
 
    	
5
    
	
6.2
    	
Performance;   No Default
    	
 
    	
5
    
	
6.3
    	
Compliance   Certificates
    	
 
    	
5
    
	
6.4
    	
Investors   Rights Agreement
    	
 
    	
6
    
	
6.5
    	
Royalty   Agreement
    	
 
    	
6
    
	
6.6
    	
Opinions   of Counsel
    	
 
    	
6
    
	
6.7
    	
Definitive   Feasibility Study
    	
 
    	
6
    
	
6.8
    	
EPC/EPCM   Retention
    	
 
    	
6
    
	
6.9
    	
Permits
    	
 
    	
6
    
	
6.10
    	
Key   Hire
    	
 
    	
6
    
	
6.11
    	
Confirmatory   Reports
    	
 
    	
7
    
	
6.12
    	
Off-Take   Agreement
    	
 
    	
7
    
	
6.13
    	
No   Material Adverse Changes
    	
 
    	
7
    
	
6.14
    	
Purchase   Permitted By Applicable Law, Etc.
    	
 
    	
7
    
	
6.15
    	
Private   Placement Number
    	
 
    	
7
    
	
6.16
    	
Funding   Instructions
    	
 
    	
7
    
	
6.17
    	
Proceedings   and Documents
    	
 
    	
7
    
	
6.18
    	
Guarantee   and Collateral Documents
    	
 
    	
8
    
	
6.19
    	
Certificate   of Designation
    	
 
    	
8
    
	
6.20
    	
Karlsson   Agreements
    	
 
    	
8
    
	
6.21
    	
Purchaser   Expenses
    	
 
    	
8
    
	
6.22
    	
Amendment   Confirmation
    	
 
    	
8
    
	
6.23
    	
Bylaws   Amendment
    	
 
    	
8
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF THE   COMPANY
    	
8
    

 

i

 

	
 
    	
 
    	
 
    	
Page
    
	
7.1
    	
Organization;   Power and Authority
    	
 
    	
8
    
	
7.2
    	
Authorization,   Etc.
    	
 
    	
9
    
	
7.3
    	
Execution;   Due Authority
    	
 
    	
10
    
	
7.4
    	
No   Conflicts
    	
 
    	
10
    
	
7.5
    	
Consents,   Approvals or Waivers
    	
 
    	
10
    
	
7.6
    	
Legal   and Governmental Proceedings
    	
 
    	
11
    
	
7.7
    	
Compliance   With Laws
    	
 
    	
11
    
	
7.8
    	
Licenses   and Permits
    	
 
    	
11
    
	
7.9
    	
Company   SEC Documents
    	
 
    	
11
    
	
7.10
    	
No   Material Adverse Effect
    	
 
    	
12
    
	
7.11
    	
Exchange   Act
    	
 
    	
12
    
	
7.12
    	
Price   Manipulation
    	
 
    	
13
    
	
7.13
    	
Class   of Notes
    	
 
    	
13
    
	
7.14
    	
Status   Under Investment Company Act
    	
 
    	
13
    
	
7.15
    	
Restrictions   on Sale of Notes, Etc.
    	
 
    	
13
    
	
7.16
    	
Company   Controls and Procedures
    	
 
    	
13
    
	
7.17
    	
Public   Accounting Firm
    	
 
    	
14
    
	
7.18
    	
Financial   Statements; Material Liabilities
    	
 
    	
14
    
	
7.19
    	
Title   to Property; Leases
    	
 
    	
14
    
	
7.20
    	
Environmental   Matters
    	
 
    	
15
    
	
7.21
    	
Intellectual   Property
    	
 
    	
17
    
	
7.22
    	
Taxes
    	
 
    	
17
    
	
7.23
    	
Compliance   with ERISA
    	
 
    	
18
    
	
7.24
    	
Material   Labor Disputes; Labor Laws
    	
 
    	
19
    
	
7.25
    	
Mineral   Rights
    	
 
    	
19
    
	
7.26
    	
Insurance   Coverage
    	
 
    	
21
    
	
7.27
    	
Restrictions   on Subsidiaries
    	
 
    	
21
    
	
7.28
    	
No   Registration Rights
    	
 
    	
21
    
	
7.29
    	
Antitakeover   Provisions
    	
 
    	
21
    
	
7.30
    	
No   General Solicitation
    	
 
    	
21
    
	
7.31
    	
Material   Contracts
    	
 
    	
21
    
	
7.32
    	
Voting   Agreements
    	
 
    	
22
    
	
7.33
    	
Compliance   with Money Laundering Laws
    	
 
    	
22
    
	
7.34
    	
Compliance   with OFAC
    	
 
    	
22
    
	
7.35
    	
Compliance   with Other Laws, Regulations and Instruments
    	
 
    	
22
    
	
7.36
    	
Solvency
    	
 
    	
22
    
	
7.37
    	
Use   of Proceeds
    	
 
    	
22
    
	
7.38
    	
Brokers’   Fees
    	
 
    	
22
    
	
7.39
    	
Collateral   Documents
    	
 
    	
22
    
	
7.40
    	
Covenants
    	
 
    	
23
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE VIII REPRESENTATIONS OF THE PURCHASERS
    	
23
    
	
 
    	
 
    
	
8.1
    	
Organization;   Power and Authority
    	
 
    	
23
    
	
8.2
    	
Execution;   Due Authority
    	
 
    	
23
    
	
8.3
    	
No   Conflicts
    	
 
    	
23
    
	
8.4
    	
Purchase   for Investment
    	
 
    	
24
    
	
8.5
    	
Accredited   Investor
    	
 
    	
24
    
	
8.6
    	
Brokers’   Fees
    	
 
    	
24
    

 

ii

 

	
 
    	
Page
    
	
ARTICLE IX CERTAIN INTERIM COVENANTS
    	
24
    
	
 
    	
 
    
	
9.1
    	
Operation   of Business
    	
 
    	
24
    
	
9.2
    	
Access   to Information; Consultation
    	
 
    	
28
    
	
9.3
    	
Reasonable   Best Efforts
    	
 
    	
30
    
	
9.4
    	
Reservation   of Shares
    	
 
    	
31
    
	
9.5
    	
Shareholders   Meeting
    	
 
    	
31
    
	
9.6
    	
Proxy
    	
 
    	
32
    
	
9.7
    	
Non-Solicitation
    	
 
    	
33
    
	
9.8
    	
Additional   Common Stock Issuances
    	
 
    	
35
    
	
9.9
    	
Affiliate   Agreement Modifications
    	
 
    	
36
    
	
9.10
    	
Off-take   Agreement
    	
 
    	
36
    
	
9.11
    	
Board   and Observer Rights
    	
 
    	
36
    
	
9.12
    	
KG   Default Cure
    	
 
    	
37
    
	
9.13
    	
Preemptive   Rights
    	
 
    	
38
    
	
9.14
    	
Standstill
    	
 
    	
39
    
	
9.15
    	
Certain   Tax Matters
    	
 
    	
40
    
	
9.16
    	
Benefit   Plans
    	
 
    	
40
    
	
9.17
    	
FCPA
    	
 
    	
40
    
	
9.18
    	
Supplemental   Payment
    	
 
    	
40
    
	
9.19
    	
Further   Assurances
    	
 
    	
41
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE X TERMINATION
    	
41
    
	
 
    	
 
    
	
10.1
    	
Right   to Terminate
    	
 
    	
41
    
	
10.2
    	
Effect   of Termination
    	
 
    	
42
    
	
10.3
    	
Fees   and Expenses
    	
 
    	
42
    
	
10.4
    	
Amendment
    	
 
    	
42
    
	
10.5
    	
Waiver
    	
 
    	
43
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE XI INDEMNIFICATION
    	
43
    
	
 
    	
 
    
	
11.1
    	
Purchaser   Indemnification
    	
 
    	
43
    
	
11.2
    	
Company   Indemnification
    	
 
    	
43
    
	
11.3
    	
Indemnification   Actions
    	
 
    	
44
    
	
11.4
    	
Limitations
    	
 
    	
45
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE XII VOTING
    	
47
    
	
 
    	
 
    
	
12.1
    	
Voting
    	
 
    	
47
    
	
12.2
    	
No   Adverse Actions
    	
 
    	
48
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE XIII CONVERSION
    	
48
    
	
 
    	
 
    
	
13.1
    	
Conversion   Right
    	
 
    	
48
    
	
13.2
    	
Conversion
    	
 
    	
48
    
	
13.3
    	
Mechanics   of Conversion
    	
 
    	
49
    
	
13.4
    	
Adjustment   Upon Issuance of Shares of Common Stock
    	
 
    	
51
    
	
13.5
    	
Adjustment   for Change in Capital Stock
    	
 
    	
53
    
	
13.6
    	
Adjustment   for Other Distributions
    	
 
    	
54
    
	
13.7
    	
Adjustment   for Cash Dividends
    	
 
    	
55
    
	
13.8
    	
Adjustment   for Company Tender Offer
    	
 
    	
56
    
	
13.9
    	
When   Adjustment May Be Deferred
    	
 
    	
57
    
	
13.10
    	
When   No Adjustment Required
    	
 
    	
57
    

 

iii

 

	
 
    	
 
    	
 
    	
Page
    
	
13.11
    	
Notice   of Adjustment
    	
 
    	
58
    
	
13.12
    	
Voluntary   Decrease
    	
 
    	
58
    
	
13.13
    	
Notice   of Certain Transactions
    	
 
    	
59
    
	
13.14
    	
Effect   of Reclassification, Consolidation, Merger or Sale
    	
 
    	
59
    
	
13.15
    	
Simultaneous   Adjustments
    	
 
    	
60
    
	
13.16
    	
Successive   Adjustments
    	
 
    	
60
    
	
13.17
    	
Limitation   on Adjustments
    	
 
    	
60
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE XIV INFORMATION COVENANTS
    	
60
    
	
 
    	
 
    
	
14.1
    	
Financial   Statements
    	
 
    	
60
    
	
14.2
    	
Requirements   as to Financial Statements
    	
 
    	
61
    
	
14.3
    	
Information;   Miscellaneous
    	
 
    	
62
    
	
14.4
    	
Notification   of Default
    	
 
    	
64
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE XV GENERAL COVENANTS
    	
64
    
	
 
    	
 
    
	
15.1
    	
Use   of Proceeds
    	
 
    	
64
    
	
15.2
    	
Compliance   with Laws
    	
 
    	
64
    
	
15.3
    	
Approvals
    	
 
    	
64
    
	
15.4
    	
Maintenance   of Corporate Existence, etc.
    	
 
    	
64
    
	
15.5
    	
Payment   of Notes
    	
 
    	
64
    
	
15.6
    	
Payment   of Taxes, etc.
    	
 
    	
64
    
	
15.7
    	
Books   and Records
    	
 
    	
65
    
	
15.8
    	
Environmental   Covenants
    	
 
    	
65
    
	
15.9
    	
Maintenance   of Project Assets
    	
 
    	
66
    
	
15.10
    	
Accuracy   of Information
    	
 
    	
66
    
	
15.11
    	
Insurance
    	
 
    	
66
    
	
15.12
    	
Business   Activities; No Amendment of Organizational Documents
    	
 
    	
68
    
	
15.13
    	
Indebtedness
    	
 
    	
69
    
	
15.14
    	
Liens
    	
 
    	
70
    
	
15.15
    	
Investments
    	
 
    	
71
    
	
15.16
    	
Restricted   Payments, etc.
    	
 
    	
71
    
	
15.17
    	
Mergers,   etc.
    	
 
    	
71
    
	
15.18
    	
Asset   Dispositions, etc.
    	
 
    	
71
    
	
15.19
    	
Transactions   with Affiliates
    	
 
    	
72
    
	
15.20
    	
Restrictive   Agreements, etc.
    	
 
    	
72
    
	
15.21
    	
Inconsistent   Agreements
    	
 
    	
72
    
	
15.22
    	
Bank   Accounts
    	
 
    	
72
    
	
15.23
    	
Acquisitions
    	
 
    	
72
    
	
15.24
    	
Collateral   and Guarantees
    	
 
    	
73
    
	
15.25
    	
Further   Assurances
    	
 
    	
74
    
	
15.26
    	
Future   Covenants
    	
 
    	
74
    
	
15.27
    	
Repurchase   at the Option of Purchasers Upon Change of Control
    	
 
    	
74
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE XVI EVENTS OF DEFAULT
    	
75
    
	
 
    	
 
    
	
ARTICLE XVII REMEDIES ON DEFAULT, ETC.
    	
77
    
	
 
    	
 
    
	
17.1
    	
Acceleration   of Maturity; Rescission
    	
 
    	
77
    
	
17.2
    	
Other   Remedies
    	
 
    	
77
    
	
17.3
    	
Waiver   of Past Defaults and Events of Default
    	
 
    	
77
    

 

iv

 

	
 
    	
 
    	
 
    	
Page
    
	
17.4
    	
Control   by Majority
    	
 
    	
77
    
	
17.5
    	
Limitation   on Suits
    	
 
    	
77
    
	
17.6
    	
Rights   of Holders to Receive Payment
    	
 
    	
78
    
	
17.7
    	
Collection   Suit by the Purchasers
    	
 
    	
78
    
	
17.8
    	
Priorities
    	
 
    	
78
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE   XVIII REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES; TRANSFER OF APOLLO   PREFERRED SHARES
    	
78
    
	
 
    	
 
    
	
18.1
    	
Registration   of Notes
    	
 
    	
78
    
	
18.2
    	
Transfer   and Exchange of Notes
    	
 
    	
78
    
	
18.3
    	
Replacement   of Notes
    	
 
    	
79
    
	
18.4
    	
Transfer   of Apollo Preferred Shares
    	
 
    	
79
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE XIX PAYMENTS ON NOTES
    	
79
    
	
 
    	
 
    
	
ARTICLE XX EXPENSES, ETC.
    	
80
    
	
 
    	
 
    
	
20.1
    	
Transaction   Expenses
    	
 
    	
80
    
	
20.2
    	
Survival
    	
 
    	
80
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE XXI MODIFICATION AND WAIVER
    	
80
    
	
 
    	
 
    
	
21.1
    	
Requisite   Consent of Holders
    	
 
    	
80
    
	
21.2
    	
Revocation   and Effects of Consents
    	
 
    	
81
    
	
21.3
    	
Notation   on Exchange of Notes
    	
 
    	
82
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE XXII NOTICES
    	
82
    
	
 
    	
 
    
	
ARTICLE XXIII GUARANTEE OF NOTES
    	
83
    
	
 
    	
 
    
	
23.1
    	
Note   Guarantee
    	
 
    	
83
    
	
23.2
    	
Execution   and Delivery of Note Guarantee
    	
 
    	
83
    
	
23.3
    	
Release   of Guarantors
    	
 
    	
84
    
	
23.4
    	
Waiver   of Subrogation
    	
 
    	
84
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE XXIV CONFIDENTIAL INFORMATION
    	
85
    
	
 
    	
 
    
	
ARTICLE XXV SUBSTITUTION OF PURCHASER
    	
86
    
	
 
    	
 
    
	
ARTICLE XXVI MISCELLANEOUS
    	
86
    
	
 
    	
 
    
	
26.1
    	
Successors   and Assigns
    	
 
    	
86
    
	
26.2
    	
Legal   Holidays
    	
 
    	
86
    
	
26.3
    	
Accounting   Terms
    	
 
    	
87
    
	
26.4
    	
Severability
    	
 
    	
87
    
	
26.5
    	
Construction,   Etc.
    	
 
    	
87
    
	
26.6
    	
Counterparts
    	
 
    	
87
    
	
26.7
    	
Table   of Contents, Headings, Etc.
    	
 
    	
87
    
	
26.8
    	
Construction
    	
 
    	
87
    
	
26.9
    	
Governing   Law
    	
 
    	
87
    
	
26.10
    	
Jurisdiction   and Process; Waiver of Jury Trial
    	
 
    	
87
    
	
26.11
    	
Disclosure   of Tax Information
    	
 
    	
88
    
	
26.12
    	
Statements   Required in Certificate
    	
 
    	
88
    
	
26.13
    	
[Intentionally   Deleted]
    	
 
    	
88
    
	
26.14
    	
Specific   Performance
    	
 
    	
89
    
	
26.15
    	
Time   of the Essence
    	
 
    	
89
    

 

v

 

	
SCHEDULE   A
    	
Information   Relating to Purchasers
    
	
SCHEDULE   B
    	
Defined   Terms
    
	
SCHEDULE   C-1
    	
Terms   of Permitted Preferred Stock
    
	
SCHEDULE   C-2
    	
Terms   of Permitted Junior Debt
    
	
SCHEDULE   C-3
    	
Terms   of Notes in Karlsson Default
    
	
EXHIBIT   A
    	
Form   of 10% Convertible Springing Second-Lien Notes due 2020
    
	
EXHIBIT   B-1
    	
Form   of Purchaser Conversion Notice
    
	
EXHIBIT   B-2
    	
Form   of Company Conversion Notice
    
	
EXHIBIT   C
    	
Form   of Certificate of Designation
    
	
EXHIBIT   D
    	
Minimum   Offtake Arrangements
    
	
EXHIBIT   E-1
    	
Form   of Series A Warrant
    
	
EXHIBIT   E-2
    	
Form   of Series B Warrant
    

 

vi

 

AMENDED AND RESTATED
 SECURITIES PURCHASE AGREEMENT

 

AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT (this “Agreement”) dated as of December 21, 2012, by and among PROSPECT GLOBAL RESOURCES INC., a Nevada corporation (the “Company”), the Subsidiaries of the Company party hereto from time to time as GUARANTORS (as defined below) and the PURCHASERS named in Schedule A hereto (the “Purchasers”).

 

WHEREAS, the Company and the Purchasers entered into a Securities Purchase Agreement dated as of November 29, 2012 (the “Original Agreement”) and wish to amend and restate the Original Agreement;

 

NOW, THEREFORE, in consideration of the premises below and of the mutual covenants and agreements contained herein, the parties hereto hereby agree that the Original Agreement is amended and restated as follows:

 

WHEREAS, the Company is engaged, through its Subsidiaries, in the exploration and planning for construction and operation of a potash mine and related facilities to mine and develop the potash deposit located on lands owned or leased by the Company or its Subsidiaries or on which the Company or its Subsidiaries otherwise have a right to mine, in the Holbrook Basin of eastern Arizona (the “Holbrook Project”);

 

WHEREAS, subject to the terms and conditions of this Agreement, the Purchasers are paying the Company $100,000,000, and the Company is issuing: (a) to the Notes Purchasers named in Schedule A hereto (the “Notes Purchasers”), $100,000,000 aggregate principal amount of 10.0% Convertible Springing Second Lien Notes due 2020 (the “Notes”), (b) to the Royalty Purchasers, Series A warrants for the purchase of up to 25,925,926 shares of Common Stock of the Company, in substantially the form set out in Exhibit E-1 (the “Series A Warrants”), and Series B warrants for the purchase of up to 21,538,461 shares of Common Stock of the Company, in substantially the form set out in Exhibit E-2 (the “Series B Warrants” and together with the Series A Warrants, the “Apollo Warrants”), (c) to the Preferred Share Purchaser named in Schedule A hereto (the “Preferred Share Purchaser”), the Apollo Preferred Shares, (d) to the Notes Purchasers, upon certain circumstances contemplated by this Agreement, newly issued shares of Common Stock of the Company (together with the Notes, the Apollo Warrants and the Apollo Preferred Shares, the “Securities”) and (e) to the Royalty Purchasers named in Schedule A hereto (the “Royalty Purchasers”), certain royalty interests in the Company;

 

WHEREAS, the Board of Directors of the Company has determined that this Agreement and the transactions contemplated hereby are in the best interests of the Company, and its shareholders, and has previously approved this Agreement and the transactions contemplated hereby (the “Transactions”);

 

WHEREAS, prior to or contemporaneously with the execution and delivery of the Original Agreement by the parties hereto, as a condition and inducement to the willingness of the Purchasers to enter into the Original Agreement, certain shareholders of the Company and certain of the Purchasers entered into Support Agreements (the “Support Agreements”), in respect of the shares of Common Stock held by such shareholders;

 

WHEREAS, concurrently with the execution and delivery of the Original Agreement by the parties hereto, as a condition and inducement to the willingness of the Purchasers to enter into the Original Agreement, and in partial consideration for the payment by the Purchasers of the Purchase

 

1

 

Price, Buffalo Management LLC (“Buffalo”), the Royalty Purchasers and the Company entered into a Royalty Agreement, of even date with the Original Agreement (the “Royalty Agreement”), which provides for, among other things, Buffalo and the Royalty Purchasers sharing evenly an annual royalty payment that was previously payable from the Company solely to Buffalo;

 

WHEREAS, concurrently with the execution and delivery of the Original Agreement by the parties hereto, as a condition and inducement to the willingness of the Purchasers to enter into the Original Agreement, the Purchasers and the Company entered into an Investors Rights Agreement, of even date with the Original Agreement (the “Investors Rights Agreement”), which provides for certain governance and other rights for the Purchasers;

 

NOW, THEREFORE, in consideration of the premises above and of the mutual covenants and agreements contained herein, the parties hereto hereby agree as follows:

 

ARTICLE I

 

AUTHORIZATION OF NOTES

 

Subject to the terms and conditions of this Agreement, the Company will, at the Closing, authorize the issuance and sale of $100,000,000 aggregate principal amount of Notes. The Notes shall be substantially in the form set out in Exhibit A and shall otherwise be governed by this Agreement.

 

ARTICLE II

 

SALE AND PURCHASE OF SECURITIES

 

2.1  Sale and Purchase.  Subject to the terms and conditions of this Agreement, the Company will issue, sell and grant to each Purchaser, respectively, in the proportions set forth below, at the Closing (except for the Apollo Warrants, which shall be issued one Business Day after the receipt of Requisite Shareholder Approval) (and the Purchasers will purchase and accept from the Company at the Closing (except for the Apollo Warrants, which shall be accepted one Business Day after the receipt of Requisite Shareholder Approval)), for the aggregate purchase price of $100,000,000 (the “Purchase Price”), payable by each Purchaser in cash on the Closing Date in the amount to be specified to the Company prior to the Closing by the Purchasers:

 

(a)           Notes in the principal amount specified opposite such Notes Purchaser’s name in Schedule A;

 

(b)           Subject to the terms of Section 9.8, a number of shares of Common Stock as provided in Section 9.8, allocated pro rata among the Notes Purchasers in proportion to the principal amount of Notes purchased by them;

 

(c)           Subject to the terms of the Royalty Agreement, the royalty payments contemplated by the Royalty Agreement (the “Royalty”), allocated to the Royalty Purchasers in proportion to the percentage specified opposite such Royalty Purchaser’s name in Schedule A;

 

(d)           Series A Warrants, allocated to the Royalty Purchasers in proportion to the percentage specified opposite such Royalty Purchaser’s name in Schedule A, to be delivered to Royalty Purchasers on the Business Day after the date on which the Requisite Shareholder Approval is obtained (or such later date as specified by the Majority Purchasers by notice to the Company);

 

2

 

(e)           Series B Warrants, allocated to the Royalty Purchasers in proportion to the percentage specified opposite such Royalty Purchaser’s name in Schedule A, to be delivered to Royalty Purchasers on the Business Day after the date on which the Requisite Shareholder Approval is obtained (or such later date as specified by the Majority Purchasers by notice to the Company); and

 

(f)            Apollo Preferred Shares, allocated to the Preferred Share Purchaser.

 

2.2  Fees and Expenses.  Within thirty (30) days of the date of the Original Agreement, the Company shall pay, upon invoice, to the Purchasers or any Affiliates of the Purchasers designated by the Majority Purchasers (by wire transfer of immediately available funds to an account or accounts as directed by the Majority Purchasers) reimbursement for all Purchaser Expenses incurred prior to the date of the Original Agreement and not previously reimbursed. At the Closing, the Company shall cause (a) the Purchasers or any Affiliates of the Purchasers designated by the Majority Purchasers to receive from the Company (by wire transfer of immediately available funds to an account or accounts as directed by the Majority Purchasers) reimbursement of Purchaser Expenses incurred through the Closing Date and not previously reimbursed and (b) Apollo Global Securities, LLC (or another Affiliate of the Purchasers (designated by the Majority Purchasers at least two (2) Business Days prior to the Closing Date)) to receive from the Company a transaction fee (the “Transaction Fee”) in the amount of $2,000,000 (by wire transfer of immediately available funds to an account or accounts as directed by such designated Affiliate) (it being understood and agreed that, if requested by the Majority Purchasers, the Parties will memorialize in a separate letter agreement the Company’s obligation to pay the Transaction Fee).

 

2.3  Purchase Price Allocation.  The Purchase Price shall be allocated among the Notes, the Common Stock, the Royalty, the Apollo Preferred Shares and the Apollo Warrants contemplated by subsections (a) through (e) of Section 2.1 in the reasonable discretion of the Purchasers, after consultation with the Company, and no parties shall take any actions, including filing any Tax returns or taking any Tax positions, inconsistent with such allocation.

 

ARTICLE III

 

CLOSING

 

3.1  Closing.  The sale and purchase of the Securities (other than the Apollo Warrants) to be issued to the Purchasers and of the Royalties to be granted to each Royalty Purchaser (the “Closing”) shall occur at the offices of Wachtell, Lipton, Rosen & Katz, 51 W. 52nd Street, New York, New York 10019, at 4:30 p.m., Eastern time, at a closing on the date that is twenty (20) Business Days following the first date on which all conditions set forth in Articles IV, V and VI have been satisfied or waived (other than those conditions that by their nature are to be satisfied by actions taken at the Closing, but subject to the satisfaction or waiver of such conditions) or on such other Business Day as may be agreed upon by the Company and the Majority Purchasers (the “Closing Date”), provided, that if the Company has provided the Purchasers with a draft of the Definitive Feasibility Study no later than twenty (20) Business Days prior to the date that all such conditions are satisfied or waived and the final Definitive Feasibility Study that is delivered to the Purchasers and publicly filed with the SEC in accordance with Section 6.7 is consistent in all material respects with such draft of the Definitive Feasibility Study, then the Closing shall occur on a date that is ten (10) Business Days following the satisfaction or waiver of all such conditions or on such other Business Day as may be agreed upon by the Company and the Majority Purchasers.

 

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3.2  Deliveries.  At the Closing, the Company will deliver to (a) each Notes Purchaser (i) the Notes to be purchased by such Notes Purchaser in the form of a single Note (or such greater number of Notes in denominations of at least $500,000 as such Purchaser may request) dated the Closing Date and registered in such Notes Purchaser’s name (or in the name of its nominee) and (ii) certificates evidencing the Common Stock to be purchased by such Notes Purchaser pursuant to Section 9.8, if any, and (b) to the Preferred Share Purchaser certificates evidencing the Apollo Preferred Shares to be purchased by such Preferred Share Purchaser, in each case against delivery by each Purchaser to the Company of payment of immediately available funds in the amount of the purchase price therefor by wire transfer to an account number specified by the Company no later than two (2) Business Days prior to the anticipated Closing Date. If at the Closing the Company shall fail to tender such Notes, Common Stock or Apollo Preferred Shares to any Purchaser as provided above in this Article III, such Purchaser shall, at its election, be relieved of all obligations under this Agreement, including the payment of the Purchase Price described in this Section 3.2. If any of the conditions specified in Articles IV and VI shall not have been fulfilled to the reasonable satisfaction of the Majority Purchasers, each Purchaser shall, at its election, be relieved of all obligations under this Agreement.

 

3.3  Apollo Warrants.  At 9:30 a.m., Eastern time, on the first Business Day following the receipt of the Requisite Shareholder Approval (or on such later date as specified by the Majority Purchasers by notice to the Company), at the Wachtell Lipton offices referred to in Section 3.1, the Company shall issue and deliver to the Royalty Purchasers the Apollo Warrants. For the avoidance of doubt, if any of the events referred to in Section 6 of the Apollo Warrants occur from and after the date of the Original Agreement through the date of issuance of the Apollo Warrants, the number of shares of Common Stock for which such Apollo Warrants shall be exercisable and the exercise price therefor shall each be adjusted in the Apollo Warrants that are issued to the Royalty Purchasers in such manner as they would have been adjusted if such Apollo Warrants were issued on the date of the Original Agreement.

 

ARTICLE IV

 

JOINT CONDITIONS TO CLOSING

 

The respective obligation of each of the parties hereto to effect the Closing shall be subject to the satisfaction (or waiver by the Majority Purchasers and the Company) of the following conditions precedent:

 

4.1  Shareholder Approval.  The Requisite Shareholder Approval shall have been obtained.

 

4.2  No Order.  No Governmental Authority or court of competent jurisdiction shall have promulgated, enacted or issued any statute, rule, regulation, order, decree, injunction or ruling (whether temporary, preliminary or permanent) which remains in effect and prohibits, prevents or otherwise enjoins the consummation of the Transactions.

 

ARTICLE V

 

COMPANY CONDITIONS TO CLOSING

 

The obligation of the Company to effect the Closing shall be subject to the satisfaction or waiver of the following conditions precedent:

 

5.1  Representations and Warranties.  The representations and warranties of the Purchasers in this Agreement shall be correct in all material respects (unless already qualified by

 

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materiality or material adverse effect, in which case such representation or warranty shall be true and correct in all respects) at the time of the Closing (as if made on and as of the Closing), except for any representation and warranty which speaks as of a particular date, in which case such representation and warranty shall be correct in all material respects (unless already qualified by materiality or material adverse effect, in which case such representation or warranty shall be true and correct in all respects) as of such date.

 

5.2  Performance; No Default.  The Purchasers shall have performed and complied in all material respects with all agreements and covenants contained in this Agreement required to be performed or complied with by them prior to or at the Closing.

 

5.3  Officer’s Certificate.  Each Purchaser shall have furnished or caused to be furnished to the Company at the Closing a certificate of an officer of such Purchaser reasonably satisfactory to the Company as to the satisfaction of the conditions set forth in Sections 5.1 and 5.2 at and as of the Closing.

 

5.4  IRS Forms W-8/W-9.  Each Purchaser shall have delivered to the Company a properly completed and duly executed applicable Internal Revenue Service Form W-9 (or, if such Purchaser is a Foreign Purchaser, a completed applicable Internal Revenue Service W-8).

 

ARTICLE VI

 

PURCHASERS CONDITIONS TO CLOSING

 

The obligation of the Purchasers to effect the Closing shall be subject to the satisfaction or waiver of the following conditions precedent:

 

6.1  Representations and Warranties.  The representations and warranties of the Company in this Agreement shall be correct in all material respects (unless already qualified by materiality or Material Adverse Effect, in which case such representation or warranty shall be true and correct in all respects) at the time of the Closing (as if made on and as of the Closing), except for any representation and warranty which speaks as of a particular date, in which case such representation and warranty shall be correct in all material respects (unless already qualified by materiality or Material Adverse Effect, in which case such representation or warranty shall be true and correct in all respects) as of such date.

 

6.2  Performance; No Default.  The Company shall have performed and complied in all material respects with all agreements and covenants contained in this Agreement required to be performed or complied with by it prior to or at the Closing and, after giving effect to the issue and sale of the Securities (and the application of the proceeds thereof as contemplated by Section 7.37) and the other Transactions, no Default or Event of Default shall have occurred and be continuing.

 

6.3  Compliance Certificates.

 

(a)  Officer’s Certificate.  The Company shall have furnished or caused to be furnished to the Purchasers at the Closing a Compliance Certificate as to the satisfaction of the conditions set forth in Sections 6.1 and 6.2 at and as of the Closing.

 

(b)  Secretary’s Certificate.  The Company shall have delivered or caused to be delivered to the Purchasers a certificate of its and each Guarantor’s Secretary or Assistant Secretary, dated the Closing Date, certifying as to the articles or certificate of incorporation, bylaws and/or other

 

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organizational documents of the Company or such Guarantor, as applicable, and the resolutions attached thereto and other corporate or other proceedings relating to the authorization, execution and delivery of the Notes, the Note Guarantees, this Agreement and/or the Original Agreement, as applicable.

 

6.4  Investors Rights Agreement.  The Investors Rights Agreement shall be in full force and effect, and neither the Company nor any of its Subsidiaries shall have entered into any agreement or taken any other action in a manner that is adverse to, or conflicts with, any of the Investors Group’s (as defined in the Investors Rights Agreement) rights under the Investors Rights Agreement (including its director designation rights and registration rights thereunder).

 

6.5  Royalty Agreement.  The Royalty Agreement shall be in full force and effect.

 

6.6  Opinions of Counsel.  Brownstein Hyatt Farber Schreck, LLP, counsel for the Company, shall have furnished to the Purchasers its written opinion, dated the date of the Closing, in form and substance reasonably acceptable to the Purchasers, including opinions regarding the validity and enforceability of (a) the voting rights of the Notes and (b) the Certificate of Designation and the Apollo Preferred Shares.

 

6.7  Definitive Feasibility Study.  The Company shall have received, and delivered to the Purchasers and publicly filed with the SEC on Form 8-K, the final Definitive Feasibility Study, which final Definitive Feasibility Study shows (a) that the Holbrook Project’s Capital Costs are not in excess of 10% of the Current Capital Estimate, (b) that over the life of the mine (measured on a reserves-only basis) the Holbrook Project’s Operating Costs are not higher than $115/tonne (provided that Operating Costs in excess of $115/tonne will be permissible to the extent the Company demonstrates, to the Majority Purchasers’ reasonable satisfaction, that (x) such excess Operating Costs are being incurred based on a tradeoff optimization study and (y) such tradeoffs that result in such excess Operating Costs are economically beneficial to the Company and add value to the Holbrook Project), (c) that ore grades and mineable reserve and resources estimates are consistent with what was provided for in the PEA and (d) forecasted production levels, ramp up rates, royalty rates and all other key commercial factors are consistent with what was provided for in the PEA (and in respect of royalty rates, including the royalties granted to the Karlsson Group Inc., Grandhaven Energy LLC and Buffalo Management LLC in the amounts as publicly disclosed prior to the date of the Original Agreement).

 

6.8  EPC/EPCM Retention.  The Company shall have retained an Engineering, Procurement and Construction (“EPC”) firm or Engineering, Procurement and Construction Management (“EPCM”) firm, reasonably satisfactory to the Majority Purchasers, for the provision of EPC or EPCM services in connection with the Holbrook Project.

 

6.9  Permits.  There shall have been no indication that the Company will be unable to obtain any Necessary Permits no later than (a) December 31, 2013 for the Aquifer Protection Permit from the Arizona Department of Environmental Quality, the permit to construct and operate a source of air pollutants from the Arizona Department of Environmental Quality, and approval of leases by the Arizona State Land Department, (b) the applicable dates set forth on Schedule 6.9 for the applicable Necessary Permits listed on Schedule 6.9 and (c) December 31, 2013 for all of the other Necessary Permits.

 

6.10  Key Hire.  (a) The Project Manager (or person serving in an equivalent capacity) employed by the Company as of the Closing shall be reasonably acceptable to the Majority

 

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Purchasers (and shall have been hired after consultation with the Purchasers), (b) the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer of the Company as of the Closing shall be reasonably acceptable to the Majority Purchasers (it being understood that the persons serving in such roles as of the date of the Original Agreement are reasonably acceptable to the Purchasers for purposes of this condition) and (c) if the Company shall have hired or fired after the date of the Original Agreement and prior to the Closing the Chief Commercial Officer or the Mine Manager (or other executives or managers performing substantially similar roles), such hiring or firing shall have been reasonably acceptable to the Majority Purchasers (after consultation with the Purchasers).

 

6.11  Confirmatory Reports.  The Purchasers shall have received, from their commercial and technical advisors, reports which verify in all material respects the conclusions of the final Definitive Feasibility Study and generally support the continued commercial and technical viability of, and the market opportunity for, the Holbrook Project; provided, that if such reports are not received by the Purchasers within twenty (20) Business Days of the public filing of the final Definitive Feasibility Study with the SEC in accordance with Section 6.7, this condition shall be deemed waived; provided, further, that, for the avoidance of doubt, if such reports are received within such twenty (20) Business Days but do not provide such verification and support, then this condition shall not be deemed to be satisfied.

 

6.12  Off-Take Agreement.  The Company shall have used best efforts to enter into definitive agreements with respect to the Minimum Off-Take Arrangements.

 

6.13  No Material Adverse Changes.  Neither the Company nor any of its Subsidiaries shall have sustained since the date of the Original Agreement any Material Adverse Effect.

 

6.14  Purchase Permitted By Applicable Law, Etc.  If requested by a Purchaser, such Purchaser shall have received an Officer’s Certificate from the Company certifying as to such matters of fact as such Purchaser may reasonably specify to enable such Purchaser to determine whether its purchase of Notes shall (a) be permitted by the laws and regulations of each applicable jurisdiction, (b) not violate any applicable law or regulation (including, without limitation, Regulation T, U or X of the Board of Governors of the Federal Reserve System) and (c) not subject such Purchaser to any Tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date of the Original Agreement.

 

6.15  Private Placement Number.  A Private Placement Number issued by Standard & Poor’s CUSIP Service Bureau shall have been obtained for the Notes.

 

6.16  Funding Instructions.  The Purchasers shall have received written instructions signed by a Responsible Officer on letterhead of the Company confirming the wiring information provided by the Company including (a) the name and address of the transferee bank, (b) such transferee bank’s ABA number and (c) the account name and number into which the Purchase Price is to be deposited.

 

6.17  Proceedings and Documents.  All corporate and other proceedings in connection with the Transactions and all documents and instruments incident to such Transactions shall be satisfactory to the Majority Purchasers and the Purchasers’ counsel, and the Purchasers and the Purchasers’ counsel shall have received all such counterpart originals or certified or other copies of such documents as the Majority Purchasers or such counsel may reasonably request.

 

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6.18  Guarantee and Collateral Documents.  If the Springing Lien Trigger Date shall have occurred prior to the Closing Date, the Company and the Guarantors, as applicable, shall have duly executed and delivered to the Purchasers such Collateral Documents and other agreements, instruments or filings, all in form and substance satisfactory to the Majority Purchasers, as the Majority Purchasers may reasonably request to create and perfect Liens on the Collateral to secure the Obligations in favor of the Collateral Agent, together with such customary officer’s certificates, opinions of counsel and other documents as the Majority Purchasers may reasonably request in connection therewith.

 

6.19  Certificate of Designation.  The Certificate of Designation shall have become effective (and shall remain in full force and effect as of the Closing) and the Company shall have delivered to the Purchasers at the Closing the then-effective amended and restated Articles of Incorporation of the Company reflecting the Certificate of Designation.

 

6.20  Karlsson Agreements.  (a) There shall have been, since such contracts were entered into, no amendments, waivers or modifications to any terms of any contracts entered into in connection with, or otherwise relating to, the Karlsson Purchase, or any new contracts entered into with Karlsson or its Affiliates (unless previously consented to in writing by the Majority Purchasers in accordance with Section 9.1(o)), (b) the Company and its Subsidiaries shall have performed all obligations under all such agreements associated with the Karlsson Purchase and (c) after giving effect to the issue and sale of the Securities (and the application of the proceeds thereof as contemplated by Section 7.37) and the other Transactions, no default or event of default shall have occurred and be continuing under the Karlsson Note.

 

6.21  Purchaser Expenses.  The Company shall have paid at the Closing in accordance with Section 2.2 the Transaction Fee and all Purchaser Expenses incurred by the Purchasers to the extent not previously paid.

 

6.22  Amendment Confirmation.  The Company shall have received an amendment of or waiver (which shall be in full force and effect as of the Closing) under the agreements specified in Schedule 6.22 in the manner described on such Schedule 6.22.

 

6.23  Bylaws Amendment.  The Company shall have effected such amendments to its Bylaws (which shall be in full force and effect as of the Closing) as are necessary or desirable, in the reasonable opinion of the Majority Purchasers, to effect the voting and director-designation rights of the Notes and the Apollo Preferred Stock.

 

ARTICLE VII

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company represents and warrants to each Purchaser that, except as set forth in the applicable section of the Company Disclosure Schedules:

 

7.1  Organization; Power and Authority.  Each of the Company and its Subsidiaries is duly organized or incorporated, validly existing and in good standing under the laws of the jurisdiction of its organization or incorporation, with all requisite power and authority (corporate or other) to own its properties and carry on its business as now conducted, and is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required, or

 

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is subject to no material liability or disability by reason of the failure to be so qualified or in good standing in any such jurisdiction.

 

7.2  Authorization, Etc.

 

(a)           The Company has, as of the date of the Original Agreement, an authorized capitalization and issued and outstanding equity securities (including Convertible Securities or Options) set forth on Schedule 7.2(a).

 

(b)           All of the outstanding shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable and are not subject to any preemptive or similar rights. Except as described in Schedule 7.2(b) or as permitted by Section 9.1 or consented to by the Majority Purchasers, there are no outstanding rights (including preemptive rights), Options to acquire, or instruments convertible into or exchangeable or exercisable for, any shares of capital stock or other equity interest in the Company or any of its Subsidiaries, or any contract, commitment, agreement, understanding or arrangement of any kind relating to the issuance of any capital stock or other equity interest of the Company or any such Subsidiary, any such convertible or exchangeable or exercisable securities or any such rights or Options. All of the outstanding shares of capital stock or other equity interests of AWP and PGRI Delaware have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly or indirectly by the Company, free and clear of any Liens, restrictions on voting or transfer or any other claim of any third party. None of the Company, PGRI Delaware of AWP own or hold, directly or indirectly, any interests in, capital stock of or other securities (whether equity or debt) of any Person (other than securities of PGRI Delaware and AWP). No bonds, debentures, notes or other Indebtedness of the Company or any of its Subsidiaries having the right to vote on any matters on which the Company’s shareholders may vote are issued or outstanding unless consented to in writing by the Majority Purchasers. The issuance of the Securities, the conversion of the Notes and the exercise of the Apollo Warrants will not entitle any holder of any equity interests in the Company or any of its Subsidiaries (including any holder of Options or Convertible Securities) to any anti-dilution or similar adjustments or to any preemptive or similar rights. At Closing, there will be outstanding no other shares of Series A Preferred Stock of the Company other than the Apollo Preferred Shares being issued hereunder.

 

(c)           The Notes and the guarantees thereof by the Guarantors have been, or, when executed, will have been, duly authorized by all necessary action (corporate or other) and, when issued and delivered pursuant to this Agreement, will have been duly executed, authenticated, issued and delivered and will constitute valid and legally binding obligations of the Company and of each of the Guarantors, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other laws affecting creditors’ rights generally and subject to general principles of equity and implied covenants of good faith and fair dealing, regardless of whether considered in a proceeding in equity or at law (the “Enforceability Exceptions”). When issued and sold against receipt of the Purchase Price as provided in this Agreement, the Notes will not be subject to preemptive or similar rights of any shareholder of the Company and will be free of restrictions on transfer other than restrictions on transfer under applicable Laws or as set forth herein. When issued, shares of Common Stock issuable upon conversion of the Notes, exercise of the Apollo Warrants and pursuant to Section 9.8 and the Apollo Preferred Shares will have been duly authorized by all necessary corporate action and when so issued will be validly issued, fully paid and nonassessable, will not be subject to preemptive or similar rights of any shareholder of the

 

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Company, will be free and clear of all Liens, and will be free of restrictions on transfer other than restrictions on transfer under applicable Laws or as set forth herein.

 

7.3  Execution; Due Authority.

 

(a)           The execution, delivery and performance of the Original Agreement, this Agreement, the Investors Rights Agreement, the Apollo Warrants and the Royalty Agreement (and all other documents required to be executed and delivered by the Company or any of the Guarantors) and the consummation of the transactions contemplated hereby and thereby, have been duly and validly authorized by all necessary corporate action on the part of the Company and each of the Guarantors, except for obtaining the Requisite Shareholder Approval.

 

(b)           This Agreement, the Original Agreement, the Investors Rights Agreement and the Royalty Agreement have been duly executed and delivered by the Company (and, in the case of the Royalty Agreement, AWP and PGRI Delaware) (and all documents required to be executed and delivered by the Company or any of the Guarantors at or prior to the Closing will be duly executed and delivered by the Company and/or such Guarantors) and this Agreement, the Investors Rights Agreement and the Royalty Agreement constitute, and at the Closing (assuming the due and valid execution and delivery of such documents by the other parties thereto) such documents will constitute, the valid and binding obligations of the Company and each of the Guarantors, enforceable in accordance with their terms, except for the Enforceability Exceptions. The Apollo Warrants will, when issued, have been duly executed and delivered by the Company and will constitute the valid and binding obligations of the Company, enforceable in accordance with their terms, except for the Enforceability Exceptions.

 

7.4          No Conflicts. The issue and sale of the Securities and the compliance by the Company and its Subsidiaries with all of the provisions of the Securities, this Agreement, the Investors Rights Agreement, the Apollo Warrants and the Royalty Agreement, and the consummation of the Transactions will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or give rise to any right of termination, cancellation, payment or acceleration under, any contract, indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its Subsidiaries are a party or by which the Company or any of its Subsidiaries are bound or to which any of the property or assets of the Company or any of its Subsidiaries are subject, nor will such action result in any violation of the provisions of the Second Amended and Restated Articles of Incorporation or the Second Amended and Restated Bylaws of the Company (collectively, the “Company Organizational Documents”) or any statute or any order, rule or regulation of any court or Governmental Authority having jurisdiction over the Company or any of its Subsidiaries or any of their properties, except, with respect to any of the foregoing (other than the violation of the provisions of the Company Organizational Documents), as would not reasonably be material to the Company and its Subsidiaries, taken as a whole, or as would not have a material adverse effect on the ability of each of the Company and the Guarantors to perform its obligations under this Agreement, in each case except as disclosed to the Purchasers in writing by the Company prior to the date of the Original Agreement.

 

7.5  Consents, Approvals or Waivers.  The execution, delivery and performance of this Agreement, the Investors Rights Agreement and the Royalty Agreement, including the issue and sale of the Notes and the Apollo Warrants and the consummation of the Transactions, by the Company and the Guarantors will not be subject to any consent, approval or waiver from any Governmental Authority or other third Person, except (a) the filing of the Certificate of Designation with the Secretary of State of the State of Nevada, (b) the Requisite Shareholder

 

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Approval, (c) as set forth on Schedule 7.5 or as disclosed to the Purchasers in writing by the Company prior to the date of the Original Agreement and (d) such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or “blue sky” laws in connection with the purchase and distribution of the Notes by the Purchasers.

 

7.6  Legal and Governmental Proceedings.  There are no legal or governmental proceedings (“Proceedings”) pending to which the Company or any of its Subsidiaries is a party or of which any property of the Company or any of its Subsidiaries is subject which, individually or in the aggregate, is reasonably expected to be material to the Company and its Subsidiaries, taken as a whole, or would have a material adverse effect on the ability of each of the Company and the Guarantors to perform its obligations under this Agreement, and, to the Knowledge of the Company and each of the Guarantors, no such Proceedings are threatened or contemplated by Governmental Authorities or threatened by others.

 

7.7  Compliance With Laws.

 

(a)           The Company and its Subsidiaries are, and have been since February 11, 2011, in compliance in all material respects with all applicable Laws. No material change is required in the Company or its Subsidiaries’ processes, properties or procedures in connection with any applicable Laws, and none of the Company or its Subsidiaries has, prior to the date of the Original Agreement, received any notice or communication of any material noncompliance with any such Laws that has not been cured as of the date of the Original Agreement.

 

(b)           None of the Company, any of its Subsidiaries or Affiliates, or any director, officer or employee of the Company or any of its Subsidiaries or Affiliates, or any consultant, agent, broker, representative or other person associated with or acting for or on behalf of the Company or any of its Subsidiaries or Affiliates, has taken or failed to take any action or otherwise engaged in any conduct, directly or indirectly, that would constitute or otherwise result in a violation by any such Person of the Foreign Corrupt Practices Act (15 U.S.C. §§78m(b), 78dd-1, 78dd-2, 78ff) (the “FCPA”), The Bribery Act of 2010 of the United Kingdom (the “UK Bribery Act”), or any other applicable anti-corruption or other law, rule or regulation regarding bribery, political contributions, gifts, entertainment, hospitality or the provision of other things of value or advantage, including, without limitation: directly or indirectly (i) making, offering or promising to make, or authorizing the making of, any unlawful payment of money or other thing of value or advantage to any person; (ii) giving, offering or promising to give, or authorizing the giving of, any unlawful gift, political or charitable contribution or other thing of value or advantage to any person; or (iii) requesting or receiving any unlawful payment, gift, political or charitable contribution or other thing of value or advantage.

 

7.8  Licenses and Permits.  The Company and its Subsidiaries possess all material licenses, certificates, permits and other authorizations (“Permits”) issued by, and have made all declarations and filings with, the appropriate Governmental Authorities that are necessary for the present conduct of their respective businesses, including ownership and lease of their respective properties, as described in the Company SEC Documents, including the Holbrook Project, and neither the Company nor any of its Subsidiaries have received notice of any revocation or modification of any material Permits (including any Necessary Permits) or has any reason to believe that any material Permit (including any Necessary Permits) will not be renewed in the ordinary course.

 

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7.9  Company SEC Documents.

 

(a)           (i) Each form, report, document, statement, schedule, prospectus, registration statement and definitive proxy statement filed by the Company with the SEC (the “Company SEC Documents”) since February 11, 2011, and all Company SEC Documents filed after the date of this Agreement and prior to the Closing Date, (i) were and, in the case of Company SEC Documents filed after the date of this Agreement, will be, as of their respective dates, prepared in all material respects in accordance with the applicable requirements of the Securities Act, the Exchange Act and the Sarbanes-Oxley Act, as the case may be, and the rules and regulations thereunder and (ii) did not at the time they were filed (or, if amended or superseded by a subsequent filing, then on the date of such filing), and in the case of such Company SEC Documents filed after the date of this Agreement, will not as of the time they are filed, contain any untrue statement of a material fact or omit to state a material fact required to be stated in such Company SEC Document necessary in order to make the statements therein, in the light of the circumstances under which they were and will be made, not misleading. To the Knowledge of the Company, as of the date of the Original Agreement, none of the Company SEC Documents is the subject of ongoing SEC review or outstanding SEC comment.

 

(b)           The chief executive officer and chief financial officer of the Company have made all certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act, and statements contained in such certificates are complete and correct, and the Company is otherwise in material compliance with all applicable provisions of the Sarbanes-Oxley Act.

 

(c)           As of the date of the Original Agreement, the Company has disclosed, based on its most recent evaluation, to the Company’s auditors and the audit committee of the Board of Directors (i) any significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect in any material respect the Company’s ability to record, process, summarize and report its consolidated financial information; and (ii) any fraud known to management, whether or not material that involved management or other employees who have a significant role in the Company’s internal controls over financial reporting. As of the date of the Original Agreement, the Company has not received any complaint or allegation in writing since February 11, 2011, regarding accounting, internal accounting controls or auditing matters, including any such complaint regarding improper accounting or auditing matters. The Company and its consolidated Subsidiaries have established and maintain disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act; such disclosures controls and procedures are reasonably designed to ensure that material information relating to the Company and its consolidated Subsidiaries is made known on a timely basis to the individuals responsible for the preparation of the Company SEC Documents; and, as of the date of the Original Agreement, to the Knowledge of the Company, the Company has not identified any material weaknesses in the design or operation of internal control over financial reporting. As of the date of the Original Agreement, to the Knowledge of the Company, there is no reason to believe that its chief executive officer and chief financial officer will not be able to give the certifications and attestations required pursuant to the rules and regulations adopted pursuant to Section 302 of the Sarbanes-Oxley Act when next due.

 

7.10  No Material Adverse Effect.  Neither the Company nor any of its Subsidiaries has sustained since the Reference Balance Sheet Date any Material Adverse Effect.

 

7.11  Exchange Act.  None of the Transactions (including, without limitation, the use of the proceeds from the sale of the Securities as described in Section 7.37) will violate or result in a violation of Section 7 of the Exchange Act, or any rule or regulation promulgated thereunder, including, without limitation, Regulations T, U and X of the Board of Governors of the Federal Reserve System.

 

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7.12  Price Manipulation.  Prior to the date of the Original Agreement, neither the Company nor any of its Affiliates have taken any action which is designed to or which has constituted or which might have been expected to cause or result in stabilization or manipulation of the price of any security of the Company in connection with the sale of any securities of the Company.

 

7.13  Class of Notes.  When the Notes are issued and delivered pursuant to this Agreement, the Notes will not be of the same class (within the meaning of Rule 144A under the Securities Act) as securities which are listed on a national securities exchange registered under Section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer quotation system.

 

7.14  Status Under Investment Company Act.  The Company is not, and after giving effect to the offering and sale of the Notes and the application of the proceeds thereof, will not be an “investment company,” as such term is defined in the United States Investment Company Act of 1940, as amended (the “Investment Company Act”).

 

7.15  Restrictions on Sale of Notes, Etc.

 

(a)           Neither the Company nor any of its Subsidiaries, nor any person acting on behalf of the Company or any of its Subsidiaries, has offered or sold the Notes by means of any general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act or, with respect to Notes sold outside the United States to non-U.S. persons (as defined in Rule 902 under the Securities Act), by means of any directed selling efforts within the meaning of Rule 902 under the Securities Act, and the Company and any Affiliate of the Company, and any person acting on its or their behalf, have complied with and will implement the “offering restriction” within the meaning of such Rule 902.

 

(b)           Within the six (6) months preceding the date of the Original Agreement, neither the Company nor any of its Subsidiaries, nor any other person acting on behalf of either the Company or any of its Subsidiaries, has since February 11, 2011 offered or sold to any person any Notes, or any securities of the same or a similar class as the Notes, other than Notes offered or sold to the Purchasers hereunder. The Company and each of its Subsidiaries will take reasonable precautions designed to insure that any offer or sale, direct or indirect, in the United States or to any U.S. person (as defined in Rule 902 under the Securities Act) of any Notes or any substantially similar security issued by the Company or any Guarantor, within six (6) months subsequent to the date on which the distribution of the Notes has been completed (as notified to the Company by the Purchasers) is made under restrictions and other circumstances reasonably designed not to affect the status of the offer and sale of the Notes in the United States and to U.S. persons contemplated by this Agreement as transactions exempt from the registration provisions of the Securities Act.

 

7.16  Company Controls and Procedures.

 

(a)           The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in material conformity with GAAP; and (iii) access to assets is permitted only in accordance with management’s general or specific authorization.

 

(b)           Since the date of the latest audited financial statements included in the Company’s Annual Report on Form 10-K (“Form 10-K”) for the fiscal year ended March 31, 2012, there has been no change in the Company’s internal control over financial reporting that has materially

 

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adversely affected, or is reasonably likely to materially adversely affect, the Company’s internal control over financial reporting.

 

(c)           The Company maintains disclosure controls and procedures that have been designed to ensure that material information relating to the Company and its Subsidiaries is made known to the Company’s principal executive officer and principal financial officer by others within those entities, and such disclosure controls and procedures are effective.

 

7.17  Public Accounting Firm.  Ehrhardt Keefe Steiner & Hottman PC, which has audited certain financial statements of the Company, is an independent registered public accounting firm as required by the Securities Act and the rules and regulations of the SEC promulgated thereunder.

 

7.18  Financial Statements; Material Liabilities.

 

(a)           Each of the consolidated financial statements contained in the Company SEC Documents (including in each case all notes and schedules thereto), including any Company SEC Documents filed after the date of the Original Agreement, complied or will comply, as of its respective date, in all material respects with all applicable accounting requirements and the rules and regulations of the SEC with respect thereto, was or will be prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of the unaudited statements, as permitted by Rule 10-01 of Regulation S-X of the SEC), and fairly presented or will fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of their respective dates and the results of operations and the cash flows of the Company and its consolidated Subsidiaries for the periods presented therein, except that any unaudited interim financial statements do not include all of the information and notes required by GAAP for complete financial statements and are subject to normal year-end adjustments.

 

(b)           The Company and its Subsidiaries are not subject to any Liabilities or obligations of any nature, whether or not accrued, absolute, contingent or otherwise and whether due or to become due, other than Liabilities (i) as reflected or reserved against on the balance sheet for the quarter ended September 30, 2012, as contained in the Company SEC Documents (the “Reference Balance Sheet”), or (ii) incurred in the ordinary course of business consistent with past practice since the date of the Reference Balance Sheet that have not had, individually or in the aggregate, a Material Adverse Effect.

 

7.19  Title to Property; Leases.  Except as would not adversely affect the Company’s ability to economically construct and operate a potash mine and related facilities on such properties or otherwise conduct its operations with respect to such properties or as disclosed to the Purchasers in writing by the Company prior to the date of the Original Agreement: each of the Company and each of the Subsidiaries owns or leases all such properties as are necessary to the conduct of its operations as presently conducted; the Company and the Subsidiaries have good and marketable title to all surface real property owned by them in fee simple, and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects of any kind (including mining, zoning, use or building code restrictions that would prohibit or prevent the continued effective ownership, leasing, licensing or use of such property in the business of the Company and the Subsidiaries) that would prevent the Company from conducting its business as it is now being conducted; any real property and buildings held under lease by the Company and the Subsidiaries are held by them under valid,

 

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subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and the Subsidiaries; the Company and the Subsidiaries hold either mining leases, mining concessions, mining claims or participating interests or other conventional property or proprietary interests or rights, recognized in the jurisdiction in which a particular property is located, in respect of the ore bodies and minerals located in properties in which the Company and its Subsidiaries have an interest under valid, subsisting and enforceable title documents or other recognized and enforceable agreements or instruments, sufficient to permit the Company or applicable Subsidiary to explore the minerals relating thereto except where the failure to have obtained such rights would individually or in the aggregate be, or reasonably expected to be, not material to the Company and its Subsidiaries, taken as a whole; all property, leases or claims in which the Company or any Subsidiary has an interest or right have been validly located and recorded in accordance with all applicable laws and are valid and subsisting except where the failure to be so would not be, or not reasonably expected to be, material to the Company and its Subsidiaries, taken as a whole; the Company and its Subsidiaries have all necessary surface rights, access rights and other necessary rights and interests relating to the properties in which the Company and its Subsidiaries have an interest, granting the Company or applicable Subsidiary the right and ability to explore for minerals for development purposes as are appropriate in view of the rights and interest therein of the Company or applicable Subsidiary, with only such exceptions as do not interfere with the currently conducted business of the Company or applicable Subsidiary or of the rights or interest so held, and each of the proprietary interests or rights and each of the documents, agreements and instruments and obligations relating thereto referred to above is currently in good standing in the name of the Company or a Subsidiary except where the failure to be so would not be, or not reasonably expected to be, material to the Company and its Subsidiaries, taken as a whole; the Company is not aware of any reason that it is not or would not be entitled to extract minerals from its properties and to do all of the exploration and development contemplated in the Company’s current business plan except for such failures that would not individually or in the aggregate be, or reasonably expected to be, material to the Company and its Subsidiaries, taken as a whole; there are no pending or contemplated condemnation proceedings affecting the real properties owned by the Company or its Subsidiaries with a fair market value in excess of $1,000,000 or any sale or disposition thereof in lieu of condemnation, and no real property owned by the Company or its Subsidiaries with a fair market value in excess of $1,000,000, or any interest therein, is subject to any right of first refusal, option or other contractual right to purchase such property or interest therein.

 

7.20  Environmental Matters.

 

(a)           Except as would not, individually or in the aggregate, be, or reasonably expected to be, material to the Company and its Subsidiaries, taken as a whole:

 

(i)            To the Knowledge of the Company, neither the Company nor any of its Subsidiaries is, or has been, in violation of any U.S. federal, state, local or foreign law (including common law), regulation, rule, requirement, decision or order relating to pollution or protection of human health, the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), natural resources, or wildlife, including, without limitation, laws and regulations relating to emissions, discharges, releases or threatened releases of Hazardous Substances (collectively, “Materials of Environmental Concern”), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or

 

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handling of, or exposure to, Materials of Environmental Concern (collectively, “Environmental Laws”). As used herein, “Environmental Laws” means and includes, without limitation, those laws set forth in Title 49 of the Arizona Revised Statutes; the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. §§ 9601 et seq. (“CERCLA”); the Clean Air Act, 42 U.S.C. §§ 7401 et seq.; the National Environmental Policy Act, §§ 4321 et seq.; and the Clean Water Act, 33 U.S.C. §§ 1251 et seq.

 

(ii)           To the Knowledge of the Company, neither the Company nor any of its Subsidiaries is in violation or non-compliance with any Permits or other governmental authorizations required for the operation of the business of the Company or its Subsidiaries under applicable Environmental Laws.

 

(iii)          Neither the Company nor any of its Subsidiaries has received any written communication, whether from a Governmental Authority, citizens group, employee or otherwise, that alleges that the Company or any of its Subsidiaries is in violation of any Environmental Law.

 

(iv)          There is no claim, action or cause of action filed with a court or governmental authority, no investigation with respect to which the Company or any of its Subsidiaries has received written notice, and no written notice by any person or entity alleging potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, attorneys’ fees or penalties arising out of, based on or resulting from the presence, or release into the environment, of any Material of Environmental Concern at any location owned, leased or operated by the Company or any of its Subsidiaries, now or in the past (collectively, “Environmental Claims”) pending or, to the Knowledge of the Company or any of its Subsidiaries, threatened in writing against the Company or any of its Subsidiaries or any person or entity whose liability for any Environmental Claim the Company or any of its Subsidiaries has retained or assumed either contractually or by operation of law; and

 

(v)           To the Knowledge of the Company, there are no past or present actions, activities, circumstances, conditions, events or incidents, including, without limitation, the release, emission, discharge, presence or disposal of any Material of Environmental Concern (including CERCLA hazardous substances), that would be reasonably expected to result in a violation of any Environmental Law or form the basis of a potential Environmental Claim against the Company or any of its Subsidiaries or any person or entity whose liability for any Environmental Claim the Company or any of its Subsidiaries has retained or assumed either contractually or by operation of law.

 

(b)           To the Knowledge of the Company, the Company has not used or permitted to be used, except in compliance with all Environmental Laws, any freehold, leasehold and other real property interests or rights, or other rights relating to the Mineral Rights (including licenses from landholders permitting the use of land, leases, rights of way, occupancy rights, surface rights and easements) to release, dispose, recycle, generate, manufacture, process, distribute, use, treat, store, transport or handle any Hazardous Substance. To the Knowledge of the Company, there are not Hazardous Substance on, in or under any freehold, leasehold and other real property interests or rights, or other rights relating to the Mineral Rights (including licenses from landholders permitting the use of land, leases, rights of way, occupancy rights, surface rights and

 

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easements) held, occupied or used, or formerly held, occupied or used, by the Company or its Subsidiaries.

 

(c)           None of the Company, its Subsidiaries, the Mineral Rights or any real property of the Company or its Subsidiaries is subject to any current, nor, to the Knowledge of the Company, any pending or threatened:

 

(i)            claim, action, notice, demand, allegation, investigation, proceeding, application, order, judgment, requirement or directive which relates to environmental, natural resources, Hazardous Substances, human health or safety matters, and which may require or result in any work, repairs, rehabilitation, reclamation, remediation, construction, obligations, liabilities or expenditures (and, to the Knowledge of the Company, there is no basis for such a claim, action, notice, demand, allegation, investigation, proceeding, application, order, judgment, requirement or directive); or

 

(ii)           allegation, demand, direction, order, notice or prosecution with respect to any Environmental Law applicable thereto including any Laws respecting the use, storage, treatment, transportation, rehabilitation, reclamation, remediation or disposition of any Hazardous Substance and the Company has not settled any allegation of non-compliance with Environmental Laws prior to prosecution.

 

(d)           The Company has provided to the Purchasers a true and complete copy of each environmental audit, assessment, study or test of which it is aware as of the date of the Original Agreement relating to the Holbrook Project and the Mineral Rights, including any environmental and social impact assessment study reports.

 

(e)           To the Knowledge of the Company, there are no pending or proposed changes to Environmental Laws that would render illegal or materially restrict the operations of the Company, its Subsidiaries or the Holbrook Project.

 

7.21  Intellectual Property.  Except as would not reasonably be expected to be material to the Company and its Subsidiaries, taken as a whole, the Company and each of its Subsidiaries, own or possess sufficient intellectual property and proprietary rights, including, without limitation, trademarks, service marks, trade names, patent rights, copyrights, licenses, approvals, trade secrets and all other similar rights (collectively, the “Intellectual Property Rights”) reasonably necessary to conduct their business as now conducted and the expected expiration of any of such Intellectual Property Rights would not be material, individually or in the aggregate, to the Company and its Subsidiaries, taken as a whole, and neither the Company nor any of its Subsidiaries, has received any notice of infringements or conflict with asserted Intellectual Property Rights which would reasonably be material, individually or in the aggregate, to the Company and its Subsidiaries, taken as a whole.

 

7.22  Taxes.

 

(a)           Except as would not, individually or in the aggregate, be material to the Company and its Subsidiaries, taken as a whole: (i) the Company, since February 11, 2011, and each of its Subsidiaries have timely filed or caused to be filed all U.S. federal, state and foreign income, franchise and other Tax returns and reports required to be filed by any of them or have properly requested extensions thereof, and have paid or caused to be paid all Taxes required to be paid by any of them and, if due and payable, any related or similar assessment, fine or penalty levied

 

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against any of them, except, in each case, any Taxes that are being contested in good faith by appropriate proceedings and for which the Company and each of its Subsidiaries, as applicable, has set aside on its books adequate accruals or reserves in accordance with GAAP; and (ii) the Company has made adequate charges, accruals and reserves, in accordance with GAAP, in its consolidated financial statements contained in the Form 10-K for the fiscal year ended March 31, 2012 in respect of all U.S. federal, state and foreign income, franchise and other Taxes for all periods as to which the tax liabilities of the Company since February 11, 2011 or any of its Subsidiaries, has not been finally determined. Neither the Company since February 11, 2011 nor any of its Subsidiaries has received written notice from any Taxing authority that it has failed to timely file any Tax return or failed to timely pay any Taxes owed by it.

 

(b)           The Common Stock is (i) traded on a national securities exchange which is registered under Section 6 of the Exchange Act, and (ii) regularly quoted by brokers or dealers holding themselves out to buy or sell the Common Stock at such quoted price, all within the meaning of Code Section 897 and the Treasury Regulations thereunder.

 

7.23  Compliance with ERISA.  Except as would not reasonably be expected, either individually or in the aggregate, to be material to the Company and its Subsidiaries, taken as a whole: the Company and its Subsidiaries and all “employee benefit plans” (as defined under Section 3(3) of ERISA) established or maintained by the Company, its Subsidiaries or their ERISA Affiliates have been and are in compliance with their respective terms and all applicable Laws, including ERISA and the Code; to the Knowledge of the Company, each Multiemployer Plan to which the Company, its Subsidiaries or an ERISA Affiliate contributes is in compliance with its terms and all applicable Laws, including ERISA and the Code; no “reportable event” (as defined under Section 4043 of ERISA) has occurred or is reasonably expected to occur with respect to any Benefit Plan; no “single employer plan” (as defined in Section 4001 of ERISA) established or maintained by the Company, its Subsidiaries or any ERISA Affiliate, if such plan were terminated, would have any “amount of unfunded benefit liabilities” (within the meaning of Section 4022(c) of ERISA), and each such plan satisfies the minimum funding standards set forth in Sections 412 and 430 of the Code and Sections 302 and 303 of ERISA, whether or not waived; neither the Company, its Subsidiaries nor any of their ERISA Affiliates has incurred or reasonably expects to incur any unsatisfied liability under (a) Title IV of ERISA with respect to termination of any Benefit Plan, or withdrawal from any Multiemployer Plan, or (b) Sections 412, 4971, 4975 or 4980B of the Code; the PBGC has not instituted proceedings to terminate any Benefit Plan, and no condition exists that would reasonably be expected to result in such proceedings being instituted or which would constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Benefit Plan; with respect to each Benefit Plan, all premiums to the PBGC have been timely paid in full; there does not now exist, nor do any circumstances exist that would reasonably be expected to result in any liability (x) under Title IV or Section 302 of ERISA, (y) under Sections 412 and 4971 of the Code or (z) as a result of a failure to comply with the continuation coverage requirements of Section 601 et seq. of ERISA and Section 4980B of the Code, and without limiting the generality of the foregoing, neither the Company nor any of its Subsidiaries, nor any of their respective ERISA Affiliates, has engaged in any transaction described in Section 4069 or Section 4204 or 4212 of ERISA; the Company and its Subsidiaries have no liability for life, health, medical or other welfare benefits to former employees or beneficiaries or dependents thereof, except for health continuation coverage as required by Section 4980B of the Code or Part 6 of Title I of ERISA and at no expense to the Company and its Subsidiaries; and with respect to each “employee benefit plan” for which the Company, its Subsidiaries or any of their ERISA

 

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Affiliates would have any liability that is intended to be qualified under Section 401 of the Code (and the related trust), the Internal Revenue Service has issued a favorable determination letter that has not been revoked, there are no circumstances and no events have occurred that could adversely affect the qualified status of any such plan (or related trust), and nothing has occurred, whether by action or failure to act, which would cause the loss of such qualification.

 

7.24  Material Labor Disputes; Labor Laws.  Employees of the Company and its Subsidiaries are not represented by any labor union nor are any collective bargaining agreements otherwise in effect with respect to such employees. No labor organization or group of employees of the Company or any of its Subsidiaries has made a pending demand for recognition or certification, and there are no representation or certification proceedings or petitions seeking a representation proceeding presently pending or threatened to be brought or filed, with the National Labor Relations Board or any other labor relations tribunal or authority. There are no pending or, to the Knowledge of the Company, threatened strikes, lockouts, slowdowns or other material labor disputes against the Company or any of its Subsidiaries. To the best of the Knowledge of the Company, the hours worked by and payments made to employees of the Company and each of its Subsidiaries have not been in material violation of the Fair Labor Standards Act or any other applicable federal, state, local or foreign law dealing with such matters. Except for payroll yet to be paid for the Company’s current payroll cycle (estimated to be in the rough amount of approximately $150,000) and, as would otherwise not reasonably be expected, individually or in the aggregate, to be material to the Company and its Subsidiaries, taken as a whole, all payments known to be due from the Company and each Guarantor, or for which any known claim has been made against the Company and each Guarantor, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of the Company and each of its Subsidiaries. The consummation of the Transactions will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which the Company or any of its Subsidiaries is bound. It is understood that the Company may need to create new positions and in doing so restructure the Company’s personnel and contractor relations in connection with its continuing operations, which will be funded in part by the proceeds from the Transaction.

 

7.25  Mineral Rights.  Except as would not adversely affect the Company’s ability to economically construct and operate a potash mine and related facilities with respect to such Mineral Rights or otherwise conduct its operations with respect to such Mineral Rights or as disclosed to the Purchasers in writing by the Company prior to the date of the Original Agreement:

 

(a)           Schedule 7.25(a) describes all Mineral Rights as of the date of the Original Agreement. The Company and its Subsidiaries holds all licenses and has all interests in any mineral interests, mining concessions, mining tenements or other mineral rights necessary or appropriate to authorize and enable the Company and its Subsidiaries to explore, develop, construct or operate the Holbrook Project as contemplated as of the date of the Original Agreement. As of the date of the final Definitive Feasibility Study, the Company and its Subsidiaries will hold all licenses and have all interests in any mineral interests, mining concessions, mining tenements or other mineral rights necessary or appropriate to authorize and enable the Company and its Subsidiaries to explore, develop, construct or operate the Holbrook Project as contemplated in the Definitive Feasibility Study.

 

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(b)           The Mineral Rights have been properly located and recorded in compliance with applicable Laws and, in respect of the Mineral Rights, are comprised of valid and subsisting mineral claims.

 

(c)           The Company or its Subsidiaries is the sole registered and beneficial owner of the Mineral Rights, with good and marketable title thereto, free and clear of any title defect or Liens.

 

(d)           The Mineral Rights constitute all of the right, title and interest necessary or appropriate to authorize and enable the Company to explore, develop, construct or operate the Holbrook Project as contemplated as of the date of the Original Agreement.

 

(e)           The Company has the right, free and clear of any Liens, to access and use the surface area where all of the Mineral Rights are located necessary to explore, develop, construct or operate the Holbrook Project as contemplated as of the date of the Original Agreement, and the Company has paid to all surface area owners all rent, royalties, indemnification or other amounts to which they are entitled, whether pursuant to any contract or by Law.

 

(f)            The Company has the exclusive right to deal with the Mineral Rights, and there are no restrictions on the ability of the Company to use, transfer or exploit the Mineral Rights except pursuant to applicable Laws.

 

(g)           No Person other than the Company has any interest in the production or profits to be obtained in the future from the Mineral Rights or any royalty in respect thereof or any right to acquire such interest.

 

(h)           There are no farm-in or earn-in rights, rights of first refusal or similar rights or provisions which could materially affect the Mineral Rights other than as disclosed in Item 3 of Schedule 7.18.

 

(i)            The Company has not received any notice, whether written or oral, from any Governmental Authority or any Person, of any revocation or intention to revoke the interest of the Company in any Mineral Rights.

 

(j)            The Mineral Rights are in good standing under applicable Laws; all work required to be performed has been performed and all Taxes, rentals, fees, expenditures and other payments in respect thereof have been paid or incurred and all filings in respect thereof have been made.

 

(k)           All mining operations and all exploration activities in respect of the Mineral Rights have been conducted in accordance with good mining and engineering practices and all material workers’ compensation and health and safety regulations have been complied with.

 

(l)            There are no Claims that have been commenced, are pending or, to the Knowledge of the Company, are threatened against the Company, nor is there a state of facts or events that may give rise thereto, which could affect the title to or right to explore or develop the Mineral Rights.

 

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7.26  Insurance Coverage.  The Company and its Subsidiaries carry, or are covered by, insurance with insurers of recognized financial responsibility in such amounts, with such deductibles and covering such risks as the Company and its Subsidiaries deem adequate and prudent for the conduct of their respective businesses and the value of their respective properties and as is customary for companies engaged in similar businesses. The Company and its Subsidiaries have no reason to believe that such insurance coverage cannot be renewed as and when such coverage expires or that similar coverage could not be obtained from similar insurers at a cost that would not reasonably be expected to be material to the Company and its Subsidiaries, taken as a whole (other than as a result of general market conditions). As of the date of the Original Agreement, neither the Company nor any of its Subsidiaries has (a) received notice from any insurer or agent of such insurer that a material amount of capital improvements or other expenditures are required or necessary to be made in order to continue such insurance or (b) any notice from its insurers that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage at reasonable cost from similar insurers as may be necessary to continue its business.

 

7.27  Restrictions on Subsidiaries.  Except as provided in the Karlsson Agreements, no Subsidiary of the Company is currently prohibited, directly or indirectly, under any agreement or other instrument to which it is a party or is subject, from paying any dividends to the Company, from making any other distribution on such Subsidiary’s capital stock, from repaying to the Company any loans or advances to such Subsidiary from the Company or from transferring any of such Subsidiary’s properties or assets to the Company or any other Subsidiary of the Company.

 

7.28  No Registration Rights.  Schedule 7.28 sets forth all agreements as of the date of the Original Agreement pursuant to which any Person has the right to require the Company or any of its Subsidiaries to register any securities for sale under the Securities Act. After the date of the Original Agreement, other than pursuant to the Investors Rights Agreement or as consented to by the Majority Purchasers, no Person has received the right to require the Company or any of its Subsidiaries to register any securities for sale under the Securities Act.

 

7.29  Antitakeover Provisions.  The Company’s Board of Directors has taken all necessary actions so that no “business combination,” “control share acquisition,” or similar anti-takeover law or regulation is applicable to the Transactions, including with respect to the issuance of the Securities or to the execution, delivery or performance of this Agreement, the Original Agreement and the consummation of the Transactions.

 

7.30  No General Solicitation.  None of the Company or any of its Affiliates (as defined in Rule 501(b) of Regulation D under the Securities Act), has, directly or through an agent, engaged in any form of general solicitation or general advertising in connection with the offering of the Securities (as those terms are used in Regulation D) under the Securities Act or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act, and the Company has not entered into any contractual arrangement with respect to the distribution of the Securities except for this Agreement.

 

7.31  Material Contracts.  All Material Contracts of the Company or its Subsidiaries existing on the date of the Original Agreement are contained in the Company’s electronic data room maintained through Merrill Corporation, and (a) the Company is not, and, to the Knowledge of the Company, no other person is as of the date of the Original Agreement, in default under any Material Contract and (b) no notice of default or breach has been received or delivered by the Company under any Material Contract, the resolution of which is currently outstanding, and to the Knowledge of the Company no event or circumstances are occurring, have occurred or exist which would, but for the passage of time, constitute an event of default under any Material Contract, including any contracts entered into in connection with, or otherwise relating to, the Karlsson Purchase.

 

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7.32  Voting Agreements.  To the Knowledge of the Company, except for the Support Agreements entered into in connection with the Transactions, as of the date of the Original Agreement, there are no existing voting or similar agreements between the Company’s shareholders which could reasonably be expected to adversely affect the ability of the Company to perform its obligations under this Agreement.

 

7.33  Compliance with Money Laundering Laws.  The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the applicable money laundering statutes of jurisdictions where the Company and its Subsidiaries conduct business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its Subsidiaries with respect to the Money Laundering Laws is pending or, to the Knowledge of the Company, threatened.

 

7.34  Compliance with OFAC.  Neither the Company nor any of its Subsidiaries nor, to the Knowledge of the Company, any director, officer, agent, employee or affiliate of the Company or any of its Subsidiaries, is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”). The Company will not, directly or indirectly, use the proceeds of the offering contemplated hereby, or lend, contribute or otherwise make available such proceeds to any person currently subject to any U.S. sanctions administered by OFAC.

 

7.35  Compliance with Other Laws, Regulations and Instruments.  The Company and each of its Subsidiaries is in compliance with all Laws, regulations and orders (including any Environmental Laws, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (USA PATRIOT ACT) of 2001, Pub. L. 107-56, as it may be amended or otherwise modified from time to time (the “Patriot Act”), margin regulations and ERISA) of any governmental agency or body applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, would not reasonably be expected to be material to the Company and its Subsidiaries, taken as a whole.

 

7.36  Solvency.  Immediately after giving effect to the Transactions, the Company and its Subsidiaries on a consolidated basis, will be Solvent.

 

7.37  Use of Proceeds.  The Company will apply the proceeds of the sale of the Securities as set forth in Section 15.1.

 

7.38  Brokers’ Fees.  No Person is entitled to any brokerage, financial advisory, finder’s or similar fee or commission payable by any party hereto in connection with the Transactions based upon arrangements made by or on behalf of the Company.

 

7.39  Collateral Documents.  The Collateral Documents, when executed and delivered to the extent required herein, will create legal and valid Liens on all the Collateral in favor of the Collateral Agent, for the benefit of the Purchasers and the other holders of Obligations, and such Liens will constitute perfected and continuing Liens on the Collateral, securing the Obligations, enforceable against the applicable Obligor, and having priority over all other Liens on the Collateral, except (a) Liens resulting from mandatory provisions of applicable law and (b) Liens specifically and expressly permitted to be incurred by this Agreement on a senior basis to the Obligations.

 

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7.40  Covenants.  From the date of the Original Agreement through the date of this Agreement, the Company complied in all material respects with its covenants and agreements in the Original Agreement.

 

ARTICLE VIII

 

REPRESENTATIONS OF THE PURCHASERS

 

Each of the Purchasers represents and warrants, solely as to itself, and on a several, not joint basis, to the Company that:

 

8.1  Organization; Power and Authority.  Such Purchaser is duly organized or incorporated, validly existing and in good standing under the laws of the jurisdiction of its organization or incorporation, with all requisite power and authority (corporate or other) to own its properties and carry on its business as now conducted and as proposed to be conducted, and is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required, or is subject to no material liability or disability by reason of the failure to be so qualified or in good standing in any such jurisdiction.

 

8.2  Execution; Due Authority.

 

(a)           The execution, delivery and performance of this Agreement, the Investors Rights Agreement and the Royalty Agreement (and all other documents required to be executed and delivered by each Purchaser and the consummation of the Transactions), to the extent such Purchaser is a party to such agreements, have been duly and validly authorized by all necessary corporate action on the part of such Purchaser.

 

(b)           This Agreement, the Investors Rights Agreement and the Royalty Agreement, to the extent such Purchaser is a party to such agreements, have been duly executed and delivered by such Purchaser (and all documents required to be executed and delivered by such Purchaser at Closing will be duly executed and delivered by such Purchaser), and this Agreement constitutes, and at the Closing (assuming the due and valid execution and delivery of such documents by the other parties thereto) such documents will constitute, the valid and binding obligations of such Purchaser, enforceable in accordance with their terms, except for the Enforceability Exceptions.

 

8.3  No Conflicts.  The purchase of the Securities and the compliance by such Purchaser with all of the provisions of the Notes and this Agreement and the consummation of the Transactions will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or give rise to any right of termination, cancellation, payment or acceleration under, any contract, indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which such Purchaser is a party or by which such Purchaser is bound or to which any of the property or assets of such Purchaser is subject, nor will such action result in any violation of the provisions of the organizational documents of such Purchaser or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over such Purchaser or any of its properties, except, with respect to any of the foregoing (other than the violation of the provisions of such Purchaser’s organizational documents), as would not reasonably be expected to have a material adverse effect on the ability of such Purchaser to perform its obligations under this Agreement or otherwise materially threaten or materially impede the consummation of the Transactions.

 

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8.4  Purchase for Investment.  Each Security Purchaser severally represents that it (a) is purchasing the Notes for its own account or for one or more separate accounts maintained by such Purchaser or for the account of one or more pension or trust funds and not with a view to the distribution thereof; provided, however, that the disposition of such Purchaser’s property shall at all times be within such Purchaser’s control and (b) understands that the Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not and will not be required to register the Notes.

 

8.5  Accredited Investor.  Each Purchaser hereby represents and warrants to and agrees with the Company that it (a) is an “accredited investor” within the meaning of Rule 501 under the Securities Act and, with respect to each Person who is a Purchaser as of the date of the Original Agreement, a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act, (b) has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Notes and it is able to bear the economic risk of such investment and (c) has had the opportunity to perform due diligence with respect to the Company and the Transactions and to ask questions of and receive answers from the Company in respect thereof.

 

8.6  Brokers’ Fees.  No Person is entitled to any brokerage, financial advisory, finder’s or similar fee or commission payable by any Party hereto in connection with the Transactions based upon arrangements made by or on behalf of the Purchasers.

 

ARTICLE IX

 

CERTAIN INTERIM COVENANTS

 

9.1  Operation of Business.  The Company covenants and agrees that, between the date of the Original Agreement and the Closing, unless the Majority Purchasers shall otherwise agree in writing, the Company shall, and shall cause its Subsidiaries to, (i) operate and maintain its assets in the ordinary course of business consistent with past practice, (ii) use commercially reasonable efforts, consistent with existing practices, to keep available the services of its employees and preserve relationships with all of its customers, suppliers, licensors, licensees, distributors, regulators and creditors and (iii) use its commercially reasonable efforts to preserve substantially intact its business organization. Without limitation to the foregoing, except as contemplated or permitted by this Agreement or as set forth in Schedule 9.1, the Company shall not (and shall cause its Subsidiaries not to), between the date of the Original Agreement and the Closing Date, directly or indirectly, do, or propose to do, any of the following without the prior written consent of the Majority Purchasers (which consent will not be unreasonably withheld for approvals contemplated by Sections 9.1(a), (b) (except for the size of the Board of Directors), (d), (g), (h), (n), (p), (q)(ii), (r), (s), and (v) (solely to the extent with respect to the foregoing clauses), so long as such actions do not have an adverse effect on the economic or governance interests of the Purchasers):

 

(a)           except for filing the Certificate of Designation, amend or otherwise change, or waive any provision of, its articles of incorporation or bylaws (or similar organizational documents), except for non-material changes undertaken for routine or administrative reasons which do not adversely affect the Purchasers;

 

(b)           alter the size or powers of the Board of Directors (or creating or altering the size or powers of any committee thereof), except (i) that the Company shall be permitted to increase the size of its Board of Directors by one member solely in connection with the grant of a director designation right to new investors in connection with capital-raising transactions occurring after

 

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the date of the Original Agreement and (ii) for non-material changes to the powers of the Board of Directors or any committee undertaken for routine or administrative reasons;

 

(c)           issue, sell, register for sale, pledge, dispose of, grant, encumber or authorize the issuance, sale, registration, pledge, disposition, grant or encumbrance of any shares of capital stock of any class of the Company or of its Subsidiaries (including Common Stock), or any Options, Convertible Securities or other rights of any kind to acquire any shares of such capital stock, or any other ownership interest (including any phantom interest), of the Company or of its Subsidiaries, except for the:

 

(i)            issuance of Common Stock (x) prior to the receipt of the Requisite Shareholder Approval, to the Persons listed on Schedule 9.1, unless such issuance would result in any such Person (collectively with its Affiliates and Associates) Beneficially Owning seven and one-half percent (7.5%) or more of the then-outstanding Common Stock or other equity of the Company (or voting power of the Company for the election of directors) or, (y) from and after the receipt of the Requisite Shareholder Approval, (A) in an underwritten public offering involving a broad-based distribution or (B) to any Person, unless such issuance would result in any such Person (collectively with its Affiliates and Associates) Beneficially Owning seven and one-half percent (7.5%) or more of the then-outstanding Common Stock or other equity of the Company (or voting power of the Company for the election of directors));

 

(ii)           from and after the receipt of the Requisite Shareholder Approval, issuance to any Person or Persons of an amount of Permitted Preferred Stock that, when aggregated with the amount of all prior and simultaneous permitted issuances of Permitted Preferred Stock and Permitted Junior Debt, does not exceed $75 million in the aggregate;

 

(iii)          the issuance of the Notes to the Purchasers at the Closing; or

 

(iv)          the issuance of shares of Common Stock, Options or other securities to employees, directors or consultants (who are natural persons) of the Company pursuant to Benefit Plans existing on the date of the Original Agreement, as amended from time to time in accordance with Section 9.1(q)(i), or in accordance with certain written agreements entered into prior to the date of the Original Agreement and disclosed to the Purchasers in writing prior to the date hereof (provided that (x) any such issuances are made in accordance with the terms, conditions and limitations of such agreements as they existed as of the date of the Original Agreement and without effect to any amendments or other modifications thereof after the date of the Original Agreement unless approved by the Majority Purchasers, and (y) as of the date of the Original Agreement, the Company has a firm obligation under such agreements to make such issuances);

 

(d)           sell, transfer, assign, mortgage, pledge, dispose of, encumber or authorize the sale, transfer, assignment, mortgage, pledge, disposition, or encumbrance of any material assets or properties of the Company or any of its Subsidiaries, except (A) in the ordinary course of business and in a manner consistent with past practice, (B) pursuant to the Karlsson Agreements, as in effect on the date of the Original Agreement, or (C) acquisitions or dispositions for cash consideration of assets with a value of less than $200,000 individually or in excess of $500,000 when aggregated with all other dispositions in a twelve (12)-month period;

 

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(e)           declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock (except for such declarations, set-asides, dividends and other distributions made to or from any Subsidiary to or from the Company);

 

(f)            reclassify, combine, split or subdivide, or redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock, except in connection with transactions between the Company and its wholly owned Subsidiaries and transactions among the Company’s wholly owned Subsidiaries;

 

(g)           except with respect to the acquisition of real property or interests in real property (which is covered by clause (h) below), acquire, in any individual or related series of acquisitions, assets, securities or businesses, whether by purchase, transfer, assignment or otherwise, whether direct or indirect, and including investments in or formation of partnerships or joint ventures with third parties, with a value in excess of $500,000 individually or $2,000,000 in any twelve (12)-month period when aggregated with all other acquisitions;

 

(h)           acquire, in any individual or related series of acquisitions, any real property or interests in real property (including Mineral Rights) with a value in excess of $750,000 or in excess of $1,500,000 in any twelve (12)-month period when aggregated with all other acquisitions;

 

(i)            incur any Indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse, or otherwise as an accommodation become responsible for, the obligations of any Person (other than obligations of the Company or the Company’s wholly owned Subsidiaries), or make any loans or advances, except, from and after the receipt of the Requisite Shareholder Approval, an amount of Permitted Junior Debt that, when aggregated with the amount of all prior and simultaneous permitted issuances of Permitted Preferred Stock and Permitted Junior Debt, does not exceed $75 million in the aggregate;

 

(j)            repay or redeem any Indebtedness for borrowed money or debt securities outstanding as of the date of the Original Agreement, except for (i) the Karlsson Note, (ii) scheduled repayments of principal and interest in accordance with the terms of any such Indebtedness or debt securities and (iii) repayments and redemptions in the ordinary course of business consistent with past practice;

 

(k)           other than pursuant to the Royalty Agreement and the Grandhaven Agreement, selling or granting of any royalty (or similar) interests in, or other rights to payment based on the revenue of, the Company or its Subsidiaries or any assets or rights of the Company or its Subsidiaries; provided, that the Company shall be permitted to grant royalties in connection with the acquisition of property in the ordinary course of business, if (a) such royalty interests are granted to the seller of the acquired property and relate solely to the acquired property; and (b) either (i) such royalty interests are granted in connection with acquisitions of state-owned property, where the size of all state-owned properties as to which royalties are sold or granted under this proviso in any twelve (12)-month period does not exceed 1,500 acres in the aggregate and the royalties granted are substantially consistent with the published guidelines of the Arizona State Land Department, or (ii) the size of all non-state-owned properties as to which royalties are sold or granted under this proviso in any twelve (12)-month period does not exceed 500 acres in the aggregate and such royalty grants to the recipient only a percentage interest in gross Potash production from the acquired property, not to exceed the following percentages:

 

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(i)            two percent (2%) if Potash produced from the acquired property is sold at $200/tonne or less;

 

(ii)           three percent (3%) if Potash produced from the acquired property is sold at a price less than or equal to $300/tonne but greater than $200/tonne;

 

(iii)          four percent (4%) if Potash produced from the acquired property is sold at a price less than or equal to $400/tonne but greater than $300/tonne;

 

(iv)          five percent (5%) if Potash produced from the acquired property is sold at a price less than or equal to $500/tonne but greater than $400/tonne; and

 

(v)           six percent (6%) if Potash produced from the acquired property is sold at a price greater than $500/tonne;

 

(l)            making any material changes to the nature of the business of the Company or its Subsidiaries or entry into any new business lines, including (i) entering into the ownership, management, development or operation of any line of business not conducted as of the date of the Original Agreement by the Company and its Subsidiaries or (ii) materially changing or exiting any line of business conducted as of the date of the Original Agreement by the Company and its Subsidiaries;

 

(m)          discontinuing the Company’s status as a public company or SEC-reporting company, changing the Company’s jurisdiction of organization, or applying to list (or materially altering or terminating its listing) on any stock exchange;

 

(n)           pay, discharge, settle or satisfy any material litigation, arbitration, proceeding, claim, liability or obligation (absolute or accrued, asserted or unasserted, contingent or otherwise), except with respect to any such proceedings or claims disclosed in the Company SEC Documents on or prior to the date of the Original Agreement;

 

(o)           amending, waiving or otherwise modifying any terms of any contracts entered into in connection with, or otherwise relating to, the Karlsson Purchase, or entering into any new contracts with Karlsson or its Affiliates that adversely affect the Purchasers in any respect, as determined in good faith by the Majority Purchasers;

 

(p)           enter into, renew, extend, materially amend or terminate any contract with any EPCM or EPC firm, or any contract relating to shaft sinking;

 

(q)           (i) accelerate any vesting of compensation or benefits or pay any compensation or benefits not otherwise due to employees of the Company or any of its Subsidiaries or enter into, adopt or amend any Benefit Plan (including any employment agreements), other than (A) adopting a 401(k) plan (on terms customary for the industry in which the Company operates) or (B) as required by applicable Law, a Benefit Plan in existence as of the date of the Original Agreement or a contract in existence as of the date of the Original Agreement or (ii) increase or enhance the compensation or benefits of any employees of the Company or any of its Subsidiaries, other than as required by applicable Law or as required pursuant to the terms of any contract as in effect on the date of the Original Agreement, by more than 3% annually, or in the case of any employee (other than the chief executive officer, chief operating officer or chief financial officer) whose responsibilities have been increased, by more than 10%;

 

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(r)            change its methods of accounting (other than Tax accounting, which shall be governed by clause 9.1(s) below), except in accordance with changes in GAAP as concurred in by the Company’s independent auditors;

 

(s)            except (i) to the extent required or appropriate to conform to changes in applicable Tax Law, regulatory accounting requirements or GAAP or (ii) in the ordinary course of business consistent with past practice, enter into any closing agreement with respect to material Taxes, settle or compromise any material liability for Taxes, make, revoke or change any material Tax election, agree to any adjustment of any material Tax attribute, surrender any claim for a material refund of Taxes, execute or consent to any waiver extending the statutory period of limitations with respect to the collection or assessment of material Taxes, file any material amended Tax return or obtain any material Tax ruling, change any annual Tax accounting period, adopt or change any method of Tax accounting, or enter into any Tax allocation agreement, Tax sharing agreement, Tax indemnity agreement or closing agreement relating to any material Tax;

 

(t)            enter into any new, or amend or otherwise alter, any transaction with any Affiliate or Associates of the Company or its Subsidiaries, other than (i) transactions solely among the Company and its Subsidiaries and (ii) the Royalty Agreement;

 

(u)           (i) commencing a voluntary case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to the Company or any of its Subsidiaries, or seeking to adjudicate the Company or any of its Subsidiaries bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to the Company or any of its Subsidiaries or any indebtedness of the Company or any of its Subsidiaries, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for the Company or any of its Subsidiaries or for all or any substantial part of the Company or any of its Subsidiaries’ assets, (ii) the making of a general assignment for the benefit of the Company or any of its Subsidiaries’s creditors or (iii) liquidation, dissolution, reorganization or merger of or involving the Company or any of its Subsidiaries; or

 

(v)           enter into any contract or otherwise obligate the Company or its Subsidiaries to do any of the foregoing.

 

9.2  Access to Information; Consultation.

 

(a)           From the date of the Original Agreement until the Closing Date, upon reasonable prior notice, the Company shall, and shall cause its Subsidiaries to, (i) afford the Representatives of the Purchasers reasonable access, during normal business hours, upon reasonable notice, to the offices, properties, books and records of the Company and its Subsidiaries, (ii) furnish or cause to be furnished to the Representatives of the Purchasers such additional financial and operating data and other information regarding the Company and its Subsidiaries as the Purchasers may from time to time reasonably request (including furnishing to the Purchasers the Company’s financial results in advance of any filing of any Company SEC Document containing such financial results), and (iii) instructing the employees, counsel, financial advisors, auditors and other Representatives of the Company and its Subsidiaries to cooperate reasonably with the Purchasers in its investigation of the Company and its Subsidiaries. No information or knowledge obtained by the Purchasers in any investigation pursuant to this Section 9.2 shall affect or be deemed to modify any representation and warranty made by the Company in Article VII.

 

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(b)           Without limitation of Section 9.2(a), until the Closing Date, the Company shall provide the Purchasers:

 

(i)            the information contemplated by Sections 14.1(a) and (b), provided, at any time during which the Company or any of its Subsidiaries is subject to the periodic reporting requirements of the Exchange Act or voluntarily reports thereunder, the Company may satisfy its obligations pursuant to this Sections 9.2(b)(i) by filing or causing any of its subsidiaries to file with the SEC (via the EDGAR system) on a timely basis annual and quarterly reports including financial statements of the Company and its Subsidiaries and satisfying the requirements of the Exchange Act;

 

(ii)           as soon as available, (A) a copy of the operating and capital expenditure budgets for the Company and its Subsidiaries for such fiscal year, (B) monthly construction progress reports (containing detail on budget, schedule and key metrics), (C) monthly management accounts and periodic information packages relating to the operations and financial performance of the Company and its Subsidiaries, in each case in such form as the Company and its Subsidiaries prepare in the ordinary course of business, (D) a copy of all information packages (and any other materials, documents or information) provided to the board of directors (or similar governing body) of any of the Company and its Subsidiaries or any director thereof (including notices, minutes, consents and regularly or specially compiled financial and operating data distributed to the members of such board or body at the same time as such materials are distributed to such board or body) and (E) a copy of any information or reporting packages (and any other materials, certificates, documents or other information) provided directly or indirectly (including through trustees or other agents) to any or all lenders to or debt financing sources of the Company and its Subsidiaries;

 

(iii)          (A) copies of draft applications for any Necessary Permits with respect to the Holbrook Project no later than five (5) Business Days prior to the anticipated filing of such application, (B) copies of any Permits received by the Company or its Subsidiaries with respect to the Holbrook Project within five (5) Business Days of receipt, (C) copies of any material correspondence with any Governmental Authority with respect to any Permits within two (2) Business Days of receipt and (D) regular updates on any material conversations with any Governmental Authority with respect to any Permits or status of Necessary Permits;

 

(iv)          regular updates regarding any discussions regarding financing arrangements for the Holbrook Project with any source or potential source of the Project Financing Facility, including notification of any material developments or changes in terms, and a copy of any term sheets or draft documentation relating thereto. The Company shall consult with the Purchasers on a regular basis with regard to the Project Financing Facility and give due consideration to all reasonable advice and input suggested by the Purchasers in connection with the Project Financing Facility;

 

(v)           prompt written notice upon it becoming aware of (x) the breach of any of its representations or warranties hereunder or of any of its or its Subsidiaries’ covenants hereunder or (y) any fact, occurrence or development that may reasonably result in the non-satisfaction of any of the conditions in Article VI; and

 

(vi)          upon the request of any Purchaser, an update meeting or telephone conference with the Purchasers on the status of the progress of the Definitive Feasibility Study, and a copy

 

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of any materially updated draft of the Definitive Feasibility Study within two (2) Business Days of receipt.

 

(c)           Without prejudice to the consent rights of the Purchasers contained in Section 9.1, the Company shall consult with the Purchasers, and in good faith consider any comments or advice from the Purchasers, prior to and in the course of taking any of the following actions (and shall provide the Purchasers with regular updates to the status of discussions and negotiations with respect to any such actions): (i) retention of any third-party consultant, advisor or finder/broker, (ii) retention or replacement of any senior manager or officer, (iii) any debt or equity financing transactions, (iv) acquisition or disposition of a material amount of assets (including real property or Mineral Rights), (v) any actions with respect to the Karlsson Agreements, (vi) entry into or modification of any off-take or other long-term purchase agreements for Potash or any other Material Contract of the Company or its Subsidiaries, (vi) compensation decisions with respect to officers or employees and (vii) litigation involving the Company, its Subsidiaries or their assets.

 

9.3  Reasonable Best Efforts.

 

(a)           Subject to the terms and conditions of this Agreement, the Company shall use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable Law to consummate the Transactions, including (i) preparing and filing as promptly as practicable with any Governmental Authority or other third party all documentation to effect all necessary filings, notices, petitions, statements, registrations, submissions of information, applications and other documents, (ii) obtaining and maintaining all approvals, consents, registrations, permits, authorizations and other confirmations required to be obtained from any Governmental Authority or other third party that are necessary, proper or advisable to consummate the Transactions, (iii) executing and delivering all documents required to be executed and delivered at the Closing and (iv) vigorously defending or contesting any litigation or administrative proceeding, and seeking to have vacated, lifted, reversed or overturned any order, decree, injunction or ruling (whether temporary, preliminary or permanent) that is in effect, and that seeks to or would prohibit, prevent, enjoin or materially restrain or delay the consummation of the Transactions.

 

(b)           The Purchasers and the Company shall (i) promptly notify each other of any communication concerning this Agreement or the Transactions received by each of them from any Governmental Authority and permit the other to review in advance any proposed communication concerning this Agreement, or the Transactions to any Governmental Authority; (ii) not participate or agree to participate in any meeting or discussion with any Governmental Authority in respect of any filing, investigation or other inquiry concerning this Agreement, or the Transactions unless it consults with the other in advance and, to the extent permitted by such Governmental Authority, gives the other the opportunity to attend and participate in such meeting or discussion; and (iii) furnish each other with copies of all correspondence, filings and communications (and memoranda setting forth the substance thereof) between such party and its Affiliates and Representatives on the one hand, and any Governmental Authority or members of any such authority’s staff on the other hand, with respect to this Agreement and the Transactions.

 

(c)           The Purchasers and the Company each agrees that, from and after the date of the Original Agreement and prior to the Closing Date, and except as may be agreed in writing by the other parties hereto or as may be permitted pursuant to this Agreement, it shall not, and shall not permit any of its Subsidiaries to, take any action (or agree to take any action) which could reasonably be expected to delay the consummation of the Transactions or result in the failure to satisfy any condition to the

 

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consummation of the Transactions (it being understood and agreed that this Section 9.3(c) shall in no event limit any party’s right to terminate this Agreement in accordance with Article X).

 

(d)           Prior to any conversion of the Notes or any exercise of the Apollo Warrants, the Company and the Majority Purchasers will determine if such conversion or exercise, as applicable, will be subject to any filing or notification requirement under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or any similar requirement of any Governmental Authority. If such conversion or exercise, as applicable, is subject to any such requirement, the Company and the applicable Purchaser(s) will use commercially reasonable efforts to make any required filings or notifications as soon as practicable, will observe any applicable waiting periods and will make all commercially reasonable efforts to cause the termination of any such waiting periods or the removal of any other impediments to conversion or exercise, as applicable. The Parties will furnish to each other such information and assistance as may be necessary to ensure the expiration of any applicable waiting period or the removal of any other impediment to the consummation of such conversion or exercise, as applicable. The Parties will keep each other informed of any communications with any Governmental Authority with respect to the foregoing. The Majority Purchasers shall direct any proceedings, negotiations or communications with any Governmental Authority with respect to the foregoing.

 

9.4  Reservation of Shares.  The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of issuing and selling shares of Common Stock upon exercise of the Apollo Warrants at the then current Warrant Price (as defined in each of the Apollo Warrants), conversion of the Notes at the then current Conversion Price and pursuant to Section 9.8; and if at any time the number of shares required to be reserved exceeds seventy-five percent (75%) of the Company’s authorized but unissued shares of Common Stock, the Company shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. All shares of Common Stock issued and sold upon exercise of the Apollo Warrants, conversion of the Notes or pursuant to Section 9.8 shall be validly issued, fully paid, nonassessable and free and clear of any Liens. The Company shall use its reasonable best efforts to cause all such shares of Common Stock to be approved for listing on the Principal Market, subject to official notice of issuance.

 

9.5  Shareholders Meeting.  The Company will take, in accordance with applicable Law and the Company Organization Documents, all action necessary to convene a meeting of its shareholders (the “Shareholders Meeting”) as promptly as practicable after the date of the Original Agreement (and in no event later than thirty (30) days after the date that the SEC has informed the Company that it has no further comments on, or does not intend to review, the Proxy Statement), to consider and vote upon the Transactions, regardless of whether the Board of Directors of the Company determines at any time that the Transactions are no longer advisable or recommends that the shareholders of the Company reject them or any other Adverse Recommendation Change has occurred at any time. The Board of Directors of the Company shall recommend the approval of the Transactions (the “Board Recommendation”), unless permitted to make an Adverse Recommendation Change pursuant to Section 9.7(c), and shall take all lawful action to solicit and obtain such approval by holders of a majority of the outstanding shares of Common Stock (the “Requisite Shareholder Approval”). The Company may, and the Majority Purchasers may require the Company to, adjourn or postpone the Shareholders Meeting one or more times, unless prior to such adjournment or postponement the Company shall have received an aggregate number of proxies sufficient for the Requisite Shareholder Approval, provided that the Company, on the one hand, and the Majority Purchasers, on the other hand, may each only adjourn or postpone the Shareholders Meeting for no more than twenty (20) days in the aggregate. The Company shall, upon the reasonable request of the Majority Purchasers, advise the Purchasers at least on a daily basis on each of

 

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the last ten (10) Business Days prior to the date of the Shareholders Meeting as to the aggregate tally of proxies received by the Company with respect to the Requisite Shareholder Approval. Without the prior written consent of the Majority Purchasers, the approval of the Transactions shall be the only matter which the Company shall propose to be acted on by the shareholders of the Company at the Shareholders Meeting. Without limiting the generality of the foregoing, the Company agrees that its obligations pursuant to this Section 9.5 shall not be affected by the commencement, proposal, disclosure or communication to the Company or any other Person of any Competing Proposal.

 

9.6  Proxy.

 

(a)           The Company shall prepare and file with the SEC, as promptly as practicable after the date of the Original Agreement but in no event later than five (5) Business Days after the date of the Original Agreement, a proxy statement in preliminary form relating to the Transactions (such proxy statement, including any amendment or supplement thereto, the “Proxy Statement”). The Company shall file with the SEC the definitive Proxy Statement and shall cause the mailing of the definitive Proxy Statement to the shareholders of the Company to occur on the twelfth (12th) day (or, if such day is not a Business Day, the first Business Day subsequent to such calendar day) immediately following the filing of the preliminary Proxy Statement with the SEC, or if not practicable, including as a result of outstanding comments from the SEC, then as promptly as practicable thereafter. The Company agrees, as to it and its Subsidiaries, that the Proxy Statement will comply in all material respects with the applicable provisions of the Exchange Act and the rules and regulations thereunder. Each of the Company and the Purchasers covenants and agrees, as to it and its Affiliates, that none of the information supplied by it or any of its Affiliates for inclusion or incorporation by reference in the Proxy Statement will, at the date of mailing to shareholders of the Company and at the time of the Shareholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Board of Directors of the Company shall make the Board Recommendation with respect to the approval of the Transactions, unless permitted to make an Adverse Recommendation Change pursuant to Section 9.7(c), and shall include such recommendation in the Proxy Statement.

 

(b)           The Company shall afford the Purchasers a reasonable opportunity to review and comment on the Proxy Statement prior to its filing with the SEC, including any amendments or supplements thereto, and shall give due consideration to all the reasonable additions, deletions or changes suggested thereto by the Purchasers. The Company will promptly advise the Purchasers if at any time prior to the effective time of such Proxy Statement, the Company shall obtain knowledge of any facts that might make it necessary to amend or supplement the Proxy Statement in order to make the statements contained therein not misleading or to comply with applicable Law. The Company shall promptly notify the Purchasers of the receipt of all comments from the SEC with respect to the Proxy Statement and of any request by the SEC for any amendment or supplement thereto or for additional information and shall promptly provide to the Purchasers copies of all correspondence between the Company and/or any of its Representatives and the SEC with respect to the Proxy Statement and shall provide the Purchasers an opportunity to review and comment on any such amendment, supplement or response to the SEC and shall give due consideration to all the reasonable additions, deletions or changes suggested thereto by the Purchasers. Each Purchaser and the Company shall use its reasonable best efforts promptly to provide responses to the SEC with respect to all comments received on the Proxy Statement from the SEC. To the extent required by applicable Law in the good faith judgment of the Company, the Company shall, as promptly as reasonably practicable, prepare, file and distribute to

 

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its shareholders any supplement or amendment to the Proxy Statement if any event shall occur that requires such action.

 

9.7  Non-Solicitation.

 

(a)           Subject to Section 9.7(b), the Company hereby agrees that, from the date of the Original Agreement until the receipt of the Requisite Shareholder Approval, the Company will not (and will cause its Representatives and Subsidiaries not to): (x) solicit, negotiate, encourage or otherwise discuss (including continuing any current discussions or negotiations) with any Person other than Purchasers and their affiliates and advisors, (i) the sale, directly or indirectly, of any interest in the Company or its Subsidiaries (including any debt or equity securities, other than ordinary course issuances of equity to employees, directors, and consultants and pursuant to contractual commitments existing as of the date of the Original Agreement and disclosed to the Purchasers) or a significant portion of its assets, (ii) any other debt or equity financing of the Company or its Subsidiaries, (iii) any merger or consolidation involving the Company or its Subsidiaries, or (iv) any recapitalization or restructuring involving the Company or its Subsidiaries (any such transaction described in clauses (i) through (iv), for purposes of this Section, a “substitute transaction”); (y) furnish any non-public information concerning the Company or its Subsidiaries to any Person, other than Purchasers and their affiliates and advisors, for the purpose of a substitute transaction; or (z) enter into any agreement with respect to a substitute transaction with any Person other than Purchasers or their affiliates. In addition, the Company will (and will cause its Representatives and Subsidiaries to) (a) immediately terminate all discussions and/or negotiations with any Person other than Purchasers which may reasonably be expected to lead to a substitute transaction and (b) immediately cease any and all work (and not engage in any such work during the period set forth in this Section) with respect to any substitute transaction. Notwithstanding anything to the contrary in the foregoing, the Company and its Representatives shall be permitted to solicit, negotiate with, discuss with and provide non-public information to, or in connection with, but may not sign definitive documents with respect to (or publicly disclose or take any other action or fail to take any action that would either cause the Company to have any public disclosure obligations with respect to or that would result, or be reasonably likely to result, in any other Person publicly disclosing) a substitute transaction with or in connection with, (a) any bank or other potential lender in connection with project finance debt funding in connection with the Project Finance Facility, (b) one or more lease counterparties in connection with capital leases in respect of equipment for the Company’s operations in connection with the Project Finance Facility, (c) Grandhaven Energy, LLC (“Grandhaven”) in connection with the Grandhaven Agreement Amendment, (d) the acquisition of additional mineral and land interests in the Holbrooke Basin, and (e) any transaction permitted without Majority Purchaser consent under Sections 9.1(c) and 9.1(i). For the avoidance of doubt, this Section 9.7(a) is not intended to prohibit customary public company investor relations communications or discussions by the Company or its Representatives (it being understood and agreed that such permissible customary communications or discussions shall not be deemed to include the provision of or communication of any of the reports (or portions thereof) that have been (or will be) prepared by or on behalf of the Purchasers or their advisors, whether before, on or after the date of the Original Agreement, or any similar reports or information packages or any other information that is not otherwise publicly disclosed).

 

(b)           At any time after the date of the Original Agreement and prior to obtaining the Requisite Shareholder Approval, the Company or its Board of Directors may (i) furnish nonpublic information to any third party making an unsolicited Competing Proposal (provided, however, that prior to so furnishing such information, the Company receives from the third party an executed Acceptable Confidentiality Agreement and all such information has previously been provided to the Purchasers or is provided to the Purchasers prior to or substantially concurrently with the time it is provided to such third

 

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party), and (ii) engage in discussions or negotiations with such third party with respect to such Competing Proposal if and only if: (x) such Competing Proposal did not otherwise result from a breach of this the Section 9.7, (y) such third party has submitted a Competing Proposal which the Board of Directors of the Company determines in good faith, after consultation with its financial and legal advisors, constitutes, or could reasonably be expected to lead to, a Superior Proposal, and (z) the Board of Directors of the Company determines in good faith, after consultation with legal counsel, that failure to take such action would be inconsistent with the directors’ fiduciary duties under applicable Law. Prior to taking any of the actions referred to in this Section 9.7(b), the Company shall notify the Purchasers orally and in writing that it proposes to furnish non-public information and/or enter into discussions or negotiations as provided in this Section 9.7(b).

 

(c)           Except as expressly permitted by this Section 9.7(c), the Board of Directors of the Company shall not (i) withdraw, qualify, or modify, or publicly propose to withdraw, qualify, or modify, in a manner adverse to the Purchasers, the Board Recommendation; (ii) adopt, approve or recommend, or publicly propose to adopt, approve or recommend, any Competing Proposal made or received after the date of the Original Agreement; (iii) subject to Section 9.7(f), (A) fail to publicly recommend against any Competing Proposal within five (5) Business Days (or the Outside Date if earlier) after Majority Purchasers so request in writing, (B) fail to publicly reaffirm the Board Recommendation within five (5) Business Days (or the Outside Date if earlier) if requested by the Majority Purchasers in writing, or (C) fail to include the Board Recommendation in the Proxy Statement, (any of the actions described in clauses (i), (ii), and (iii) of this Section 9.7(c), an “Adverse Recommendation Change”); or (iv) cause or permit the Company or any of its Subsidiaries to enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, investment agreement or similar definitive agreement (other than an Acceptable Confidentiality Agreement) with respect to any Competing Proposal. Notwithstanding anything to the contrary set forth in this Agreement, at any time prior to obtaining the Requisite Shareholder Approval, the Board of Directors of the Company shall be permitted to make an Adverse Recommendation Change with respect to a Superior Proposal, subject to compliance with Section 9.7(d), if the Board of Directors of the Company (A) has received an unsolicited Competing Proposal (which Competing Proposal did not arise out of any breach of this Section 9.7) that, in the good faith determination of the Board of Directors of the Company, constitutes a Superior Proposal, after having complied with, and giving effect to all of the adjustments which may be offered by the Purchasers pursuant to, Section 9.7(d), and (B) determines in good faith, after consultation with its legal advisors, that failure to take such action would be inconsistent with the directors’ fiduciary duties under applicable Law.

 

(d)           The Company shall not be entitled to effect an Adverse Recommendation Change as permitted under Section 9.7(c) with respect to a Superior Proposal unless (i) the Company has provided a written notice (a “Notice of Superior Proposal”) to the Purchasers that the Company intends to take such action and describing the material terms and conditions of the Superior Proposal that is the basis of such action (including the identity of the third party making such Superior Proposal) and attaching the most current version, in an unredacted form, of any proposed agreement pursuant to which such Superior Proposal is proposed to be consummated, (ii) during the four (4) Business Day period following the Purchasers’ receipt of the Notice of Superior Proposal, the Company shall, and shall cause its Representatives to, negotiate with the Purchasers in good faith (to the extent the Purchasers desire to negotiate) to make such adjustments to the terms and conditions of this Agreement and the other agreements contemplated hereby so that such Superior Proposal ceases to constitute a Superior Proposal; and (iii) following the end of the four (4) Business Day period, the Board of Directors of the Company shall have determined in good faith, taking into account any changes to this Agreement and the other agreements contemplated hereby proposed in writing by the Purchasers in response to the Notice of 

 

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Superior Proposal or otherwise, that the Superior Proposal giving rise to the Notice of Superior Proposal continues to constitute a Superior Proposal. Any material amendment to the financial terms or any other material amendment of such Superior Proposal shall require a new Notice of Superior Proposal and the Company shall be required to comply again with the requirements of this Section 9.7(d).

 

(e)           From and after the date of the Original Agreement, the Company shall, as promptly as reasonably practicable (and in any event within two (2) Business Days of receipt), advise the Purchasers of receipt by the Company of any Competing Proposal or any request for non-public information in connection with any Competing Proposal, the status and material terms and conditions of any such Competing Proposal or request (including the identity of the third party making such Competing Proposal) and a unredacted copy of any documentation, proposal or written communication relating to such Competing Proposal or request, and shall as promptly as reasonably practicable (and in any event within two (2) Business Days of receipt) advise the Purchasers of any material amendments to any such Competing Proposal or request.

 

(f)            Nothing in this Section 9.7 shall prohibit the Board of Directors of the Company from taking and disclosing to the Company’s stockholders a position contemplated by Rule 14e-2(a), Rule 14d-9 or Item 1012(a) of Regulation M-A promulgated under the Exchange Act, or other Law, if the Board of Directors of the Company, after consultation with outside legal counsel, determines in good faith that the failure to so disclose such position would reasonably be expected to be inconsistent with the directors’ exercise of their fiduciary obligations under Law.

 

(g)           For purposes of this Agreement:

 

(i)            “Competing Proposal” means any bona fide written proposal or offer relating to (i) the sale, directly or indirectly, of any equity or debt securities of the Company or its Subsidiaries or a significant portion of its assets or (ii) any other debt or equity financing of the Company or its Subsidiaries, (other than, in either such case, those described in the last sentence of Section 9.7(a) or from the Purchasers or their Affiliates), that, in either such case, would result in gross proceeds to the Company or its Subsidiaries of not less than the gross proceeds receivable in connection with this Agreement, the agreements contemplated hereby, and in the transactions hereby and thereby.

 

(ii)           “Superior Proposal” means any Competing Proposal that (A) (x) if involving Common Stock or Equity-based Securities, has a per share price or implied per share price per share of Common Stock greater than the per share price implied by the Notes and the Warrants, taken together, and (y) if involving any debt securities, has an interest rate less than the interest rate of the Notes (including a cash portion thereof less than the cash portion of the Notes), a maturity date no shorter than the Notes, a ranking no higher than the Notes, and a set of covenants no more restrictive than those of the Notes, and (B) is on terms that the Board of Directors of the Company determines in good faith, after consultation with the Company’s financial and legal advisors, and considering such factors as the Board of Directors of the Company considers in good faith to be appropriate (including the conditionality, certainty of financing and the timing and likelihood of consummation of such proposal on the terms proposed), are more favorable to the Company and its shareholders from a financial point of view than the Transactions (after giving effect to all adjustments to the terms thereof which may be offered by the Purchasers in writing (including pursuant to Section 9.7(d)).

 

9.8  Additional Common Stock Issuances.  If the final Definitive Feasibility Study indicates that the estimated total Capital Costs (the “DFS Estimate”) for the Holbrook Project exceeds the Current 

 

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Capital Estimate by 2.5% or more, then the Company shall issue to the Notes Purchasers at Closing, and for no additional consideration other than the Purchase Price:

 

(a)           if the DFS Estimate is between 2.5% and 5.0% higher than the Current Capital Estimate, 3,993,095 shares of Common Stock; or

 

(b)           if the DFS Estimate is between 5.0% and 10.0% higher than the Current Capital Estimate, 7,189,275 shares of Common Stock.

 

(c)           In the event that the Company shall, after the date of the Original Agreement (i) issue, or declare a dividend or make a distribution on its shares of its Common Stock in, shares of its Common Stock or Options or Convertible Securities (including without limitation the issuance of Common Stock, Options or other equity securities under a Benefits Plan (whether or not in effect as of the date of the Original Agreement)), (ii) subdivide or reclassify the outstanding shares of its Common Stock into a greater number of shares, or (iii) combine or reclassify the outstanding shares of its Common Stock into a smaller number of shares, then the number of shares of Common Stock receivable by the Purchasers pursuant to subsections (a) and (b) shall be appropriately adjusted such that the Purchasers receive such number of shares of Common Stock in the aggregate that would entitle the Purchasers to 3.6% and 6.3%, respectively, of the outstanding voting power of the Company for the election of directors (accounting for such issuance and the issuance of the Notes to the Purchasers but not any exercise of any Options (including the Apollo Warrants) or other Convertible Securities outstanding as of the date of the Original Agreement), provided that such adjustments are not required as a result of the exercise of any Option or Convertible Security outstanding as of the date of the Original Agreement.

 

9.9  Affiliate Agreement Modifications.  The Company shall use reasonable best efforts to engage in discussions with Grandhaven for the termination of the Grandhaven Agreement in consideration for the potential issuance from the Company to Grandhaven of Options to purchase Common Stock or Equity-based Securities, in each case on terms reasonably acceptable to the Majority Purchasers (the “Grandhaven Agreement Amendment”), provided, for the avoidance of doubt, that the failure to enter into such a transaction with Grandhaven shall not itself be deemed to be a failure of any of the closing conditions set forth in Article VI.

 

9.10  Off-take Agreement.  The Company shall use best efforts to enter into additional definitive agreements with respect to off-take arrangements with customers for Potash production on the terms similar in all material respects as set forth in Exhibit D (the “Minimum Off-Take Arrangements”), as soon as practicable.

 

9.11  Board and Observer Rights.

 

(a)           Promptly after the date of the Original Agreement, unless prohibited by applicable Law or the rules of the Principal Market (and provided that the Company shall use reasonable best efforts to remove any such prohibitions), the Company shall appoint one representative of the Purchasers designated in writing by the Purchasers (the “Purchaser Designee”) to the Board of Directors of the Company. Until the earlier of the Closing Date and the termination of this Agreement, at each annual or special meeting (or action by written consent) of shareholders of the Company at which directors are to be elected to its Board of Directors, the Company will nominate and use its best efforts to cause the election to its Board of Directors of the Purchaser Designee. In the event of the death, disability, resignation or removal of the Purchaser Designee, or in the event of the failure of the Purchaser 

 

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Designee to be elected, the Company’s Board of Directors will promptly appoint to the Company’s Board of Directors a replacement Purchaser Designee designated by the Purchasers to fill the resulting vacancy, and such individual shall then be deemed the Purchaser Designee for all purposes hereunder; provided that if the Purchaser Designee is removed for cause, the replacement Purchaser Designee will not be the same person who was removed. Until the earlier of the Closing Date and the termination of this Agreement, the Company’s Board of Directors will not remove, or recommend to the shareholders of the Company removal of, the Purchaser Designee without the prior written consent of the Purchasers.

 

(b)           Until the earlier of the Closing Date and the termination of this Agreement, the Purchasers shall have the right to appoint one observer on the Company’s Board of Directors (the “Board Observer”) (it being understood that a Board Observer shall have all the rights (other than voting rights) of a director on the Company’s Board of Directors, including (A) the right to attend all meetings of the Company’s Board of Directors as an observer, (B) the right to receive advance notice of each meeting, including such meeting’s time and place, at the same time and in the same manner as such notice is provided to the members of the Company’s Board of Directors, (C) the right to receive copies of all materials, including notices, minutes, consents and regularly compiled financial and operating data distributed to the members of the Company’s Board of Directors at the same time as such materials are distributed to the Company’s Board of Directors, and shall have the same access to information concerning the business and operations of the Company, and (D) the right to discuss the affairs, finances and accounts of the Company with, and to make proposals and furnish advice with respect thereto to, the Company’s Board of Directors, without voting).

 

(c)           At or prior to Closing, in satisfaction of its obligations under the Investors Rights Agreement and the Company’s Second Amended and Restated Articles of Incorporation (as amended by the Certificate of Designation), the Company shall appoint four designees of the Purchasers to the Board of Directors of the Company and take all actions necessary to set the size of its Board of Directors to nine members, provided, that if the Company has, pursuant to Section 9.1(b), added an additional director in connection with a capital- raising transaction, then the Company shall appoint five designees of the Purchasers to the Board of Directors of the Company and take all actions necessary to set the size of its Board of Directors to eleven members. For avoidance of doubt, from and after the Closing, the parties’ obligations with respect to such director-designees shall be governed by the Investors Rights Agreement and the Company’s Second Amended and Restated Articles of Incorporation (as amended by the Certificate of Designation), and provided, further, that if, after the date of the Original Agreement, there is a change in applicable Law or the rules of the Principal Market that prohibits the rights in this subsection (c), then the Company shall use reasonable best efforts to remove such prohibitions and, if it is unsuccessful in doing so, the Company and the Majority Purchasers will discuss in good faith amendments to this subsection (c) to remove such prohibition (it being acknowledged that in no event will the Majority Purchasers be obligated to accept a lesser number of directors than a number equal to the Purchaser Percentage Interest multiplied by the outstanding number of directors on the board of directors of the Company).

 

9.12  KG Default Cure.

 

(a)           If at any time prior to the full repayment of the Karlsson Note, the Company or any of its Subsidiaries is in payment default or any other default that would entitle the holder of the Karlsson Note to accelerate the payment of obligations thereunder or is reasonably likely to be in such default within thirty (30) days, (i) the Company shall immediately provide the Purchasers notice thereof, (ii) the Royalty Purchasers shall have the right (but not the obligation), assuming the default is not cured within the subsequent fifteen (15) days, to purchase either (A) Common Stock or (B) notes issued by the 

 

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Company or its Subsidiaries, in each case on the terms set forth in this Section 9.12 and for an aggregate amount sufficient to (in the Majority Purchasers’ sole discretion) either (x) pay off the Karlsson Note in full (including any principal, interest, expenses, penalties or any other amounts outstanding) or (y) pay off such lesser amount as would be necessary to avoid or cure the default or anticipated default (as determined in the Majority Purchasers’ reasonable discretion) and (iii) the Company shall use such proceeds for such purpose. For the avoidance of doubt, this Section 9.12 (and the Royalty Purchasers’ rights hereunder) shall apply (and remain in effect) prior to, at or after the Closing until such time (if any) that this Agreement is terminated pursuant to Article X hereof.

 

(b)           If, pursuant to Section 9.12(a), the Royalty Purchasers elect to purchase Common Stock, such Common Stock shall be issued to the Royalty Purchasers or their respective designees at a per-share price equal to the lesser of (i) the then-applicable Conversion Price for the Notes (whether or not the Notes have actually been issued) or (ii) the arithmetic average of the volume-weighted average price (“VWAP”) of the Common Stock for the ten (10) Trading Day period immediately preceding the date of such purchase. Such Common Stock, when issued, shall be duly and validly authorized and issued, fully paid and non-assessable and free and clear of any Liens, restriction on voting or transfer or any other claim of any third party. In the event of any purchase of Common Stock pursuant to this Section 9.12(b), the Company shall enter into a registration rights agreement with respect to such shares of Common Stock with the Royalty Purchasers, on the same terms as those set forth in Articles IV and V of the Investors Rights Agreement, which registration rights agreement shall terminate upon the Closing.

 

(c)           If, pursuant to Section 9.12(a), the Royalty Purchasers elect to purchase notes issued by the Company or its Subsidiaries, such notes will be nonconvertible and issued on terms set forth in Schedule C-3 and such other terms customary for financings of such type and otherwise reasonably requested by the Majority Purchasers.

 

9.13  Preemptive Rights.

 

(a)           The Royalty Purchasers will have the preemptive rights set forth in this Section 9.13 with respect to any issuance of any Common Stock or Equity- based Securities by the Company or any of its Subsidiaries that are issued from and after the date of the Original Agreement through the Closing (any such issuance other than those described in clauses (i), (ii) and (iii) below, a “Preemptive Rights Issuance”), except for (i) issuances to employees, directors and consultants pursuant to and in accordance with stock incentive plans of the Company that were publicly filed with the SEC prior to the date of the Original Agreement (provided that any such issuances are made in accordance with the terms, conditions and limitations of such plans as they existed as of the date of the Original Agreement and without effect to any amendments or other modifications thereof after the date of the Original Agreement unless approved by the Majority Purchasers) or in accordance with written agreements set forth in Schedule 9.13 (provided that any such issuances are made in accordance with the terms, conditions and limitations of such agreements as they existed as of the date of the Original Agreement and without effect to any amendments or other modifications thereof after the date of the Original Agreement unless approved by the Majority Purchasers), (ii) issuances of shares of Common Stock as consideration in any merger approved pursuant to Section 9.1, or (iii) issuances of shares of Common Stock pursuant to and in accordance with warrant agreements entered into (and publicly filed with the SEC) prior to the date of the Original Agreement and previously disclosed to the Purchasers (provided that any such issuances are made in accordance with the terms, conditions and limitations of such warrant agreements as they existed as of the date of the Original Agreement and without effect to any amendments or other modifications thereof after the date of the Original Agreement unless approved by the Majority Purchasers).

 

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(b)           If the Company or any of its Subsidiaries at any time or from time to time, from and after the date of the Original Agreement through the Closing, effects one or more Preemptive Rights Issuance, the Company shall give written notice to each Royalty Purchaser a reasonable period in advance of each such issuance (but in no event later than ten (10) days prior to such issuance), which notice shall set forth the number and type of the securities to be issued, the issuance date, the offerees or transferees, the price per security, and all of the other terms and conditions of such issuance, which shall be deemed updated by delivery of the final documentation for such issuance to each Royalty Purchaser. With respect to each such Preemptive Rights Issuance, the Royalty Purchasers shall have the right, exercisable (by written notice to the Company (the “Preemptive Rights Notice”)) at any time at or within thirty (30) days following the Closing, to elect to purchase (or designate an Affiliate thereof (including, without limitation, another Royalty Purchaser) to purchase) a number of securities specified in such Preemptive Rights Notice (which number may be any number up to but not exceeding such Royalty Purchaser’s pro rata portion of the Preemptive Rights Cap Amount applicable to such Preemptive Rights Issuance), on the same terms and conditions as such Preemptive Rights Issuance (it being understood and agreed that (i) the price per security that the Royalty Purchasers shall pay shall be the same as the price per security set forth in the Preemptive Rights Notice, and (ii) the Royalty Purchasers shall not be required to comply with any terms, conditions, obligations or restrictions (including, without limitation, any non-compete, standstill or other limitations but excluding any remaining period of a transfer or lock-up restriction applicable at such time to other purchasers in such Preemptive Rights Issuance) not directly necessary for the effectuation of the sale or issuance of such securities). The Royalty Purchasers shall, by notice to the Company, within thirty (30) days after the Closing, indicate which pre-Closing Preemptive Rights Issuances the Royalty Purchasers are electing to exercise their preemptive rights with respect to and the number of securities the Royalty Purchasers are electing to purchase with respect to such pre-Closing Preemptive Rights Issuances. If the Royalty Purchasers exercise their preemptive rights hereunder with respect to one or more Preemptive Rights Issuances, the Company shall (or shall cause such Subsidiary to) issue to the Royalty Purchasers (or their designated Affiliates) the number of securities specified in the applicable Preemptive Rights Notices as soon as reasonably practicable thereafter. For the avoidance of doubt, in the event that the issuance of Common Stock or Equity-based Securities in a Preemptive Rights Issuance involves the purchase of a package of securities that includes Common Stock or Equity-based Securities and other securities in the same Preemptive Rights Issuance, each Royalty Purchaser shall have the right to acquire its applicable pro rata portion of such other securities, together with its applicable pro rata portion of such Common Stock or Equity-based Securities, in the same manner described above (as to amount, price and other terms).

 

(c)           The election by the Royalty Purchasers not to exercise its preemptive rights hereunder with respect to any Preemptive Rights Issuance shall not affect its right (other than in respect of a reduction in the Purchaser Percentage Interest) as to any other Preemptive Rights Issuances. Each Royalty Purchaser shall be entitled to deliver its own notices and make its own elections for purposes of this Section 9.13, and the non-exercise by any Royalty Purchaser shall not affect the rights of any other Royalty Purchaser under this Section 9.13.

 

9.14  Standstill.  Without the prior consent of the Company, the Purchasers shall not at any time until the one-year anniversary of the Closing, purchase or acquire any outstanding equity securities of the Company (including any Options or Convertible Securities of the Company) (it being understood and agreed that, for the avoidance of doubt, such restriction shall not apply to any purchase or acquisition by the Purchasers pursuant to and in accordance with Sections 9.8, 9.12 and 9.13, pursuant to the exercise or conversion of the Apollo Warrants or the Notes, pursuant to the Investors Rights Agreement (including Section 2.1 thereof) or as otherwise contemplated by the Transactions).

 

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9.15  Certain Tax Matters.

 

(a)           The Company shall not take any Tax position on any Tax return, in any Tax Proceeding, or otherwise in respect of the Notes, the other Securities or the Royalty without the prior written consent of the Majority Purchasers, which consent will not be unreasonably withheld, conditioned or delayed.

 

(b)           The Company shall provide to the Purchasers such cooperation, documentation and information relating to the Company, the other Securities, the Royalties and the Transactions as the Purchasers may reasonably request in connection with (i) filing any Tax return, amended Tax return or claim for refund, (ii) determining a liability for Taxes or a right to refund of Taxes, or (iii) conducting any Tax Proceeding. The Company shall make its employees reasonably available at the Company’s cost to provide an explanation of any documents or information provided pursuant to this Section 9.15(b).

 

(c)           Except as required by applicable Law, all payments made by the Company hereunder, pursuant to the Securities or pursuant to the Royalty Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other Taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority (together with any interest, additions to Tax and penalties applicable thereto, “Indemnified Taxes”). If any Indemnified Taxes are required to be withheld from any amounts payable by the Company to the Purchasers hereunder, pursuant to the Securities or pursuant to the Royalty Agreement, the amounts so payable to the Purchasers shall be increased to the extent necessary to yield to the Purchasers (after payment of all Indemnified Taxes) interest or any such other amounts payable hereunder or pursuant to the Securities at the rates or in the amounts specified in this Agreement or by the terms of the Securities, as applicable. Whenever any Indemnified Taxes are payable by the Company, the Company shall timely pay such Indemnified Taxes and shall send to the Purchasers a certified copy of an original official receipt received by the Company showing payment thereof. If the Company fails to pay any Indemnified Taxes when due to the appropriate Taxing Authority or fails to remit to the Purchasers the required receipts or other required documentary evidence, the Company shall indemnify the Purchasers for any incremental Taxes, interest or penalties that may become payable by the Purchasers as a result of any such failure.

 

9.16  Benefit Plans.  The Company agrees that (x) from the date of the Original Agreement through the Closing Date (and thereafter), it shall not take any action to accelerate the vesting of, or otherwise provide a benefit to a holder of, an outstanding equity or equity-based compensation award as a result of any of the transactions contemplated hereby, including due to any such transaction constituting a Change in Control or term of similar import (within the meaning of the governing documents applicable to such award) and (y) between the date of the Original Agreement and the Closing Date, it shall obtain waivers (in a form satisfactory to the Majority Purchasers) from the Company employees party to the agreements listed on Schedule 9.16 to the effect that none of the transactions contemplated hereby shall constitute a Change in Control for purposes of the applicable agreement.

 

9.17  FCPA.  As soon as practicable after the date of the Original Agreement, the Company shall adopt a compliance program for the FCPA, which compliance program shall be consistent with the prevailing standards of other companies operating in the Company’s industry and reasonably acceptable to the Majority Purchasers.

 

9.18  Supplemental Payment.  In the event that the Company or its Subsidiaries become liable for a Supplemental Payment, the Company shall pay to the Notes Purchasers and the Royalty Purchasers an 

 

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amount of cash (the “Supplemental Payment Gross Up”), allocated among the Notes Purchasers and the Royalty Purchasers in the manner specified by the Majority Purchasers (which manner shall be intended to reflect the relative percentage interests of ownership of Company securities of the Purchasers and their ultimate investors), equal to an amount that if such amount of the Supplemental Payment Gross Up is divided by the sum of (i) such amount of the Supplemental Payment Gross Up and (ii) the amount of the Supplemental Payment, would represent a percentage that is equal to the Investor Percentage Interest (as defined in the Investors Rights Agreement) at such time. Any such payment of the Supplemental Payment Gross Up shall be made at the same time as the payment of the Supplemental Payment.

 

9.19  Further Assurances.  After the Closing, each of the Company, the Guarantors and each Purchaser agrees to take such further actions and to execute, acknowledge and deliver all such further documents as are reasonably requested by the other Parties for carrying out the purposes of this Agreement or of any document delivered pursuant to this Agreement or the Transactions. Without limitation of the foregoing, upon the request of a Purchaser, the Company will enter into a management rights agreement, in customary form and reasonably acceptable to the Company.

 

ARTICLE X

 

TERMINATION

 

10.1  Right to Terminate.  Notwithstanding anything to the contrary set forth in this Agreement, this Agreement may be terminated and the Transactions abandoned at any time prior to the Closing:

 

(a)           by mutual written consent of the Company and the Majority Purchasers; or

 

(b)           by the Company or the Majority Purchasers, if:

 

(i)            the Closing shall not have been consummated on or before December 31, 2013 (the “Outside Date”); provided, however, that neither the Company, on the one hand, nor the Majority Purchasers, on the other hand, shall be entitled to terminate this Agreement under this Section 10.1(b)(i) if such Party’s breach of any provision of this Agreement shall have been the cause of, or otherwise resulted in, the failure of the Closing to occur on or before the Outside Date; or

 

(ii)           a court of competent jurisdiction or other Governmental Authority shall have issued a final, non-appealable order, decree or ruling permanently restraining, enjoining or otherwise prohibiting the sale and purchase of the Notes or the other Transactions; provided, that the Party seeking to terminate this Agreement pursuant to this Section 10.1(b)(ii)) shall have complied in all material respects with its obligations in Section 9.3; or

 

(iii)          the Shareholders Meeting (including any permitted adjournments or postponements thereof) shall have been held and completed and the Requisite Shareholder Approval shall not have been obtained at such Shareholders Meeting (or at any adjournment or postponement thereof, if applicable); or

 

(c)           by the Majority Purchasers, if the Company shall have breached any of its representations or warranties in this Agreement or failed to perform any of its covenants in this Agreement such that the conditions set forth in Sections 6.1 or 6.2 would not be capable of being satisfied on such date if such date was the Closing Date, and such breach or failure to perform 

 

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shall not have been cured or waived in writing prior to the earlier of (i) fifteen (15) days following notice of such breach or failure to the Company and (ii) the Outside Date; provided, that Majority Purchasers shall not have the right to terminate this Agreement pursuant to this Section 10.1(c) if any Purchaser is then in material breach of any of its representations or warranties in this Agreement or has failed to perform in any material respect any of its covenants in this Agreement; or

 

(d)           by the Company, if any Purchaser shall have breached any of its representations or warranties in this Agreement or failed to perform any of its covenants in this Agreement such that the conditions set forth in Sections 5.1 or 5.2 would not be capable of being satisfied on such date if such date was the Closing Date, and such breach or failure to perform has not been cured or waived in writing prior to the earlier of (i) fifteen (15) days following notice of such breach or failure to the Purchasers and (ii) the Outside Date; provided, that the Company shall have no right to terminate this Agreement pursuant to this Section 10.1(d) if the Company is then in material breach of any of its representations or warranties in this Agreement or has failed to perform in any material respect any of its covenants in this Agreement; or

 

(e)           by the Majority Purchasers, if prior to obtaining the Requisite Shareholder Approval, the Board of Directors of the Company shall have made an Adverse Recommendation Change or the Company has materially breached its obligations under Section 9.7.

 

10.2  Effect of Termination.  In the event that the Closing Date does not occur as a result of any Party hereto exercising its rights to terminate this Agreement pursuant to this Article X, then this Agreement shall be null and void and, except as otherwise expressly provided herein (including as provided for in Section 10.3), no Party shall have any rights or obligations under this Agreement, except that nothing herein shall relieve any Party from liability for any wrongful failure or refusal to perform or observe in any material respect any agreement or covenant contained herein. In the event the termination of this Agreement results from the wrongful failure or refusal of any Party to perform in any material respect any agreement or covenant herein, then the other Party shall be entitled to all remedies available at law or in equity and shall be entitled to recover court costs and reasonable attorneys’ fees in addition to any other relief to which such Party may be entitled. In the event that a Party wrongfully terminates or repudiates this Agreement or wrongfully fails to consummate the Transactions, the remedies available to the other Party in equity shall include specific performance as set forth in Section 26.14 of this Agreement and such other remedies as may be available to the other Party at Law.

 

10.3  Fees and Expenses.  Except as otherwise specifically provided herein, each Party hereto is responsible for all costs and expenses incurred by it in connection with this Agreement, whether or not the Transactions are consummated. In the event that this Agreement is terminated (a) by any Party pursuant to Section 10.1(b)(i) and, at the time of such termination, the Requisite Shareholder Approval has not been obtained; (b) by any Party pursuant to Section 10.1(b)(iii); or (c) by the Majority Purchasers, pursuant to Section 10.1(c) or Section 10.1(e), then the Company shall promptly (and in no event later than two (2) Business Days following such termination) (x) reimburse to the Purchasers or any Affiliates of the Purchasers designated by the Majority Purchasers all Purchaser Expenses, to the extent not previously reimbursed, and (y) pay to the Royalty Purchasers (in proportion to the percentage specified opposite each such Royalty Purchaser’s name in Schedule A) a fee of $7.5 million (the “Company Termination Fee”), in the case of each of (x) and (y) by wire transfer of immediately available funds to an account or accounts as directed by the Purchasers.

 

10.4  Amendment.  This Agreement may be amended by the parties hereto whether before or after the Requisite Shareholder Approval is obtained; provided, however, that after the Requisite 

 

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Shareholder Approval is obtained, no amendment may be made that by Law, requires further approval by shareholders unless such further approval is first obtained. This Agreement may not be amended except by an instrument in writing signed by the parties hereto.

 

10.5  Waiver.  At any time, any Party hereto may, to the extent permitted by applicable Law, (a) extend the time for the performance of any obligation or other act of any other Party hereto, (b) waive any inaccuracy in the representations and warranties contained herein or in any document delivered pursuant hereto and (c) waive compliance with any agreement or condition contained herein. Any such extension or waiver shall be valid if set forth in an instrument in writing signed by the Party or Parties to be bound thereby.

 

ARTICLE XI

 

INDEMNIFICATION

 

11.1  Purchaser Indemnification.  From and after the Closing, the Purchasers shall, on a several but not joint basis, indemnify, defend and hold harmless the Company and its Subsidiaries (and the officers, directors, employees, partners, members and Affiliates of each of the foregoing) from and against all Damages incurred or suffered by such Persons:

 

(a)           caused by or arising out of or resulting from any Purchaser’s breach of any of its covenants or agreements contained in Article IX; or

 

(b)           caused by or arising out of or resulting from any breach of any representation or warranty made by a Purchaser contained in Article VIII of this Agreement, as of the Closing Date, as if made on such date, except for any representation and warranty which speaks as of a particular date, in which case, as of such particular date, or in the certificate delivered by such Purchaser at Closing pursuant to Section 5.3;

 

even if such Damages are caused in whole or in part by the negligence (whether sole, joint, or concurrent), strict liability, or other legal fault of any Indemnified Person, but excepting in each case Damages against which the Company would be required to indemnify a Purchaser (or related Indemnified Person) under Section 11.2(b) at the time the claim notice is presented by the Company. “Damages” for purposes of this Article XI, means the amount of any liability, loss (including diminution of value), cost, expense, claim, award, or judgment incurred or suffered by any Indemnified Person arising out of or resulting from the indemnified matter, whether attributable to personal injury or death, property damage, contract claims, torts or otherwise including reasonable fees and expenses of attorneys, consultants, accountants, or other agents and experts reasonably incident to matters indemnified against, and the costs of investigation and/or monitoring of such matters, and the costs of enforcement of the indemnity.

 

11.2  Company Indemnification.  From and after the Closing, the Company shall indemnify, defend and hold harmless each Purchaser and its Affiliates (and the officers, directors, employees, partners and members of each of the foregoing) against and from all Damages incurred or suffered by such Persons:

 

(a)           caused by or arising out of or resulting from the Company or its Subsidiary’s breach of any of the Company’s covenants or agreements contained in Article IX;

 

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(b)           caused by or arising out of or resulting from any breach of any representation or warranty made by the Company contained in Article VII of this Agreement, as of the Closing Date, as if made on such date, except for any representation and warranty which speaks as of a particular date, in which case, as of such particular date, or in the certificate delivered by the Company at Closing pursuant to Section 6.3(a);

 

(c)           caused by or arising out of or resulting from any Proceeding brought by any shareholders of the Company (including any derivative actions), any Governmental Authorities or any other third party relating to the Company’s authorization and execution of this Agreement, the Original Agreement or any agreement or instrument contemplated by this Agreement, the Original Agreement or the performance of the Transactions; or

 

(d)           solely until such time as the Notes have been fully converted into Common Stock, caused by or arising out of in connection with, or as a result of (i) the execution or delivery of this Agreement, the Original Agreement or any agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations thereunder or the consummation of the Transactions, (ii) the use of the proceeds of the Notes purchased hereunder, including the development and operation of the Holbrook Project, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Company or any of its Subsidiaries, or any Environmental Liability related in any way to the Company or any of its Subsidiaries, or (v) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto,

 

even if such Damages are caused in whole or in part by the negligence (whether sole, joint, or concurrent), strict liability, or other legal fault of any Indemnified Person, but excepting in each case Damages against which the Purchasers would be required to indemnify the Company under Section 11.1(a) at the time the claim notice is presented by the Purchasers.

 

11.3  Indemnification Actions.  All claims for indemnification under Sections 11.1 and 11.2 shall be asserted and resolved as follows:

 

(a)           For purposes of this Article XI, the term “Indemnifying Person” when used in connection with particular Damages shall mean the Person having an obligation to indemnify another Person or Persons with respect to such Damages pursuant to this Article XI, and the term “Indemnified Person” when used in connection with particular Damages shall mean a Person having the right to be indemnified with respect to such Damages pursuant to this Article XI.

 

(b)           To make a claim for indemnification under Sections 11.1 or 11.2, an Indemnified Person shall notify the Indemnifying Person of its claim, including the specific details of and specific basis under this Agreement for its claim (the “Claim Notice”). In the event that the claim for indemnification is based upon a claim by a third Person against the Indemnified Person (a “Claim”), the Indemnified Person shall provide its Claim Notice promptly after the Indemnified Person has actual knowledge of the Claim and shall enclose a copy of all papers (if any) served with respect to the Claim; provided, that the failure of any Indemnified Person to give notice of a Claim as provided in this Section 11.3 shall not relieve the Indemnifying Person of its obligations under Section 11.1 or 11.2 except to the extent such failure materially prejudices the Indemnifying Person’s ability to defend against the Claim. In the event that the claim for indemnification is based upon an inaccuracy or breach of a representation, warranty, covenant or 

 

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agreement, the Claim Notice shall specify the representation, warranty, covenant or agreement that was inaccurate or breached.

 

(c)           In the case of a claim for indemnification based upon a Claim, the Indemnifying Person shall have thirty (30) days from its receipt of the Claim Notice to notify the Indemnified Person whether it admits or denies its liability to defend the Indemnified Person against such Claim under this Article XI. If the Indemnifying Person does not notify the Indemnified Person within such thirty (30) day period regarding whether the Indemnifying Person admits or denies its liability to defend the Indemnified Person, the Damages for which the Indemnified Person is seeking indemnity shall be conclusively deemed a liability of the Indemnifying Person hereunder. The Indemnified Person is authorized, prior to and during such thirty (30) day period, to file any motion, answer or other pleading that it shall deem necessary or appropriate to protect its interests or those of the Indemnifying Person and that is not prejudicial to the Indemnifying Person.

 

(d)           If the Indemnifying Person admits its liability to indemnify the Indemnified Person, it shall have the right and obligation to diligently defend, at its sole cost and expense, the Claim. The Indemnifying Person shall have full control of such defense and proceedings, including any compromise or settlement thereof. If requested by the Indemnifying Person, the Indemnified Person agrees to cooperate in contesting any Claim, which the Indemnifying Person elects to contest (provided, however, that the Indemnified Person shall not be required to bring any counterclaim or cross-complaint against any Person). The Indemnified Person may participate in, but not control, any defense or settlement of any Claim controlled by the Indemnifying Person pursuant to this Section 11.3(d). An Indemnifying Person shall not, without the written consent of the Indemnified Person, settle any Claim or consent to the entry of any judgment with respect thereto that (i) does not include, in the case of a settlement, an unconditional written release of the Indemnified Person from all liability in respect of such Claim or (ii) may materially and adversely affect the Indemnified Person (other than as a result of money damages covered by the indemnity).

 

(e)           If the Indemnifying Person does not admit its liability to indemnify the Indemnified Person or admits its liability, but fails to diligently defend or settle the Claim, then the Indemnified Person shall have the right to defend against the Claim (at the sole cost and expense of the Indemnifying Person, if the Indemnified Person is entitled to indemnification hereunder), with counsel of the Indemnified Person’s choosing, subject to the right of the Indemnifying Person to admit its liability to indemnify the Indemnified Person and assume the defense of the Claim at any time prior to settlement or final determination thereof. If the Indemnifying Person has not yet admitted its liability to indemnify the Indemnified Person, the Indemnified Person shall send written notice to the Indemnifying Person of any proposed settlement and the Indemnifying Person shall have the option for ten days following receipt of such notice to (i) admit in writing its liability for indemnification with respect to such Claim and (ii) if liability is so admitted, reject the proposed settlement.

 

11.4  Limitations.

 

(a)           The representations and warranties of the parties in Articles VII and VIII, and the corresponding representations and warranties given in the certificates delivered at the Closing pursuant to Sections 5.3 and 6.3(a), as applicable, shall survive the Closing for a period of eighteen (18) months, except that (i) the representations and warranties of the Company contained in Section 7.1 (Organization; Power and Authority), 7.2 (Authorization, Etc), 7.3 (Execution; Due Authority); 7.4 (No 

 

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Conflicts); 7.5 (Consents, Approvals or Waivers); 7.7(b) (Compliance with Law), 7.22 (Taxes) and 7.40 (Covenants) (collectively, the “Fundamental Representations”) shall survive the Closing indefinitely, and the representations and warranties of the Company contained in Section 7.8 (License and Permits) and 7.20 (Environmental Matters) shall survive the Closing for three (3) years. The covenants in this Agreement shall survive the Closing without time limit except as may otherwise be expressly provided herein. Representations, warranties, covenants and agreements shall be of no further force and effect after the date of their expiration; provided, that there shall be no termination of any bona fide claim asserted pursuant to this Agreement with respect to such a representation, warranty, covenant, or agreement prior to its expiration date. Subject to the foregoing, all representations and warranties contained herein shall survive the purchase or transfer by any Purchaser of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of such Purchaser or any other holder of a Note.

 

(b)           The indemnities in Sections 11.1(b) and 11.2(b) shall terminate as of the termination date of each respective representation or warranty that is subject to indemnification, except in each case as to matters for which a Claim Notice for indemnity has been delivered to the Indemnifying Person on or before such termination date.

 

(c)           Notwithstanding anything to the contrary in this Agreement, for purposes of determining whether a representation or warranty has been breached for purposes of this Article XI, each representation and warranty set forth in Article VII and Article VIII, shall be read without regard to and without giving effect to any “material,” “materiality,” “Material Adverse Effect”, or similar qualifications, that may be contained in any such representation or warranty.

 

(d)           The Company shall not have any liability for any Damages under Section 11.2(b), except for the Fundamental Representations, until the aggregate of all such claims result in total Damages which are incurred or suffered by the Purchasers (or their related Indemnified Persons) that exceed $1,000,000 (the “Threshold”), in which case the Purchasers shall be entitled to indemnification for all Damages incurred; provided, however, that the aggregate liability of the Company pursuant to Section 11.2(b), except for the Fundamental Representations, shall not be in excess of an aggregate amount of $20,000,000 (the “Cap”).

 

(e)           The Purchasers shall not have any liability for any Damages arising under Section 11.1(b) until the aggregate of all such claims result in total Damages which are incurred or suffered by the Company that exceeds the Threshold, in which case the Company shall be entitled to indemnification for all Damages incurred; provided, however, that the aggregate liability of the Purchasers pursuant to Section 11.1(b) shall not be in excess of an aggregate amount of the Cap.

 

(f)            If any Damages sustained by an Indemnified Person are covered by an insurance policy or an indemnification, contribution or similar obligation of another Person (other than an Affiliate of such Indemnified Person), both the Indemnified Person and the Indemnifying Person shall use commercially reasonable efforts to collect such insurance proceeds or indemnity, contribution or similar payments. The amount of any Damages subject to indemnification shall be reduced by the amounts recoverable under applicable insurance policies or an indemnification, contribution or similar obligation of another Person (other than an Affiliate of such Indemnified Person) with respect to claims related to such Damages (net of (i) any increase in premiums, (ii) retroactive premiums, (iii) premium adjustments or (iv) any deductible incurred in obtaining such proceeds) and if any Indemnified Person receives such insurance proceeds or indemnity, contribution or similar payments after the settlement of any indemnification claim, such Indemnified Person shall refund to the Indemnifying Party or parties the 

 

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amount of such insurance proceeds or indemnity, contribution or similar payments, up to the amount received in connection with such indemnification claim. It is the intention of the parties hereto that no insurer or third party shall be entitled to any benefit or right it would not be entitled to receive in the absence of this Section 11.4(f).

 

(g)           Notwithstanding anything to the contrary contained in this Agreement (other than the final proviso in this subsection (g)) or provided for under any applicable Law, no Indemnifying Person shall be liable under this Article XI (other than under Section 11.2(c)) to any Indemnified Person, either in contract or in tort, for any loss of profits or any consequential, incidental, exemplary, indirect, special or punitive damages of such Indemnified Person, including loss of future revenue, income or profits, whether or not the possibility of such damages has been disclosed to the Indemnifying Person in advance or could have been reasonably foreseen by the Indemnifying Person; provided, however, that nothing in this Section 11.4(g) shall limit the liability of an Indemnified Person under this Article XI for any loss of profits or any consequential, incidental, exemplary, indirect, special or punitive damages, including loss of future revenue, income or profits relating to the breach or alleged breach hereof actually paid by an Indemnified Person to a third party; and provided further that nothing in this Section 11.4(g) shall limit any claims based on diminution of value.

 

(h)           Each Indemnified Person shall use commercially reasonable efforts to mitigate any Damages for which such Indemnified Person seeks indemnification (it is understood that an Indemnified Person’s failure to satisfy its obligations under this Section 11.4(h) shall constitute a breach of this Agreement by such Indemnified Person but that such failure shall not limit such Indemnified Person’s rights under this Article XI and shall not limit an Indemnifying Person’s rights to reduce the amount payable by such Indemnifying Person for Damages to reflect such breach). Each Indemnified Person shall use commercially reasonable efforts to pursue against Persons who are not parties to this Agreement any and all rights or benefits (including rights to be indemnified and held harmless or rights to be reimbursed for, or to share, certain costs, expenses or Taxes) with respect to any matter that is indemnifiable under this Article XI.

 

(i)            Notwithstanding anything to the contrary contained in this Agreement, from and after Closing this Article XI contains the Parties’ exclusive remedy against each other with respect to breaches of the representations, warranties, covenants and agreements of the Parties contained in Articles VII, VIII and IX (other than any such covenants and agreements that are to be performed, in part or in full, after the Closing) and the affirmations of such representations, warranties, covenants and agreements contained in the certificate delivered by each Party at Closing pursuant to Sections 5.3 and 6.3(a), as applicable.

 

(j)            For Tax purposes, the parties agree that all indemnification payments made hereunder constitute adjustments to the Purchase Price and shall report any payments as such on their Tax returns, unless otherwise required by applicable law.

 

ARTICLE XII

 

VOTING

 

12.1  Voting.  On any matter presented to the shareholders of the Company for their action or consideration at any meeting of the shareholders of the Company or for action by written consent, each Purchaser shall be entitled to the number of votes equal to the number of shares of Common Stock into which the Notes held by such Purchaser (as of the record date for determining shareholders entitled to vote on such matter) are convertible based on the then-effective Conversion Price (including any adjustments pursuant to Article XIII) and shall have voting rights and powers equal to the voting rights

 

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and powers of the Common Stock (except as otherwise expressly provided herein or as required by Law, voting together with the Common Stock as a single class) and shall be entitled to notice of any such shareholders’ meeting or action by written consent in accordance with the Bylaws of the Company. Fractional votes shall not, however, be permitted and any fractional voting rights resulting from the above formula shall be rounded down to the nearest whole number. Notwithstanding the foregoing, the holders of Notes shall vote as a separate class on any matters as to which a separate class vote is required by applicable Law or as provided in Section 12.2.

 

12.2  No Adverse Actions.  As long as any Notes are outstanding, the Company shall not, without the affirmative vote or written consent of the holders of 67% of the then outstanding principal amount of Notes, amend its articles of incorporation or bylaws in any manner that adversely affects the voting rights of the Notes, or enter into any agreement committing the Company to do any of the foregoing.

 

ARTICLE XIII

 

CONVERSION

 

At any time or times after the Closing, the Notes shall be convertible into shares of Common Stock, on the terms and conditions set forth in this Article XIII.

 

13.1  Conversion Right.

 

(a)           At any time and from time to time on or after the Closing Date, each Purchaser shall be entitled to convert all or any portion of the outstanding and unpaid principal and all or any portion of the accrued and unpaid interest on the Notes owned by such Purchaser (such amount to be the “Conversion Amount” for purposes of this Article XIII) into fully paid and nonassessable shares of Common Stock in accordance with Section 13.3, at the Conversion Price (as defined below).

 

(b)           Upon or at any time after the Conversion Milestone, the Company shall be entitled to cause the conversion of all or any portion of the outstanding and unpaid principal and all or any portion of the accrued and unpaid interest on the Notes (such amount to be the “Conversion Amount” for purposes of this Article XIII) into fully paid and nonassessable shares of Common Stock in accordance with Section 13.3, at the Conversion Price, provided that if the Company causes conversion of less than all of the outstanding principal amount of the Notes, such conversions shall be made from each of the Purchasers on a pro rata basis in proportion to the principal amount of Notes held by them.

 

(c)           The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the next whole share. The Company shall pay any and all transfer, stamp and similar Taxes that may be payable with respect to the issuance and delivery of Common Stock upon conversion of any Conversion Amount.

 

13.2  Conversion.  The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to Section 13.1(a) or (b) shall be determined by dividing (x) the applicable Conversion Amount by (y) the Conversion Price.

 

(a)           “Initial Conversion Price” means $2.70.

 

(b)           “Conversion Price” as of any date herein, means the Initial Conversion Price as adjusted from time to time pursuant to this Article XIII hereof. It is expressly acknowledged and agreed by the Company that the Conversion Price on the Closing Date may be lower than the Initial Conversion Price 

 

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as a result of adjustments to the Initial Conversion Price set forth in this Article XIII that are based on events occurring prior to the Closing Date.

 

13.3  Mechanics of Conversion.

 

(a)           To convert any Conversion Amount into shares of Common Stock on any date (a “Purchaser Conversion Date”), a Purchaser shall (A) transmit for delivery, for receipt on or prior to 7:00 p.m., New York time, on such date, which must be a Business Day, a copy of an executed notice of conversion in the form attached hereto as Exhibit B-1 (the “Purchaser Conversion Notice”) to the Company and the Transfer Agent and (B) surrender the Notes to a common carrier for delivery to the Company within three (3) Business Days following a conversion of the Notes. On or before the first (1st) Business Day following the date of receipt of a Purchaser Conversion Notice, the Company shall transmit by facsimile a confirmation of receipt of such Purchaser Conversion Notice to such Purchaser and the Transfer Agent. On or before the third (3rd) Trading Day following the date of receipt of a Purchaser Conversion Notice (a “Purchaser Share Delivery Date”), the Company shall (x) provided, that the Transfer Agent is participating in the DTC Fast Automated Securities Transfer Program and the shares are eligible to be sold without restrictions (other than volume restrictions) under Rule 144 under the Securities Act, credit such aggregate number of shares of Common Stock to which such Purchaser shall be entitled to such Purchaser’s or its designee’s balance account with DTC through its Deposit/Withdrawal At Custodian system or (y) otherwise, issue and deliver to the address as specified in the Purchaser Conversion Notice, a certificate, registered in the name of such Purchaser or its designees, for the number of shares of Common Stock to which such Purchaser shall be entitled. If the outstanding principal of the Notes is greater than the principal portion of the Conversion Amount being converted, then the Company shall as soon as practicable and in no event later than three (3) Business Days after receipt of the Notes and at its own expense, issue and deliver to such Purchaser a new Note representing the outstanding principal not converted. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of the Notes shall be treated for all purposes as the record purchaser of such shares of Common Stock on the Purchaser Conversion Date, irrespective of the date such shares are credited to such purchaser’s account with DTC or the date of delivery of the certificates evidencing such Conversion Shares, as the case may be.

 

(b)           To convert any Conversion Amount into shares of Common Stock on any date (a “Company Conversion Date”), the Company shall transmit for delivery, for receipt on or prior to 7:00 p.m., New York time, on such date, which must be a Business Day, a copy of an executed notice of conversion in the form attached hereto as Exhibit B-2 (the “Company Conversion Notice”) to the Purchasers and the Transfer Agent and the Purchasers shall surrender the Notes to a common carrier for delivery to the Company within three (3) Business Days following a conversion of the Notes. On or before the first (1st) Business Day following the date of receipt of a Company Conversion Notice, each Purchaser shall transmit by facsimile a confirmation of receipt of such Company Conversion Notice to the Company and the Transfer Agent. On or before the third (3rd) Trading Day following the date of receipt by the Purchasers of a Company Conversion Notice (a “Company Share Delivery Date” and together with a Purchase Share Delivery Date, a “Share Delivery Date”, the Company shall (x) provided, that the Transfer Agent is participating in the DTC Fast Automated Securities Transfer Program and the shares are eligible to be sold without restrictions (other than volume restrictions) under Rule 144 under the Securities Act, credit such aggregate number of shares of Common Stock to which each Purchaser shall be entitled to such Purchaser’s balance account with DTC through its Deposit/Withdrawal At Custodian system or (y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to each Purchaser a certificate, registered in the name of such Purchaser, for the number of shares of Common Stock to which such Purchaser shall be entitled. If the

 

49

 

outstanding principal of the Notes is greater than the principal portion of the Conversion Amount being converted, then the Company shall as soon as practicable and in no event later than three (3) Business Days after receipt of the Notes and at its own expense, issue and deliver to each Purchaser a new Note representing the outstanding principal not converted. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of the Notes shall be treated for all purposes as the record purchaser of such shares of Common Stock on the Company Conversion Date, irrespective of the date such shares are credited to the purchasers’ account with DTC or the date of delivery of the certificates evidencing such Conversion Shares, as the case may be.

 

(c)           If the Company shall fail to issue a certificate to a Purchaser or credit such Purchaser’s balance account with DTC, as applicable, for the number of shares of Common Stock to which such Purchaser is entitled upon conversion of any Conversion Amount on or prior to the Share Delivery Date (a “Conversion Failure”), then (A) the Company shall pay damages to the Purchasers for each trading day of such Conversion Failure in an amount equal to 1.5% of the product of (1) the sum of the number of shares of Common Stock not issued to the Purchasers on or prior to the Share Delivery Date and to which the Purchasers is entitled, and (2) the Closing Sale Price of the Common Stock on the Share Delivery Date; provided, that the payment of such damages shall not relieve the Company from its obligation to deliver the shares to which the Purchasers are entitled upon conversion of such Conversion Amount except to the extent of a voided Conversion Notice pursuant to clause (B) of this sentence and (B) the Purchasers, upon written notice to the Company, may void its Conversion Notice with respect to any portion of the Conversion Amount in respect of which there has been a Conversion Failure, and retain or have returned, as the case may be, any portion of the Notes in respect of which there has been a Conversion Failure; provided, that the voiding of a Conversion Notice shall not affect the Company’s obligations to pay any amounts which have accrued under the Notes prior to the date of such notice pursuant to this Section 13.3(c) or otherwise. In addition to the foregoing, if the Company shall fail on or prior to the Share Delivery Date to issue and deliver a certificate to such Purchaser or credit such Purchaser’s balance accounts with DTC for the number of shares of Common Stock to which such Purchaser is entitled upon such Purchaser’s conversion of any Conversion Amount or on any date of the Company’s obligation to deliver shares of Common Stock as contemplated pursuant to clause (ii) below, and if on or after such Share Delivery Date such Purchaser purchases (in an open market transaction or otherwise) Common Stock to deliver in satisfaction of a sale by such Purchaser of Common Stock issuable upon such conversion that such Purchaser anticipated receiving from the Company (a “Buy-In”), then the Company shall, within three (3) Trading Days after such Purchaser’s request and in such Purchaser’s discretion, either (i) pay cash to such Purchaser in an amount equal to such Purchaser’s total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to issue and deliver such certificate or credit such Purchaser’s balance account with DTC for the shares of Common Stock to which such Purchaser is entitled upon such Purchaser’s conversion of the applicable Conversion Amount shall terminate, or (ii) promptly honor its obligation to deliver to such Purchaser a certificate or certificates representing such Common Stock or credit such Purchaser’s balance account with DTC for the number of shares of Common Stock to which such Purchaser is entitled upon such Purchaser’s conversion hereunder (as the case may be) and pay cash to such Purchaser in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the Closing Sale Price on the Conversion Date.

 

(d)           In the event that the Company receives a Conversion Notice from more than one Purchaser for the same Conversion Date and the Company can convert some, but not all, of such portions of the Notes submitted for conversion, the Company shall convert from each Purchaser electing to have Notes converted on such date a pro rata amount of such Purchaser’s portion of its Notes

 

50

 

submitted for conversion based on the principal amount of Notes submitted for conversion on such date by such Purchasers relative to the aggregate principal amount of all Notes submitted for conversion on such date; provided, however, that nothing in this Section 13.3(d) shall be deemed to release the Company from any such failure to convert. In the event of a dispute as to the number of shares of Common Stock issuable to a Purchaser in connection with a conversion of the Notes, the Company shall issue to such Purchaser the number of shares of Common Stock not in dispute and resolve such dispute in accordance with the terms of this Agreement.

 

13.4  Adjustment Upon Issuance of Shares of Common Stock.  If and whenever on or after the date of the Original Agreement the Company issues or sells, or in accordance with this Section 13.4 is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company) for a consideration per share (the “New Issuance Price”) less than a price equal to the Conversion Price in effect immediately prior to such issue or sale or deemed issuance or sale (such Conversion Price then in effect is referred to as the “Applicable Price”) (the foregoing a “Dilutive Issuance”), other than an issuance or sale or deemed issuance or sale covered by Section 13.5, then the Conversion Price then in effect shall be reduced to a price determined in accordance with the following formula:

 

	
 
    	
R1 = R ×
    	
OS + A

 

OS + B
    	
 
    

 

Where:

 

	
 
    	
R1 =
    	
the Conversion Price in effect immediately after such Dilutive   Issuance;
    
	
 
    	
R = 
    	
the Conversion Price in effect immediately prior to such Dilutive   Issuance;
    
	
 
    	
OS =
    	
the number of shares of Common Stock outstanding immediately prior to   such Dilutive Issuance (treating for this purpose as outstanding all shares   of Common Stock issuable upon exercise of Options outstanding immediately   prior to such issue or upon conversion or exchange of Convertible Securities   (excluding the Notes) outstanding immediately prior to such issue (to the   extent such Options or Convertible Securities have an exercise or conversion   price below R));
    
	
 
    	
A =
    	
the number of shares of Common Stock that would have been issued (or   be deemed to have been issued) if such Dilutive Issuance had been issued at a   price per share equal to R (determined by dividing the aggregate   consideration received by the Company in respect of such issue by R); and
    
	
 
    	
B =
    	
the number of shares of Common Stock issued (or deemed to have been   issued) in such Dilutive Issuance.
    

 

For purposes of determining the adjusted Conversion Price under this Section 13.4, the following shall be applicable:

 

(A)  Issuance of Options.  If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this

 

51

 

Section 13.4(A), the “lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of the Option, upon exercise of the Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option. Except as contemplated below, no further adjustment of the Conversion Price shall be made upon the actual issuance of such share of Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such share of Common Stock upon conversion, exercise or exchange of such Convertible Securities. The Conversion Price will be readjusted to the extent that such Options are not exercised prior to their expiration.

 

(B)  Issuance of Convertible Securities.  If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 13.4(B), the “lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion, exercise or exchange of such Convertible Security. Except as contemplated below, no further adjustment of the Conversion Price shall be made upon the actual issuance of such share of Common Stock upon conversion, exercise or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price has been or is to be made pursuant to other provisions of this Section 13.4, except as contemplated below, no further adjustment of the Conversion Price shall be made by reason of such issue or sale. The Conversion Price will be readjusted to the extent that such Convertible Securities are not converted prior to the last day on which they are convertible.

 

(C)  Change in Option Price or Rate of Conversion.  If the purchase or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for shares of Common Stock increases or decreases at any time, the Conversion Price in effect at the time of such increase or decrease shall be adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate (as the case may be) at the time initially granted, issued or sold. For purposes of this Section 13.4(C), if the terms of any Option or Convertible Security that was outstanding as of the date of the Original Agreement are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the shares of Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 13.4(C) shall be made if such adjustment would result in an increase of the Conversion Price then in effect.

 

52

 

(D)  Calculation of Consideration Received.  In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $0.01. If any shares of Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the amount of consideration received by the Company therefor. If any shares of Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Company for such securities will be the arithmetic average of the VWAP of such security for the five (5) Trading Day period immediately preceding the date of receipt. If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities (as the case may be). The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Company and the Purchasers. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined within five (5) Trading Days after the tenth (10th) day following such Valuation Event by an independent, reputable appraiser (an “Appraiser”) jointly selected by the Company and the Majority Purchasers; provided, that if the Company and the Majority Purchasers cannot agree on an Appraiser within such ten (10) Trading Days, each will choose an Appraiser and the two Appraisers will choose a third Appraiser who will determine the fair value of such consideration. The determination of such appraiser shall be final and binding upon all parties absent manifest error (provided such determination is approved by the Majority Purchasers) and the fees and expenses of such appraiser shall be borne by the Company.

 

13.5  Adjustment for Change in Capital Stock.  If, after the date of the Original Agreement, the Company:

 

(d)           pays a dividend or makes another distribution to all or substantially all holders of Common Stock payable exclusively in shares of Common Stock;

 

(e)           subdivides the outstanding shares of Common Stock into a greater number of shares; or

 

(f)            combines the outstanding shares of Common Stock into a smaller number of shares;

 

then the Conversion Price will be adjusted based on the following formula:

 

	
 
    	
R1 = R ×
    	
OS1

 

OS
    	
 
    

 

53

 

where:

 

	
 
    	
R1 =
    	
the Conversion Price in effect immediately after the open of business   on the Ex-Dividend Date for such dividend or distribution, or immediately   after the open of business on the effective date of such subdivision or   combination, as the case may be;
    
	
 
    	
R =
    	
the Conversion Price in effect immediately prior to the open of   business on the Ex-Dividend Date for such dividend or distribution, or   immediately prior to the open of business on the effective date of such   subdivision or combination, as the case may be;
    
	
 
    	
OS1 =
    	
the number of shares of Common Stock outstanding immediately prior to   the open of business on the Ex-Dividend Date for such dividend or   distribution, or immediately prior to the open of business on the effective   date of such subdivision or combination, as the case may be; and
    
	
 
    	
OS =
    	
the number of shares of Common Stock outstanding immediately after   such dividend or distribution, or immediately after the effective date of   such subdivision or combination, as the case may be.
    

 

Such adjustment shall become effective immediately after the open of business on the Ex-Dividend Date for such dividend or distribution, or the effective date for such subdivision or combination. If any dividend or distribution of the type described in this Section 13.5 is declared but not so paid or made, or the outstanding shares of Common Stock are not split or combined, as the case may be, the Conversion Price shall be immediately readjusted, effective as of the date the Board of Directors determines not to pay such dividend or distribution, or split or combine the outstanding shares of Common Stock, as the case may be, to the Conversion Price that would then be in effect if such dividend, distribution, share split or share combination had not been declared or announced.

 

If, after an adjustment, a Purchaser upon conversion of its Note may receive shares of two or more classes of Capital Stock of the Company, the Conversion Price shall thereafter be subject to adjustment upon the occurrence of an action taken with respect to any such class of Capital Stock as is contemplated by this Article XIII with respect to the Common Stock, on terms comparable to those applicable to Common Stock in this Article XIII.

 

13.6  Adjustment for Other Distributions.  If, after the date of the Original Agreement, the Company distributes to all or substantially all holders of its Common Stock any of its debt, securities or assets or any Options to purchase securities of the Company (including securities or cash, but excluding (a) distributions of capital stock as to which an adjustment is required pursuant to Section 13.5, (b) distributions of Options as to which an adjustment is required pursuant to Section 13.4, (c) dividends or other distributions paid exclusively in cash (as to which Section 13.7 applies) and (d) any Spin-off to which the provisions set forth below in this Section 13.6 shall apply), the Conversion Price shall be decreased in accordance with the formula:

 

	
 
    	
R1 = R ×
    	
M – F

 

M
    	
 
    

 

where:

 

54

 

	
 
    	
R1=
    	
the Conversion Price in effect immediately after the open of business   on the Ex-Dividend Date for such distribution;
    
	
 
    	
R =
    	
the Conversion Price in effect immediately prior to the open of   business on the Ex-Dividend Date for such distribution;
    
	
 
    	
M =
    	
the average of the Closing Sale Prices of the Common Stock for the   ten (10) consecutive Trading Day-period ending on, and including, the   Trading Day immediately preceding the Ex-Dividend Date for such distribution;   and
    
	
 
    	
F =
    	
the fair market value, as determined by the Board of Directors, of   the portion of those assets, securities or Options to be distributed in   respect of each share of Common Stock immediately prior to the open of   business on the Ex-Dividend Date for such distribution.
    

 

With respect to an adjustment pursuant to this Section 13.6 where there has been a payment of a dividend or other distribution on the Common Stock in shares of Capital Stock of any class or series, or similar equity interest, of or relating to a Subsidiary or other business unit, where such Capital Stock or similar equity interest is listed or quoted (or will be listed or quoted upon consummation of the Spin-off) on a national securities exchange or reasonably comparable non-U.S. equivalent, which is referred to herein as a “Spin-off,” the Conversion Price will be decreased based on the following formula:

 

	
 
    	
R1 = R ×
    	
MP

 

F + MP
    	
 
    

 

where:

 

	
 
    	
R1 =
    	
the Conversion Price in effect immediately after the open of business   on the Ex-Dividend Date for the Spin-off;
    
	
 
    	
R =
    	
the Conversion Price in effect immediately prior to the open of   business on the Ex-Dividend Date for the Spin-off;
    
	
 
    	
F =
    	
the average of the Closing Sale Prices of the Capital Stock or   similar equity interest distributed to holders of Common Stock applicable to   one share of the Common Stock over the first ten (10) consecutive   Trading Day period immediately following, and including, the Ex-Dividend Date   for the Spin-off (such period, the “Valuation Period”); and
    
	
 
    	
MP =
    	
the average of the Closing Sale Prices of the Common Stock over the   Valuation Period.
    

 

The adjustment to the Conversion Price under the preceding paragraph of this Section 13.6 will be made immediately after the open of business on the day after the last day of the Valuation Period, but will be given effect as of the open of business on the Ex-Dividend Date for the Spin-off. For purposes of determining the Conversion Price, in respect of any conversion during the ten (10) consecutive Trading Days commencing on the Ex-Dividend Date for any Spin-off, references within the portion of this Section 13.6 related to Spin-offs to ten (10) consecutive Trading Days shall be deemed replaced with such lesser number of Trading Days as have elapsed from, and including, the Ex-Dividend Date for such Spin-off to, but excluding, the relevant Conversion Date.

 

13.7  Adjustment for Cash Dividends.  If, after the date of the Original Agreement, the Company distributes to all or substantially all holders of its Common Stock any dividends payable exclusively in cash, the Conversion Price shall be adjusted in accordance with the formula:

 

55

 

	
 
    	
R1 = R ×
    	
SP–C

 

SP
    	
 
    

 

where:

 

	
 
    	
R1 =
    	
the Conversion Price in effect immediately after the open of business   on the Ex-Dividend Date for such distribution;
    
	
 
    	
R =
    	
the Conversion Price in effect immediately prior to the open of   business on the Ex-Dividend Date for such distribution;
    
	
 
    	
SP =
    	
the average of the Closing Sale Prices of Common Stock over the ten   (10) consecutive Trading Day period ending on, and including, the   Trading Day immediately preceding the Ex-Dividend Date for such distribution;   and
    
	
 
    	
C =
    	
the amount in cash per share the Company distributes to holders of   Common Stock.
    

 

The adjustment shall become effective immediately after the open of business on the Ex-Dividend Date with respect to the distribution.

 

13.8  Adjustment for Company Tender Offer.  If, after the date of the Original Agreement, the Company or any Subsidiary of the Company makes a payment to holders of Common Stock in respect of a tender or exchange offer, other than an odd-lot offer, by the Company or any of its Subsidiaries for shares of Common Stock, to the extent that the cash and value of any other consideration included in the payment per share of Common Stock exceeds the average of the Closing Sale Prices over the ten (10) consecutive Trading Day period commencing on, and including, the Trading Day following the last date on which tenders or exchanges may be made pursuant to such tender or exchange offer (“Expiration Date”), the Conversion Price shall be decreased based on the following formula:

 

	
 
    	
R1 = R ×
    	
OS×SP

 

F+(SP×OS’)
    	
 
    

 

where:

 

	
 
    	
R1 =
    	
the Conversion Price in effect immediately after the open of business   on the Trading Day following the Expiration Date;
    
	
 
    	
R =
    	
the Conversion Price in effect immediately prior to the open of   business on the Trading Day following the Expiration Date;
    
	
 
    	
F =
    	
the fair market value, as determined by the Board of Directors, of   the aggregate consideration payable in such tender or exchange offer (up to   any maximum amount specified in the terms of the tender or exchange offer)   for all shares of Common Stock that the Company or any Subsidiary of the   Company purchases in such tender or exchange offer, such fair market value to   be measured as of the expiration time of the tender or exchange offer (“Expiration   Time”);
    
	
 
    	
OS =
    	
the number of shares of Common Stock outstanding immediately prior to   the Expiration Time (prior to giving effect to such tender offer or exchange   offer);
    
	
 
    	
OS’ =
    	
the number of shares of Common Stock outstanding immediately after   the Expiration Time (after giving effect to such tender offer or exchange   offer); and
    
	
 
    	
SP =
    	
the average of the Closing Sale Prices of Common Stock over the ten   (10) consecutive Trading Day period commencing on, and including, the   Trading Day following the Expiration Date.
    

 

56

 

The adjustment to the Conversion Price under the preceding paragraph of this Section 13.8 will be made immediately after the open of business on the eleventh (11th) Trading Day following the Expiration Date but will be given effect at the open of business on the Trading Day following the Expiration Date. For purposes of determining the Conversion Price, in respect of any conversion during the ten (10) consecutive Trading Days commencing on the Trading Day following the Expiration Date, references within this Section 13.8 to ten (10) consecutive Trading Days shall be deemed replaced with such lesser number of Trading Days as have elapsed from, and including, the Trading Day following the Expiration Time to, but excluding, the relevant Conversion Date.

 

13.9  When Adjustment May Be Deferred.  No adjustment in the Conversion Price need be made unless the adjustment would require an increase or decrease of more than 1% of the Conversion Price. If the adjustment is not made because the adjustment does not change the Conversion Price by more than one percent (1%), then the adjustment that is not made shall be carried forward and taken into account in any future adjustment. Notwithstanding the foregoing, all such carried-forward adjustments shall be made with respect to the affected Notes on the Trading Day that is thirty (30) Trading Days prior to the scheduled Maturity Date and thereafter any adjustment to the Conversion Price shall be made on each subsequent Scheduled Trading Day immediately preceding the scheduled Maturity Date.

 

All calculations under this Article XIII shall be made to the nearest cent or to the nearest 1/10,000th of a share, as the case may be.

 

13.10  When No Adjustment Required.  No adjustment need be made as a result of:

 

(a)           the issuance of any shares of Common Stock by the Company upon conversion of the Notes;

 

(b)           the issuance of any shares of Common Stock pursuant to any present or future plan providing for the reinvestment of dividends or interest payable on securities of the Company and the investment of additional optional amounts in shares of Common Stock under any plan;

 

(c)           the issuance of any shares of Common Stock or Options pursuant to any present or future employee, director or consultant Benefit Plan of the Company or any of its Subsidiaries; provided that any such issuances are made in accordance with the terms, conditions and limitations of such plans as they existed as of the date of the Original Agreement and without effect to any amendments or other modifications thereof after the date of the Original Agreement, unless previously approved by the Majority Purchasers;

 

(d)           any accrued and unpaid interest;

 

(e)           the issuance of any shares of Common Stock pursuant to any Option outstanding as of the date of the Original Agreement or issuable pursuant to any agreement set forth in Schedule 13.11(e), provided that such issuance of shares of Common Stock upon exercise of such Options or Convertible Securities (or under such agreements) is made pursuant to the terms of such Options or Convertible Securities (or of such agreements) in effect on the date immediately preceding the date of the Original Agreement and the exercise, conversion or similar price and the number of shares underlying such Option or Convertible Security (or the terms and conditions of such agreements) are not amended or changed after the date of the Original Agreement and the other material terms of such Options or Convertible Securities are not otherwise amended or changed after the date of the Original Agreement, unless previously approved by the Majority Purchasers;

 

57

 

(f)            the issuance of the rights pursuant to any Company stockholders rights plan (“Stockholder Rights Plan”);

 

(g)           the distribution of separate certificates representing the rights under a Stockholder Rights Plan;

 

(h)           the exercise or redemption of the rights in accordance with any rights agreement under a Stockholder Rights Plan; or

 

(i)            the termination or invalidation of the rights under a Stockholder Rights Plan.

 

If any event described in Section 13.10(f) through (i) occurs, the Purchasers will receive the rights under such Stockholders Rights Plan upon conversion, unless, prior to any conversion, the rights have separated from the Common Stock. If the rights have separated, the Conversion Price will be adjusted at the time of separation as provided by Section 13.4 (subject to readjustment in the event of the expiration, termination or redemption of such rights).

 

No adjustment need be made for a transaction referred to in Sections 13.5 through 13.8 if the Purchasers may participate in the transaction (as a result of holding the Notes, and at the same time and upon the same terms as holders of Common Stock participate) on a basis that the Majority Purchasers determine to be fair and appropriate (excluding any participation through exercise of any preemptive rights), and with notice of such participation to the Purchasers, in any of the events described in Sections 13.5 through 13.8 as if each Purchaser held a number of shares of Common Stock equal to the Conversion Price, divided into by the Conversion Amount of Notes held by such Purchaser, without having to convert its Notes.

 

13.11  Notice of Adjustment.  Whenever the Conversion Price is adjusted, the Company shall promptly or within three (3) Business Days mail to the Purchasers a notice of the adjustment. The Company shall file with the trustee (if any) and the conversion agent (if any) such notice briefly stating the facts requiring the adjustment and the manner of computing it. The notice of adjustment shall be conclusive evidence that the adjustment is correct, unless the Majority Purchasers, by notice to the Company within three (3) Business Days of receiving such notice of adjustment, disputes such adjustment. If, after discussing in good faith for ten (10) Business Days, the parties are unable to reach agreement over the appropriate adjustment, such adjustment will be determined within five (5) Business Days after such ten (10) Business Day period by an independent, reputable national accounting firm (an “Accounting Firm”) jointly selected by the Company and the Majority Purchasers; provided that if the Company and the Majority Purchasers cannot agree on an Accounting Firm within such ten (10) Business Day period, each will choose an Accounting Firm and the two Accounting Firms will choose a third Accounting Firm who will determine the appropriate adjustment. The determination of the Accounting Firm shall be final and binding upon all parties absent manifest error, and the fees and expenses of such Accounting Firm shall be borne by the party with whom the Accounting Firm most closely agrees.

 

13.12  Voluntary Decrease.  The Company from time to time may (but is not required to) decrease the Conversion Price, as permitted by law, by any amount at any time for at least twenty (20) Business Days, so long as the decrease is irrevocable during such period. In addition, the Company may also (but is not required to) decrease the Conversion Price to avoid or diminish any income Tax to holders of Common Stock or rights to purchase Common Stock in connection with any dividend or distribution of shares (or rights to acquire shares) or similar event. Whenever the Conversion Price is decreased, the Company shall mail to the Purchasers a notice of the decrease. The Company shall mail

 

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the notice at least fifteen (15) days before the date the decreased Conversion Price takes effect. The notice shall state the decreased Conversion Price and the period it will be in effect. A voluntary decrease of the Conversion Price does not change or adjust the Conversion Price otherwise in effect for purposes of Sections 13.4 through 13.8.

 

13.13  Notice of Certain Transactions.  If:

 

(a)           the Company takes any action that would require an adjustment in the Conversion Price pursuant to Section 13.4 through 13.8 (unless no adjustment is to occur, pursuant to Section 13.10) or takes any action covered by Section 13.14; or

 

(b)           there is a liquidation or dissolution of the Company,

 

then the Company shall mail to the Purchasers a notice stating the proposed record date for a dividend, distribution or subdivision or the proposed effective date of a combination, reclassification, consolidation, merger, binding share exchange, transfer, liquidation or dissolution. The Company shall file and mail the notice at least fifteen (15) Trading Days before such date. Failure to file or mail the notice or any defect in it shall not affect the validity of the transaction.

 

13.14  Effect of Reclassification, Consolidation, Merger or Sale.

 

(a)           In the event of:

 

(i)            any reclassification of the outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a split, subdivision or combination covered by Section 13.5);

 

(ii)           a consolidation, merger, combination or binding share exchange involving the Company; or

 

(iii)          any sale or conveyance of all or substantially all of the property and assets of the Company to any other Person,

 

in each case as a result of which holders of Common Stock shall be entitled to receive cash, securities or other property or assets with respect to or in exchange for such Common Stock (any such event, “Merger Event”), then the Company or the successor or purchasing Person, as the case may be, will ensure that the Purchasers shall be entitled at and after the effective time of the Merger Event to convert their Notes into the type and amount of shares of stock, other securities or other property or assets (including cash or any combination thereof) that the Purchasers would have owned or been entitled to receive upon such Merger Event had they converted their Notes immediately prior to such Merger Event (“Reference Property”); provided that at or prior to the time of such Merger Event, written equitable adjustments in the application of the provisions of this Article XIII shall be made so that such provisions shall thereafter be applicable, as nearly as possible, in relation to any Common Stock or Reference Property thereafter deliverable upon conversion of the Notes.

 

(b)           With respect to Notes surrendered for conversion after the effective date of any such Merger Event in lieu of shares of Common Stock otherwise provided for hereunder, the Company shall deliver to the converting Purchaser a number of units of Reference Property (each such unit comprised of the kind and amount of shares of stock, securities or other property or assets (including cash or any combination thereof) that a holder of one share of Common Stock immediately prior to such Merger

 

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Event would have owned or been entitled to receive based on the Weighted Average Consideration) equal to (A) the Conversion Amount of Notes to be converted, divided by (B) the Conversion Price.

 

(i)            The Company will deliver cash in lieu of fractional units of Reference Property.

 

(ii)           For purposes of this Section 13.14, the “Weighted Average Consideration” means the weighted average of the types and amounts of consideration received by the holders of Common Stock entitled to receive cash, securities or other property or assets with respect to or in exchange for such Common Stock in any Merger Event who affirmatively make such an election; provided that, if the types and amounts of consideration that holders of Common Stock would be entitled to receive with respect to or in exchange for such Common Stock is based in part upon any form of shareholders election, the “Weighted Average Consideration” will be deemed to be (A) if holders of the majority of the shares of Common Stock affirmatively make such an election, the weighted average of the types and amounts of consideration received by the holders of Common Stock that affirmatively make such an election or (B) if the holders of a majority of the shares of Common Stock do not affirmatively make such an election, the types and amount of consideration actually received by such holders.

 

(iii)          The Company shall notify the Purchasers of the Weighted Average Consideration as soon as practicable after the Weighted Average Consideration is determined.

 

(c)           The above provisions of this Section 13.14 shall similarly apply to successive Merger Events.

 

13.15  Simultaneous Adjustments.  In the event that this Article XIII requires adjustments to the Conversion Price under more than one of Sections 13.5, 13.6 and 13.7, and the record dates for the distributions giving rise to such adjustments shall occur on the same date, then such adjustments shall be made by applying, first, the provisions of Section 13.5, second, the provisions of Section 13.6, and third, the provisions of Section 13.7.

 

13.16  Successive Adjustments.  After an adjustment to the Conversion Price under this Article XIII, any subsequent event requiring an adjustment under this Article XIII shall cause an adjustment to the Conversion Price as so adjusted.

 

13.17  Limitation on Adjustments.  The Company shall not take any action that would result in an adjustment pursuant to the foregoing provisions in this Article XIII if that adjustment would reduce the Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of the Notes.

 

ARTICLE XIV

 

INFORMATION COVENANTS

 

Each of the Obligors covenants that, from and after the Closing Date, so long as any of the Notes are outstanding:

 

14.1  Financial Statements.  The Company shall deliver to each Purchaser:

 

(a)           as soon as available and in any event within ninety (90) days after the end of its fiscal year, audited consolidated statements of income, owners’ equity and cash flows of the Company and its Subsidiaries for such fiscal year and the related

 

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consolidated audited balance sheet as at the end of such fiscal year, setting out in each case in comparative form the corresponding figures for the preceding fiscal year, and an opinion of an independent public or chartered accountant of recognized international standing as is reasonably acceptable to the Purchasers, which opinion shall (i) state that said financial statements fairly present in all material respects the financial condition and results of operations of the Company and its Subsidiaries as at the end of, and for, such fiscal year in accordance with GAAP and (ii) following the end of the fiscal year in which the Project Financing Facility Closing Date occurs contain no “going concern” or like qualification; and

 

(b)           as soon as available and in any event within sixty (60) days after the end of each of the first three fiscal quarters of each fiscal year of the Company, unaudited consolidated statements of income and cash flows of the Company and its Subsidiaries, for such fiscal quarter and for the period from the beginning of the respective fiscal year to the end of such period, and the related unaudited balance sheet, as at the end of such fiscal quarter, setting out in each case in comparative form the corresponding figures for the preceding fiscal quarter or period, as applicable, accompanied by a certificate of a senior financial officer of the Company, which certificate shall state that said financial statements fairly present in all material respects the financial condition and results of operations of the Company and its Subsidiaries, in accordance with GAAP as at the end of, and for, such period (subject only to normal year-end audit adjustments).

 

Delivery within the time period specified above of copies of the Company’s Form 10-K or Quarterly Report on Form 10-Q (“Form 10-Q), as the case may be, prepared in compliance with the requirements therefor and filed with the SEC shall be deemed to satisfy the requirements of this Section 14.1.

 

14.2  Requirements as to Financial Statements.

 

(a)           Each set of financial statements delivered by the Company pursuant to Section 14.1 shall be accompanied by a Compliance Certificate certifying that no Default or Event of Default has occurred and is continuing or, if a Default or Event of Default has occurred and is continuing, describing the same, as well as any actions the Company intends to take in respect thereof.

 

(b)           Each set of financial statements delivered pursuant to Section 14.1 will be prepared using GAAP, accounting practices and financial reference periods consistent with those applied in the preparation of the Original Financial Statements unless, in relation to any set of financial statements, the Company notifies the holders that there has been a change in GAAP, the accounting practices or reference periods and it delivers to the holders:

 

(i)            a description of any change necessary for those financial statements to reflect the GAAP, accounting practices and reference periods upon which the Original Financial Statements were prepared; and

 

(ii)           sufficient information, in form and substance as may be reasonably required by the holders, to enable the holders to determine whether the covenants contained herein have been complied with and make an accurate comparison between the financial position indicated in those financial statements and the Original Financial Statements.

 

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14.3  Information; Miscellaneous.  The Company shall deliver to each Purchaser:

 

(a)           copies of all documents delivered by the Company to its (i) shareholders (or any class of them) or (ii) its creditors generally, in each case, within ten (10) days of such documents being delivered;

 

(b)           copies of all documents delivered by the Company to the agent or lenders under the Project Financing Facility within ten (10) days of such documents being delivered, in each case excluding documents in respect of administrative matters but including any operating, engineering, financial, insurance, accounting or other reports;

 

(c)           promptly upon becoming aware thereof, the details of any litigation, arbitration or administrative proceedings which are current, threatened or pending against the Company or any of its Subsidiaries, and which might, if adversely determined, have a Material Adverse Effect;

 

(d)           annually, within twenty (20) Business Days of the annual renewal date of the insurance policies maintained in connection with the Holbrook Project, a memorandum prepared by the Company summarizing the then-outstanding insurance coverage with respect to the Holbrook Project together with a certificate or certificates of insurance prepared by a Responsible Officer and/or the relevant insurance carriers, as the case may be, and in form and substance satisfactory to the holders confirming that:

 

(i)            all such insurance coverage is in full force and effect and all premiums payable in connection therewith have been paid;

 

(ii)           in the opinion of the Responsible Officer, such insurance is sufficient for the purposes of the Holbrook Project and complies with the provisions of Section 15.11;

 

(iii)          following the Springing Lien Trigger Date, the Collateral Agent is named as an additional insured under all policies of insurance and loss payee under all policies of insurance except third-party liability insurance; and

 

(iv)          the insurers under such insurance policies have agreed in writing not to amend or terminate such policies without at least twenty (20) Business Days prior written notice thereof to the Collateral Agent and have entered into such agreements as are required pursuant to Section 15.11.

 

(e)           as promptly as practicable after the occurrence of the relevant event, details as to any:

 

(i)            material disputes with such of its insurance carriers as are providing insurance coverage with respect to the Holbrook Project;

 

(ii)           failure to pay any insurance premium as and when required that might result in the cancellation of any insurance policy implemented in connection with, or relating to, the Holbrook Project;

 

(iii)          material reduction in the amount of, or any other material change in, insurance coverage maintained in connection with the Holbrook Project;

 

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(iv)          occurrence of any actual or reasonably expected liability or loss in an aggregate amount in excess of $500,000 which is covered by the terms of any policy of insurance maintained in connection with the Holbrook Project; and

 

(v)           notices received from any insurance carriers with respect to the cancellation of or proposed cancellation of any policy of insurance maintained in connection with the Holbrook Project (and, in the case of the notification of any such details, stating the reasons therefor, together with any other information concerning the insurance coverage required to be maintained pursuant to this Agreement as the Collateral Agent shall have reasonably requested);

 

(f)            promptly upon the effectiveness or occurrence thereof, as the case may be, copies of any instrument, correspondence or other item of documentation implementing, amending, supplementing or otherwise modifying the material provisions of the definitive documentation for the Project Finance Facility or other material Indebtedness;

 

(g)           without limiting any other provision of this Section 14.3, as soon as possible (and in any event within three (3) Business Days) after any Obligor knows or has reason to know of any event or circumstance which has a reasonable likelihood of having a Material Adverse Effect with respect to such Obligor, notice of such event or circumstance and describing the same in reasonable detail;

 

(h)           promptly following execution thereof, copies of all Project Documents;

 

(i)            (i) not later than March 1st in each fiscal year, an annual operating and cash flow budget for the Holbrook Project for the next succeeding fiscal year (showing expense and revenue, cash flows and capital expenditures on a monthly basis), in form and substance satisfactory to the holders and (ii) not later than the 20th day of each month, a variance report against the corresponding (1) month and (2) the elapsed portion of the fiscal year, in each case, as set forth in the applicable annual report delivered pursuant to clause (i) hereof;

 

(j)            promptly following any Obligor becoming aware of the occurrence thereof, notice of any event or circumstance which entitles, or might reasonably be expected to entitle, any Person to cancel, suspend or terminate any Approval of the nature referred to in Section 15.3;

 

(k)           promptly following the occurrence thereof and without limiting the provisions of Section 15.8, notice of any event or circumstance which constitutes, or might reasonably be expected to constitute, a material environmental spill or accident at the Holbrook Project;

 

(l)            promptly upon the implementation thereof, copies of all documentation relating to each Hedging Agreement entered into by any Obligor; and

 

(m)          promptly as becomes available, such further information regarding the financial condition, business, assets and operations of any Obligor as any holder may reasonably request.

 

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14.4  Notification of Default.  The Company shall notify the holders of any Default or Event of Default (and the steps, if any, being taken to remedy it) promptly upon becoming aware of the occurrence thereof.

 

ARTICLE XV

 

GENERAL COVENANTS

 

Each of the Obligors covenants that, from and after the Closing Date, so long as any of the Notes are outstanding:

 

15.1  Use of Proceeds.  The Company shall apply the proceeds of the sale of the Notes for (a) the purpose of financing the Holbrook Project (including, but not limited to, the costs associated with the Definitive Feasibility Study and the initial drilling, engineering and permitting related thereto), (b) repayment of amounts due under the Karlsson Note and (c) general corporate purposes.

 

15.2  Compliance with Laws.  Each Obligor will, and will cause each of its Subsidiaries to, comply in all material respects with all laws to which it may be subject (including Environmental Laws).

 

15.3  Approvals.  Each Obligor will, and will cause each of its Subsidiaries to, obtain, maintain in full force and effect, and comply in all material respects with, all Approvals as may be required or advisable from time to time for each Obligor to (i) execute, deliver, perform and preserve its rights under any of the Note Documents or any Project Document executed or to be executed by it, (ii) following the Springing Lien Trigger Date, grant and perfect the Liens granted or purported to be granted and perfected by it pursuant to any Collateral Document to which it is a party, (iii) maintain and operate its business in accordance with standard industry practice, and (iv) own, lease, use or license the Project Assets in which it holds any interest and operate the Holbrook Project and the Mine in accordance with sound mining and business practice.

 

15.4  Maintenance of Corporate Existence, etc.  Each Obligor will, and will cause each of its Subsidiaries to, (i) do and cause to be done at all times all things necessary to maintain and preserve its corporate existence and (ii) do and cause to be done at all times all things necessary to be duly qualified to do business and be in good standing (where such concept is relevant) as a foreign corporation, in each jurisdiction where the nature of its business makes such qualification necessary.

 

15.5  Payment of Notes.  The Company shall pay the principal and interest on the Notes in accordance with the terms of the Notes. The Company shall pay interest on overdue principal (including post-petition interest in a proceeding under any Bankruptcy Law), and overdue interest, to the extent lawful, at the rate specified in the Notes.

 

15.6  Payment of Taxes, etc.  Each Obligor shall, and shall cause each of its Subsidiaries to, file all Tax returns (including all property Tax returns and other similar Tax returns applicable to the Holbrook Project) required by applicable law to have been filed by it. Each Obligor shall, and shall cause each of its Subsidiaries to, pay and discharge, as the same may become due and payable, all Taxes, assessments, fees and other governmental charges or levies against it or on any of its property as well as claims of any kind or character; provided, however, that the

 

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foregoing shall not require any Person to pay or discharge any such Tax, assessment, fee, charge, levy or claim so long as it shall be diligently contesting the validity or amount thereof in good faith by appropriate proceedings and shall have set aside on its books adequate reserves in accordance with GAAP with respect thereto.

 

15.7  Books and Records.

 

(a)           Each Obligor will, and will cause each of its Subsidiaries to, keep financial records and accounting and management information systems reflecting all of its business affairs and transactions in accordance with applicable laws and produce financial statements in accordance with GAAP.

 

(b)           On not less than three (3) days prior written notice where no Default or Event of Default has occurred or is continuing and on not less than twenty-four (24) hours prior notice where a Default or Event of Default has occurred and is continuing, each Obligor will, and will cause each of its Subsidiaries to, permit any advisers of the Purchasers, the holders or any of their respective representatives during reasonable business hours to inspect any and all of its properties and operations (including the Mine), to visit all of its offices or any other location where relevant personnel or records are located, to discuss its financial matters with its officers, its banks and its independent chartered accountants and certified public accountants, as the case may be (and hereby authorizes such independent chartered accountants or certified public accountants, as the case may be, to discuss its financial matters with any of the foregoing Persons or its representatives whether or not any representative of the relevant Obligor is present), and to examine (and photocopy extracts from) any of its books or other corporate records or any instrument, document or correspondence relating to any of the Project Documents. Without limiting the generality of the foregoing, each Obligor shall, and shall cause each of its Subsidiaries to, provide all relevant and necessary assistance to:

 

(i)            any advisors to the Purchasers in connection with the performance of their respective duties to the Purchasers (including the review of all matters relating to the development and operation of the Holbrook Project (including environmental issues) and the preparation of any reports in connection therewith); and

 

(ii)           the holders in connection with the exercise of their rights hereunder and under each other Note Document.

 

(c)           The Company shall pay any fees of such chartered accountants or certified public accountants incurred in connection with this Section 15.7.

 

(d)           It is expressly understood that none of the advisors to the Purchasers nor any holder assumes any obligation to any Obligor or any other party in respect of the operation, development, exploration and production of the Holbrook Project.

 

15.8  Environmental Covenants.  Each Obligor will, and will cause each of its Subsidiaries to and will use commercially reasonable efforts to cause each other Project Party to:

 

(a)           use and operate the Mine, the Project Assets and all of the facilities and properties related thereto in material compliance with all applicable Environmental Laws and applicable permits and Approvals;

 

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(b)           keep all material Approvals and Permits relating to environmental matters related to the Holbrook Project in effect;

 

(c)           remain in material compliance with, and handle all Hazardous Substances in material compliance with, all applicable Environmental Laws;

 

(d)           (i) promptly notify the holders and provide copies upon receipt of all material written claims, complaints, notices or inquiries relating to the condition of the facilities and properties related to the Holbrook Project and the Project Assets or compliance with the Environmental Laws relating to the Holbrook Project, and (ii) promptly cure any non-compliance which is the subject matter of any actions and proceedings relating to such Environmental Laws in accordance with the requirements of any applicable Governmental Authority; and

 

(e)           provide such information and certifications which the holders may reasonably request from time to time to evidence compliance with this Section (including in connection with any environmental audit to determine compliance therewith).

 

15.9  Maintenance of Project Assets.  Each Obligor will, and will cause each of its Subsidiaries to, maintain, preserve, protect and keep:

 

(a)           all of its ownership, lease, use, license and other interests in the Project Assets (including all Mining Rights) as are necessary for it to be able to operate the Mine substantially in accordance with sound mining and business practice; and

 

(b)           all of the Project Assets owned by it in good repair, working order, and condition, and make necessary and proper repairs, renewals, and replacements so that the business carried on in connection therewith may be properly conducted at all times, unless the continued maintenance of any of such Project Assets is no longer necessary or economically desirable for the operation of the Mine, such operation to be substantially in accordance with sound mining and business practice.

 

15.10  Accuracy of Information.  Each Obligor will ensure that all factual information hereafter furnished by or on behalf of such Obligor or any of its Subsidiaries in writing to any holder for the purposes of or in connection with this Agreement or any Transactions will be true and accurate in all material respects on the date as of which such information is dated or certified and such information shall not be incomplete by omitting to state any material fact known to the relevant Obligor or Subsidiary necessary to make such information not misleading in any material respect.

 

15.11  Insurance.

 

(a)           The Company shall, and shall cause its Subsidiaries to, at all times maintain or cause to be maintained in effect, with responsible and reputable insurance companies in such amounts and covering such risks as is consistent with prudent practice and which are acceptable to the holders in their reasonable discretion.

 

(b)           The Company will provide the holders with not less than ten (10) Business Days’ prior written notice of any proposed change of any insurance company providing insurance

 

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coverage of the nature referred to in clause (a) above, and any such change shall be consistent with the provisions of this Agreement.

 

(c)           Each Obligor shall ensure that all premiums required to be paid in order to ensure that the policies referred to in this Section 15.11 are in full force and effect shall be paid as and when the same shall become due and payable and shall otherwise comply with each other term and condition of such policies so as to ensure that such policies are, and shall continue, in full force and effect; provided, that if any Obligor does not so ensure that all such premiums are paid, the holders may (but shall have no obligation to) pay such premiums and the applicable Obligor shall indemnify the holders pursuant to Section 11.2; provided further that any such payment by the holders shall not cure the applicable Obligor’s failure to observe the obligations set forth in this Section 15.11.

 

(d)           Following the Springing Lien Trigger Date, subject to the Intercreditor Agreement, all of the insurance policies relating to the Holbrook Project will, in each case, in accordance with best practice in the mining industry and to prevailing market practice in connection with comparable facilities for projects similar to the Holbrook Project:

 

(i)            specify the Collateral Agent (on behalf of the holders) as an additional insured under all policies of liability insurance (excluding motor or automobile insurance and policies of insurance relating to workers’ compensation and/or employers’ liability) and the Collateral Agent (on behalf of the holders) as loss payee under all policies of insurance except third-party liability insurance and contain such endorsements in favor of the Collateral Agent as the Collateral Agent shall reasonably require (including that the policy shall not be invalidated as against the holders by reason of any action or failure to act of the Company or any other Person);

 

(ii)           not be cancellable (or non-renewable or subject to a decrease in the scope or amount of coverage (including by way of increase in any deductible)) as against the holders (including for failure to pay premiums) or subject to material alteration of any kind without (A) in the case of any such action, thirty (30) days’ written notice of such action having been given by the Company or the issuer of the relevant policy to the holders, and (B) in the case of any such material alteration, the prior written consent of the holders;

 

(iii)          provide for waiver of any right of set-off, recoupment, subrogation, counterclaim or any other deduction, by attachment or otherwise, with respect to any liability of the beneficiary of such policy (including the incorporation of a “non-vitiation” provision) and provide that all amounts payable by reason of loss or damage to any of the Project Assets shall be payable in a manner which is consistent with this Agreement;

 

(iv)          provide for payments of claims thereunder in Dollars; and

 

(v)           otherwise (including with respect to the identity of the brokers, insurers, re-insurers and/or indemnities involved in connection with the solicitation, placement and issue of such insurance policies) be in form and substance reasonably satisfactory to the holders.

 

In connection with the foregoing, following the Springing Lien Trigger Date, and subject to the Intercreditor Agreement, the Company shall (x) execute and deliver notices to the brokers, underwriters

 

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and insurance companies through or with whom any policy of insurance maintained in connection with the Holbrook Project have been effected in such form as the holders may from time to time reasonably request, and (y) procure that any insurer effecting any policy of insurance maintained in connection with the Holbrook Project execute and deliver such notices to the issuer of any such policy as the holders may from time to time reasonably request.

 

(e)           The Company shall not at any time do or omit to do anything whereby any insurance required pursuant to this Section 15.11 would, or would be likely to, be rendered void or voidable or suspended, impaired or defeated in whole or in part.

 

(f)            The Company will make (or will cause to be made) full disclosure of all relevant issues and facts to the issuer of each insurance policy maintained in connection with the Holbrook Project such that no such issuer will be entitled to vitiate, cancel or otherwise refuse or decline to honor the terms of, or pay claims in respect of, any such insurance policy.

 

(g)           In the event that the Company makes any claim under any insurance policy, it shall be solely responsible for and shall pay any deductible in connection with such claim.

 

(h)           For the avoidance of doubt, no holder shall be under any obligation to the underwriters, insurance companies, or brokers by or through whom any policy of insurance referred to in this Section 15.11 shall be effected.

 

15.12  Business Activities; No Amendment of Organizational Documents.

 

(a)           AWP will not, and Company will not permit AWP to:

 

(i)            engage in any business activity other than the development and operation of the Holbrook Project and the Mine and any activity incidental thereto;

 

(ii)           following the Springing Lien Trigger Date, maintain any place of business other than the location of the Mine or Denver, Colorado without first taking (to the satisfaction of the holders) all actions necessary to protect the Liens granted or purported to be granted pursuant to the relevant Collateral Agreements.

 

(b)           No Obligor will, or will permit any of its Subsidiaries to:

 

(i)            amend its Organizational Documents (including to reduce its share capital) in any material respect or change its corporate name; or

 

(ii)           change its fiscal year,

 

in each case without the consent of the Majority Purchasers.

 

(c)           The Company will not and will not permit PGRI Delaware to engage in any business activity other than as a holding company for the ownership, directly or indirectly, of all or a portion of the issued and outstanding share capital of AWP and other subsidiaries engaged in exploration, development, mining and related activities in connection with the mining of Potash, other metals and commodities and activities incidental thereto.

 

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15.13  Indebtedness.  Each Obligor will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist or otherwise become or be liable in respect of any Indebtedness other than:

 

(a)           Indebtedness in respect of the Notes and other Obligations;

 

(b)           Indebtedness in respect of any Hedging Obligations incurred and reasonably calculated to mitigate any risk to which the Company or its Subsidiaries are exposed in connection with their development or operations, and not incurred for speculative purposes;

 

(c)           Indebtedness in respect of amounts payable to contractors, sub-contractors, carriers, warehousemen, mechanics, materialmen, repairers, suppliers and landlords, incurred in the ordinary course of business and not for money borrowed;

 

(d)           Indebtedness incurred in the ordinary course of business in connection with the purchases of goods and services or the exploration, development, operation and reclamation of mineral properties (and excluding, for the avoidance of doubt, Indebtedness);

 

(e)           Indebtedness incurred in respect of surety, bid, performance or appeal bonds or similar obligations and trade-related letters of credit, in each case provided in the ordinary course of business;

 

(f)            Indebtedness in respect of tenders, statutory obligations, utilities, leases and contracts (other than for Indebtedness) entered into in the ordinary course of business,

 

(g)           Indebtedness in respect of Taxes, assessments, fees and other governmental charges or levies (including with respect to workers’ compensation, unemployment insurance, social security benefits or other forms of governmental insurance or benefits) to the extent that payment thereof shall not at the time be required to be made in accordance with the provisions of Section 15.6;

 

(h)           Indebtedness in respect of judgments or awards, the enforcement of which has not been stayed (by reason of a pending appeal or otherwise), for a period of more than ten (10) days or the payment of which is covered in full (subject to a customary deductible) by insurance maintained with responsible insurance companies;

 

(i)            Approved Subordinated Indebtedness;

 

(j)            Indebtedness of AWP and PGRI Delaware not in excess of $125,000,000 in aggregate principal amount at any one time outstanding and incurred pursuant to the Karlsson Note;

 

(k)           on or after the Project Financing Facility Closing Date, Indebtedness of the Obligors not in excess of $900,000,000 in aggregate principal amount at any one time outstanding incurred pursuant to a Project Financing Facility;

 

(l)            Capitalized Lease Liabilities not in excess of $300,000,000 in aggregate principal amount at any one time outstanding;

 

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(m)          Indebtedness pursuant to a Cost Overrun Facility not in excess of $250,000,000 in aggregate principal amount at any one time outstanding;

 

(n)           Permitted Junior Debt; and

 

(o)           in the case of the Company, Indebtedness in an amount not in excess of $50,000,000 in aggregate principal amount at any one time outstanding and not permitted by the preceding paragraphs of this Section 15.13.

 

15.14  Liens.  Each Obligor will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Liens upon any of its properties, revenues or assets, whether now owned or hereafter acquired, except:

 

(a)           Liens in favor of the Collateral Agent pursuant to the Collateral Documents or otherwise for the benefit of the holders of the Obligations;

 

(b)           Liens for Taxes, assessments or other governmental charges or levies not at the time delinquent or thereafter payable without penalty or being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books;

 

(c)           Liens in favor of carriers, warehousemen, mechanics, materialmen, suppliers and landlords incurred in the ordinary course of business for sums not overdue or being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books;

 

(d)           Liens incurred in the ordinary course of business in connection with unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, leases and contracts (other than for Indebtedness) entered into in the ordinary course of business or to secure obligations on surety or appeal bonds;

 

(e)           Liens in respect of judgments in existence less than ten (10) Business Days after the entry thereof or with respect to which execution has been stayed or the payment of which is covered in full (subject to a customary deductible) by insurance maintained with responsible insurance companies;

 

(f)            Liens on the assets and membership units of AWP and the assets of PGRI Delaware to secure the obligations in respect of the Karlsson Note;

 

(g)           Liens in connection with the Grandhaven Agreement or the Grandhaven Agreement Amendment;

 

(h)           Liens on Collateral to secure the obligations in respect of the Project Financing Facility; provided that the holder of such Lien shall have entered into an Intercreditor Agreement;

 

(i)            Liens in respect of the Cost Overrun Facility; provided that the holder of such Lien shall have entered into a Second Lien Intercreditor Agreement;

 

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(j)            Liens securing Capitalized Lease Liabilities, provided that such Liens extend only to the assets acquired with or financed by such Indebtedness; and

 

(k)           Liens granted by AWP in the ordinary course of business in respect of Project Assets with an individual fair market value at any one time which is not in excess of $5,000,000 and an aggregate fair market value at any one time which is not in excess of $10,000,000.

 

15.15  Investments.  Each Obligor will not, and will not permit any of its Subsidiaries to, acquire all or substantially all of the assets of any other Person and will not make, incur, assume or suffer to exist any Investment in any other Person, except (a) Cash Equivalent Investments, (b) Investments outstanding on the date of the Original Agreement and set forth on Schedule 15.15 and (c) in the case of the Company and PGRI Delaware, investments in their Subsidiaries.

 

15.16  Restricted Payments, etc.  Each Obligor will not and will not permit any of its Subsidiaries to:

 

(a)           declare, pay or make any distribution (in cash, property or obligations) on any shares of any class of capital stock (now or hereafter outstanding) of such Obligor or on any ownership interest of such Obligor or on any Options or other rights with respect to any shares of any class of capital stock of, or other ownership interest (now or hereafter outstanding) in, such Obligor or apply any of its funds, property or assets to the purchase, redemption or other retirement of any shares of any class of capital stock of, or other ownership interest (now or hereafter outstanding) in, such Obligor, or Options or other rights with respect to any shares of any class of capital stock of, or other ownership interest (now or hereafter outstanding) in, such Obligor;

 

(b)           repay, redeem, purchase or otherwise defease or discharge any indebtedness that is subordinated in right of payment or lien priority to the Obligations prior to its stated maturity; or

 

(c)           make any deposit for any of the foregoing purposes.

 

(the payments and distributions described in paragraph (a) to (c) above collectively referred to as “Restricted Payments”);

 

provided, however, that (i) any Subsidiary of the Company may declare, pay or make distributions ratably with respect to their Capital Stock; (ii) any Obligor may make Restricted Payments to any former employee or director of the Company or its Subsidiaries in connection with any employment arrangements; and (iii) the Company and any Subsidiary may make Restricted Payments to any Obligor.

 

15.17  Mergers, etc.  Each Obligor will not, and will not permit any of its Subsidiaries to, enter into any merger or consolidation or sell or otherwise transfer all or substantially all of its assets, except as may be consented to by the Majority Purchasers.

 

15.18  Asset Dispositions, etc.  Each Obligor will not, and will not permit any of its Subsidiaries to, sell, transfer, lease or otherwise dispose of, or grant options, warrants or other rights with respect to, any of its assets (including accounts receivable) to any Person, unless:

 

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(a)           in the case of AWP, such disposal is made in the ordinary course of business pursuant to arrangements which are otherwise in compliance with this Agreement;

 

(b)           in the case of any other Obligor or Subsidiary which is producing output from mining activities, such disposal is of such output made in the ordinary course of business;

 

(c)           such disposal is of obsolete or redundant assets which are no longer used or required by the relevant Obligor or Subsidiary or of assets which are to be replaced; or

 

(d)           the net book value of all assets disposed of by all Obligors and their Subsidiaries (excluding, however, assets disposed of pursuant to clauses (a), (b) or (c) above) in the same fiscal year of the Company does not exceed $10,000,000 (or the equivalent thereof in any other currency) in the aggregate and fair value in cash or other assets is received therefor.

 

15.19  Transactions with Affiliates.  Each Obligor will not, and will not permit any of its Subsidiaries to, enter into, or cause, suffer or permit to exist:

 

(a)           any arrangement or contract pursuant to which any indebtedness is extended by such Obligor or Subsidiary to any of its Affiliates as obligor; or

 

(b)           any other arrangement or contract with any of its Affiliates (including management or similar contracts or arrangements relating to the allocation of revenues, Taxes and expenses or otherwise) unless such arrangement is on market standard arm’s-length terms;

 

provided, however, that nothing in this Section 15.19 shall prevent, or be deemed to prevent (i) the execution and performance of any Note Document; or (ii) any transaction by and among the Obligors.

 

15.20  Restrictive Agreements, etc.  Each Obligor will not, and will not permit any of its Subsidiaries to, enter into any agreement prohibiting (i) the creation or assumption of any Lien upon its properties, revenues or assets to secure the Obligations, whether now owned or hereafter acquired, or the ability of such Obligor to amend or otherwise modify this Agreement or any other Note Document or Project or (ii) the dividend, distribution or loan of funds by any Subsidiary to the Company.

 

15.21  Inconsistent Agreements.  Each Obligor will not, and will not permit any of its Subsidiaries to, enter into any agreement containing any provision which would be violated or breached by the issuing of the Notes hereunder or by the performance by any Obligor of its obligations hereunder or under any Note Document.

 

15.22  Bank Accounts.  After the Springing Lien Trigger Date, the Obligors shall not open or maintain any bank account or similar deposit arrangement that is not subject to a Lien in favor of the holders of the Notes except with the prior written consent of the Majority Purchasers.

 

15.23  Acquisitions.  Each Obligor will not, and will not permit any of its Subsidiaries to:

 

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(a)           purchase, subscribe for or otherwise acquire any shares (or other securities or any interest therein), in, or incorporate or form, any other company or agree to do any of the foregoing; or

 

(b)           purchase or otherwise acquire any assets (other than in the ordinary course of business) or revenues or (without limitation to any of the foregoing) acquire any business or interest therein or form or enter into, any partnership, consortium, joint venture or other like arrangement or agree to do so.

 

15.24  Collateral and Guarantees.

 

(a)           Upon the Springing Lien Trigger Date, and, following the Springing Lien Trigger Date, upon the acquisition or production of any Project Assets (including the entering into of any Project Document or Hedging Agreement) or other Collateral in respect of which no Lien has effectively been granted pursuant to any Collateral Document, each relevant Obligor shall promptly (and in any event within twenty (20) days of the Springing Lien Trigger Date and/or the relevant acquisition or production), each Obligor will:

 

(i)            enter into agreements or instruments, in form and substance reasonably satisfactory to the Collateral Agent, in order to grant to the Collateral Agent, for the ratable benefit of the holders to secure all Obligations, valid and binding Liens over all Project Assets and all other Collateral, which Liens shall be first-priority prior to the Project Financing Facility Closing Date and second-priority, subordinated to the Liens securing the Project Financing Facility pursuant to the Intercreditor Agreement, on and after the Project Financing Facility Closing Date (subject, in each case, to (1) Liens resulting from mandatory provisions of applicable law and (2) Liens specifically and expressly permitted to be incurred by this Agreement on a senior basis to the Obligations);

 

(ii)           simultaneously therewith, effect all relevant filings, notarizations and registrations or obtain the acknowledgment and agreement of all relevant counterparties, as the case may be, in order to perfect the Liens so granted; and

 

(iii)          deliver customary opinions in form and substance reasonably satisfactory to the Purchasers from counsel reasonably satisfactory to the Purchasers with respect to enforceability, creation, perfection and such other matters as may be reasonably requested by the Purchasers.

 

Without limiting the generality of the foregoing, following the Springing Lien Trigger Date, each Obligor will ensure that promptly upon (and in any event within twenty (20) days after) the effectiveness of any Project Document or of any Hedging Agreement, (i) the Collateral Agent, for the ratable benefit of the holders of the Notes, shall be granted valid and perfected first-priority or second-priority, as applicable, Liens (except as aforesaid) over the relevant Obligor’s rights thereunder as security for the Obligations, and (ii) the Collateral Agent shall receive such documentation as it shall reasonably require as evidence of the rights of the holders to assume the rights and obligations of the relevant Obligor (and/or any affiliate thereof party to such Project Document) under each such Project Document upon the occurrence of an Event of Default.

 

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(b)           Upon and after the Springing Lien Trigger Date, the Company shall cause each Subsidiary of the Company not party hereto on the date of the Original Agreement, whether now existing or hereafter formed, to execute a joinder hereto assuming the obligations of a Guarantor hereunder pursuant to Article XXIII and otherwise in form and substance satisfactory to the Purchasers.

 

15.25  Further Assurances.  Following the Springing Lien Trigger Date, each Obligor shall promptly do all such acts and execute all such documents as the Collateral Agent or any holders may reasonably request (and in such form as the Collateral Agent or such holders may reasonably require):

 

(a)           to perfect the Liens created or intended to be created under or evidenced by the Collateral Documents or for the exercise of any rights, powers and remedies of the Collateral Agent or the holders granted by or pursuant to the Note Documents or by law; and/or

 

(b)           to grant to the Collateral Agent or the holders Liens over any property or assets of that Obligor located in any jurisdiction equivalent or similar to the Liens intended to be granted by or pursuant to the Collateral Documents.

 

15.26  Future Covenants.  Upon the occurrence of the Project Financing Facility Closing Date, the Company and the Purchasers shall negotiate in good faith the implementation of additional covenants and modification or deletion of existing covenants for the benefit of the holders, consistent with, and in any event no more restrictive than, those contained in the Project Financing Facility in respect of matters as to the development and operation of the Holbrook Project, including budgets and development plans with respect thereto, which are not fully known as of the date of the Original Agreement.

 

15.27  Repurchase at the Option of Purchasers Upon Change of Control.

 

(a)           If a Change of Control occurs, each holder of Notes shall have the right to require the Company to offer to repurchase all or any part of that holder’s Notes pursuant to a Change of Control Offer on the terms set forth herein. In the Change of Control Offer, the Company shall offer a change of control payment in cash equal to 101.00% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest, if any (a “Change of Control Payment”), on the Notes repurchased to the Change of Control Payment Date, subject to the rights of holders of Notes on the relevant record date to receive interest due on the relevant interest payment date.

 

(b)           Within thirty (30) days following the date on which the Company becomes aware that a Change of Control has occurred, the Company shall mail a notice to each holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the Change of Control Payment Date specified in the notice, which date shall be no earlier than ten (10) days and no later than thirty (30) days from the date such notice is mailed, pursuant to the procedures described in such notice.

 

(c)           The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with this Section 15.27, the Company shall comply with the applicable securities laws and

 

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regulations and shall not be deemed to have breached its obligations under this Section 15.27 by virtue of such compliance.

 

(d)           On the Change of Control Payment Date, the Company shall, to the extent lawful, accept for payment all Notes or portions of Notes properly tendered pursuant to the Change of Control Offer.

 

(e)           The Company shall promptly mail to each holder of Notes properly tendered the Change of Control Payment for such Notes, and the Company shall promptly mail (or cause to be transferred by book entry) to each holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each new Note shall be in a principal amount of $2,000 or an integral multiple of $1,000.

 

(f)            The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date.

 

(g)           Notwithstanding anything to the contrary contained herein, a Change of Control Offer may be made in advance of a Change of Control, and conditioned upon the occurrence of such Change of Control, if a definitive agreement is in place for the Change of Control at the time of making the Change of Control Offer. Notes repurchased by the Company or any of its Affiliates pursuant to a Change of Control Offer shall have the status of Notes issued but not outstanding or shall be retired and canceled, at the option of the Company.

 

ARTICLE XVI

 

EVENTS OF DEFAULT

 

Each of the following is an “Event of Default”:

 

(a)           default for five (5) Business Days in the payment when due of interest, if any, on the Notes;

 

(b)           default in the payment when due (at maturity, upon redemption or otherwise) of the principal of, or premium, if any, on, the Notes;

 

(c)           failure by any Obligor to comply with the covenants contained in Sections 15.4, 15.7(b), 15.12, 15.13, 15.14(i), 15.15, 15.16 (in the case of Liens to which the Company has not consented, after thirty (30) days), 15.17, 15.18, 15.19, 15.20, 15.21, 15.22, 15.23, 15.24, 15.25 or 15.27 of this Agreement or failure by the Company to convert any Note as required pursuant to Article XIII hereof;

 

(d)           failure by any Obligor to comply with the covenants contained in Section 15.4(ii) and such failure shall not be cured within ten (10) days;

 

(e)           failure by any Obligor to comply with any of the other agreements in this Agreement or any other Note Document and such failure shall not be cured within thirty (30) days;

 

(f)            default under any mortgage, agreement, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness by any Obligor (or the payment of which is guaranteed by any Obligor), whether such Indebtedness or Guarantee now exists, or is created after the date of the Original Agreement, if that default:

 

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(i)            is caused by a failure to pay principal at final maturity on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a “Payment Default”); or

 

(ii)           results in, or gives rise to a right of the holders of such Indebtedness to cause, 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 under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more;

 

(g)           failure by any Obligor to pay final judgments entered by a court or courts of competent jurisdiction aggregating in excess of $5.0 million to the extent such judgment is not covered by insurance or is in excess of insurance coverage, which judgments are not paid, discharged or stayed for a period of sixty (60) days;

 

(h)           any Guarantee of any Obligor of the Obligations is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason other than directly as a result of any Purchaser’s action or inaction to be in full force and effect, or any Guarantor, or any Person acting on behalf of any Guarantor, denies or disaffirms its obligations under its Guarantee hereunder;

 

(i)            after the date that is twenty (20) days after the Springing Lien Trigger Date, any of the Collateral Documents shall cease, for any reason other than directly as a result of any Purchaser’s action or inaction, to be in full force and effect, or any Lien created by any of the Collateral Documents shall cease to be enforceable and of the same effect and priority purported to be created thereby;

 

(j)            the Company, any Guarantor or any of their respective Subsidiaries pursuant to or within the meaning of any Bankruptcy Law:

 

(i)            commences a voluntary insolvency proceeding;

 

(ii)           consents to the entry of an order for relief against it in an involuntary insolvency proceeding or consents to its dissolution or winding-up;

 

(iii)          consents to the appointment of a Custodian of it or for any substantial part of its Property;

 

(iv)          makes a general assignment for the benefit of its creditors; or

 

(v)           takes any comparable action under any foreign laws relating to insolvency;

 

provided, however, that the liquidation of any entity into its parent, other than as part of a credit reorganization, will not constitute an Event of Default under this clause (j); or

 

(k)           a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:

 

(i)            is for relief against the Company or any Subsidiary in an involuntary insolvency proceeding;

 

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(ii)           appoints a Custodian of the Company or any Subsidiary or for any substantial part of its Property; or

 

(iii)          orders the winding-up, liquidation or dissolution of the Company or any Subsidiary;

 

or grants any similar relief under any foreign laws; and in each such case the order or decree remains unstayed and in effect for sixty (60) days.

 

ARTICLE XVII

 

REMEDIES ON DEFAULT, ETC.

 

17.1  Acceleration of Maturity; Rescission.  In the case of an Event of Default arising from clauses (j) or (k) of Article XVI, all outstanding Notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Majority Purchasers may declare all the Notes to be due and payable immediately by notice in writing to the Company.

 

17.2  Other Remedies.  If an Event of Default occurs and is continuing, subject to Section 17.4 and 17.5, any holder of any Notes then outstanding may pursue any available remedy, under the Note Documents or otherwise, by proceeding at law or in equity to collect the payment of principal of, or premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes, this Agreement or the other Note Documents and may take any necessary action to settle, compromise, adjust or otherwise conclude any proceedings to which it is a party.

 

Any recovery of judgment shall, after provisions for the payment of the reasonable compensation, expenses, disbursements of any holder of Notes then outstanding and their respective counsel, be for the ratable benefit of the holders of the Notes in respect of which such judgment has been recovered. A delay or omission by any holder of Notes 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. No remedy is exclusive of any other remedy. All available remedies are cumulative, to the extent permitted by law. Any costs associated with actions taken by any holder under this Section 17.2 shall be reimbursed to such holder by the Company.

 

17.3  Waiver of Past Defaults and Events of Default.  The holders of a majority in principal amount of Notes at the time outstanding by notice to the Company may, on behalf of the holders of all the Notes, rescind an acceleration or waive any existing Default and its consequences under this Agreement, except a continuing Default in the payment of interest or premium, if any, on, or the principal of, the Notes. In the case of any such waiver, the Company and any holders of Notes shall be restored to their former positions and rights under this Agreement, respectively, provided that no such waiver shall extend to any subsequent or other Default or impair any right consequent thereto.

 

17.4  Control by Majority.  The Majority Purchasers shall have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Purchasers, subject to certain exceptions.

 

17.5  Limitation on Suits.  Except to enforce the right to receive payment of principal, premium, if any, or interest when due, no holder of Notes may pursue any remedy with respect to this Agreement or the Notes unless the Majority Purchasers have agreed to pursue the remedy.

 

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17.6  Rights of Holders to Receive Payment.  Notwithstanding any other provision of this Agreement, the right of any holder of a Note to receive payment of the principal of or premium, if any, or interest, if any, on its Note or to bring suit for the enforcement of any such payment, on or after the due date expressed in the Notes shall not be impaired or affected without the consent of the holder.

 

17.7  Collection Suit by the Purchasers.  If an Event of Default in payment of principal, premium or interest specified in clauses (a) or (b) of Article XVI occurs and is continuing, any holder of any Notes then outstanding may recover judgment in its own name and on behalf of each of other holders of Notes against the Company or any Guarantor (or any other obligor on the Notes) for the whole amount of unpaid principal and accrued interest remaining unpaid.

 

17.8  Priorities.  If any holder of any Notes then outstanding collects any money pursuant to this Article XVII, it shall pay out the money in the following order:

 

FIRST, to reimburse such holder of Notes then outstanding for any expenses related to bringing and maintaining a proceeding pursuant to this Article XVII;

 

SECOND, to the holders for amounts due and unpaid on the Notes for principal, premium, if any, and interest as to each, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes; and

 

THIRD, to the Company or, to the extent the holder of Notes then outstanding collects any amount from any Guarantor, to such Guarantor.

 

The holders of at least a majority in aggregate principal amount of the Notes then outstanding may collectively fix a record date and payment date for any payment to holders pursuant to this Section 17.8.

 

ARTICLE XVIII

 

REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES; TRANSFER OF APOLLO PREFERRED SHARES

 

18.1  Registration of Notes.  The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Note promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes.

 

18.2  Transfer and Exchange of Notes.  Upon surrender of any Note to the Company at the address and to the attention of the designated officer (all as specified in Article XXII), for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or such holder’s attorney duly authorized in writing and accompanied by the relevant name, address and other information for notices of each transferee of such Note or part thereof), within ten (10) Business Days thereafter, the Company shall execute and deliver, at the Company’s expense (except as provided below), one or more new Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such

 

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new Note shall be payable to such Person as such holder may request and shall be substantially in the form of Exhibit A. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp Tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $500,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in Section 8.5. Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of the Notes in accordance with the terms hereof, the Purchasers shall not be required to physically surrender the Notes to the Company unless (a) the full principal amount represented by the Notes is being converted or (b) the Purchasers have provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of the Notes upon physical surrender of the Notes. The Purchasers and the Company shall maintain records showing the principal and interest, if any, converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Purchasers and the Company, so as not to require physical surrender of the Notes upon conversion.

 

18.3  Replacement of Notes.  Upon receipt by the Company at the address and to the attention of the designated officer (all as specified in Article XXII) of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note, and

 

(l)            in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (provided that if the holder of such Note is, or is a nominee for, an original Purchaser or another holder of a Note with a minimum net worth of at least 200% of the value of the lost, stolen or destroyed Note, such Person’s own unsecured agreement of indemnity shall be deemed to be satisfactory), or

 

(m)          in the case of mutilation, upon surrender and cancellation thereof, within ten (10) Business Days thereafter, the Company, at its own expense, shall execute and deliver, in lieu thereof, a new Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon.

 

18.4  Transfer of Apollo Preferred Shares.  The Apollo Preferred Shares may only be transferred (a) to an Affiliate of the Preferred Share Purchaser, or (b) with the consent of the Company.

 

ARTICLE XIX

 

PAYMENTS ON NOTES

 

So long as any Purchaser or its nominee shall be the holder of any Note, and notwithstanding anything in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal and interest by the method and at the address specified for such purpose below such Purchaser’s name in Schedule A, or by such other method or at such other address as such Purchaser shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, such Purchaser shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company. Prior to any sale or other disposition of any Note held by a Purchaser or its nominee, such Purchaser will, at its election, either endorse thereon the amount of

 

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principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to Section 18.2. The Company will afford the benefits of this Article XIX to any direct or indirect transferee of any Note purchased by a Purchaser under this Agreement and that has made the same agreement relating to such Note as the Purchasers have made in this Article XIX.

 

ARTICLE XX

 

EXPENSES, ETC.

 

20.1  Transaction Expenses.  The Company will pay all reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees) incurred by the Purchasers in connection with the negotiation and execution of this Agreement and the Notes and any amendments, waivers or consents under or in respect of this Agreement or the Notes (whether or not such amendment, waiver or consent becomes effective) and in connection with the enforcement of the terms and conditions hereof and of the Notes, including, without limitation: (a) the costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement or the Notes or any other Note Document, in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the Notes, or by reason of being a holder of any Note and (b) the costs and expenses, including financial advisors’ fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes. The Company will pay, and will save each Purchaser and each other holder of a Note harmless from, all claims in respect of any fees, costs or expenses, if any, of brokers and finders (other than those, if any, retained by a Purchaser or other holder in connection with its purchase of the Notes).

 

20.2  Survival.  The obligations of the Company under this Article XX will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement or the Notes, and the termination of this Agreement.

 

ARTICLE XXI

 

MODIFICATION AND WAIVER

 

21.1  Requisite Consent of Holders.

 

(a)           Except as provided in Section 21.1(b) of this Agreement, this Agreement, the Notes or any other Note Document may be amended or supplemented with the consent of the Majority Purchasers (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), and any existing Default or compliance with any provision of this Agreement or the Notes may be waived with the consent of the Majority Purchasers (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes).

 

(b)           Without the consent of each holder affected, an amendment, supplement or waiver may not (with respect to any Notes held by a non-consenting holder):

 

(i)            reduce the principal amount of Notes whose holders must consent to an amendment, supplement or waiver;

 

(ii)           reduce the principal of or change the fixed maturity of any Note;

 

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(iii)          provide for any right of voluntary redemption of the Notes by the Company or its affiliates;

 

(iv)          reduce the rate of or change the time for payment of interest on any Note;

 

(v)           waive a Default or Event of Default in the payment of principal of or premium, if any, or interest, if any, on the Notes (except a rescission of acceleration of the Notes by the holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the Payment Default that resulted from such acceleration in each case in accordance with and subject to the terms of this Agreement;

 

(vi)          make any Note payable in money other than that stated in the Notes;

 

(vii)         impair the right of any holder to receive payment of principal of, or interest on such holder’s notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such holder’s notes;

 

(viii)        release any Guarantor (or permit any entity to fail to become a Guarantor) from any of its Obligations under its Note Guarantee or this Agreement, except in accordance with the terms of this Agreement;

 

(ix)          release all or substantially all of the Collateral from (or permit all or substantially all of the Collateral to fail to become subject to) the Lien of the Collateral Agent securing the Obligations;

 

(x)           alter in any manner adverse to the holders, the provisions of Article XII or Article XIII; or

 

(xi)          make any change to Section 21.1(a) or this Section 21.1(b).

 

(c)           The consent of the holders of the Notes shall not be necessary to approve the particular form of any proposed amendment. It shall be sufficient if such consent approves the substance of the proposed amendment.

 

(d)           After an amendment under this Agreement becomes effective, the Company shall mail to each registered holder of the Notes at such holder’s address appearing in the register a notice briefly describing such amendment. However, the failure to give such notice to all holders of the Notes, or any defect therein, shall not impair or affect the validity of the amendment.

 

21.2  Revocation and Effects of Consents.

 

(a)           After an amendment, supplement, waiver or other action becomes effective, a consent to it by a holder of a Note is a continuing consent conclusive and binding upon such holder and every subsequent holder of the same Note or portion thereof, and of any Note issued upon the transfer thereof or in exchange therefor or in place thereof, even if notation of the consent is not made on any such Note.

 

(b)           The Company may, but shall not be obligated to, fix a record date for the purpose of determining the holders entitled to consent to any amendment, supplement, or waiver. If a record date is fixed, then, notwithstanding Section 21.2(a), those Persons who were holders at such record date (or their duly designated proxies), and only such Persons, shall be entitled to consent to such amendment, supplement, or waiver or to revoke any consent previously given, whether or not such Persons continue

 

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to be holders after such record date. No such consent shall be valid or effective for more than ninety (90) days after such record date unless the consent of the requisite number of holders has been obtained.

 

21.3  Notation on Exchange of Notes.  If an amendment, supplement or waiver changes the terms of a Note, the Company shall request the holder of the Note (in accordance with the specific written direction of the Company) to deliver such Note to the Company. In such case, the Company shall place an appropriate notation on the Note about the changed terms and return it to the holder. Alternatively, if the Company so determines, the Company in exchange for the Note shall issue, the Guarantors shall endorse and the Company shall authenticate a new Note that reflects the changed terms. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver.

 

ARTICLE XXII

 

NOTICES

 

All notices and communications provided for hereunder, unless otherwise specified, shall be in writing and shall be deemed delivered (a) on a Business Day if sent by telecopy during the Business Day or on the next Business Day if sent after a Business Day has ended or (b) the next Business Day after delivery to a recognized overnight delivery service (with charges prepaid). Any such notice must be sent:

 

(i)            if to any Purchaser or its nominee, to such Purchaser or nominee at the address specified for such communications in Schedule A, or at such other address as such Purchaser or nominee shall have specified to the Company in writing,

 

with a copy (which shall not constitute notice) to:

 

	
Wachtell,   Lipton, Rosen & Katz
    
	
51   West 52nd Street
    
	
New   York, NY 10019
    
	
Attention:
    	
Andrew   Nussbaum
    
	
 
    	
Ante   Vucic
    
	
Telecopy:
    	
212-403-2000
    

 

(ii)           if to the Company, to the Company at the address set forth below or at such other address as the Company shall have specified to the holder of each Note in writing:

 

	
Prospect   Global Resources Inc.
    
	
1401   17th Street
    
	
Suite 1550
    
	
Denver,   CO 80439
    
	
Attention:
    	
 Chief Executive Officer
    
	
Telecopy:
    	
 303-990-8440
    

 

with a copy (which shall not constitute notice) to:

 

	
Brownstein   Hyatt Farber Schreck, LLP
    
	
410 17th Street
    
	
Suite 2200
    
	
Denver, CO 80439
    

 

82

 

	
Attention:
    	
 Jeff Knetsch
    
	
Telecopy:
    	
 303-223-1111
    

 

ARTICLE XXIII

 

GUARANTEE OF NOTES

 

23.1  Note Guarantee.  The Guarantors, fully and unconditionally, jointly and severally, guarantee, on an unsubordinated basis, to each holder (a) the due and punctual payment of the principal of, premium (if any) and interest on each Note, when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal of and interest on the Notes, to the extent lawful, and the due and punctual payment of all other obligations and due and punctual performance of all Obligations of the Company to the holders all in accordance with the terms of such Note and this Agreement, and (b) in the case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same shall be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, at stated maturity, by acceleration or otherwise. Each Guarantor agrees that its obligations hereunder shall be absolute and unconditional, irrespective of, and shall be unaffected by, any invalidity, irregularity or unenforceability of any such Note or this Agreement, any failure to enforce the provisions of any such Note and this Agreement, any waiver, modification or indulgence granted to the Company with respect thereto by the holder of such Note, or any other circumstances which may otherwise constitute a legal or equitable discharge of a surety or such Guarantor.

 

Each Guarantor hereby waives diligence, presentment, demand for payment, filing of claims with a court in the event of merger or bankruptcy of the Company, any right to require a proceeding first against the Company, protest or notice with respect to any such Note or the Indebtedness evidenced thereby and all demands whatsoever, and covenants that this Note Guarantee shall not be discharged as to any such Note except by payment in full of the principal thereof, premium (if any) and interest thereon. Each Guarantor hereby agrees that, as between such Guarantor, on the one hand, and the holders, on the other hand, (i) to the extent lawful in an applicable jurisdiction, the maturity of the Obligations guaranteed hereby may be accelerated as provided in Article XVII for the purposes of this Note Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (ii) in the event of any declaration of acceleration of such obligations as provided in Article XVII, such obligations (whether or not due and payable) shall forthwith become due and payable by each Guarantor for the purpose of this Note Guarantee.

 

The Note Guarantee of any Guarantor may be released pursuant to Section 23.3, in connection with the cessation of corporate existence of such Guarantor permitted under the terms of this Agreement.

 

The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of any holder under the Note Guarantees.

 

23.2  Execution and Delivery of Note Guarantee.  To further evidence the Note Guarantee set forth in Section 23.1, each Guarantor hereby agrees, on the date such Guarantor becomes a party hereto, that a notation of such Note Guarantee, reasonably satisfactory in form and substance to the Purchasers shall be endorsed on each Note authenticated and delivered by the Company on the Closing Date and such Note Guarantee shall be executed by either manual or facsimile signature of an Officer of each Guarantor. The validity and enforceability of any Note Guarantee shall not be affected by the fact that it is not affixed to any particular Note.

 

83

 

Each of the Guarantors hereby agrees that its Note Guarantee set forth in Section 23.1 shall be in full force and effect notwithstanding any failure to endorse on each Note a notation of such Note Guarantee.

 

If an Officer of a Guarantor whose signature is on this Agreement or a Note Guarantee no longer holds that office at the time the Company authenticates the Note on which such Note Guarantee is endorsed or at any time thereafter, such Guarantor’s Note Guarantee of such Note shall be valid nevertheless.

 

The delivery of any Note by the Company, after the authentication thereof hereunder, shall constitute due delivery of any Note Guarantee set forth in this Agreement on behalf of the Guarantor.

 

23.3  Release of Guarantors.  The Note Guarantee of a Guarantor shall be released:

 

(n)           in connection with any sale or other disposition of all or substantially all of the assets of that Guarantor (including by way of merger or consolidation) to a Person that is not (either before or after giving effect to such transaction) the Company or a Subsidiary of the Company, if the sale or other disposition is permitted by the terms of this Agreement; or

 

(o)           in connection with any sale or other disposition of Capital Stock of that Guarantor to a Person that is not (either before or after giving effect to such transaction) the Company or a Subsidiary of the Company, if the sale or other disposition is permitted by the terms of this Agreement;

 

and in either such case, the Company has delivered to the holders of Notes then outstanding an Officer’s Certificate stating that all conditions precedent herein provided for relating to such transactions have been complied with and that such release is authorized and permitted hereunder.

 

Each holder of Notes then outstanding shall execute any documents reasonably requested by either the Company or a Guarantor in order to evidence the release of such Guarantor from its obligations under its Note Guarantee endorsed on the Notes and under this Article XXIII.

 

23.4  Waiver of Subrogation.  Until all the obligations under the Notes and the Note Guarantees are satisfied in full, each Guarantor hereby irrevocably waives any claim or other rights which it may now or hereafter acquire against the Company that arise from the existence, payment, performance or enforcement of such Guarantor’s obligations under its Note Guarantee and this Agreement, including, without limitation, any right of subrogation, reimbursement, exoneration, indemnification, and any right to participate in any claim or remedy of any holder of Notes against the Company, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other Property or by set-off or in any other manner, payment or Note on account of such claim or other rights. If any amount shall be paid to any Guarantor in violation of the preceding sentence and the Notes shall not have been paid in full, such amount shall have been deemed to have been paid to such Guarantor for the benefit of, and held in trust for the benefit of, the holders of the Notes, and shall forthwith be paid to the Company for the benefit of such holders to be credited and applied upon the Notes, whether matured or unmatured, in accordance with the terms of this Agreement. Each Guarantor acknowledges that it shall receive direct and indirect benefits from the financing arrangements contemplated by this Agreement and that the waiver set forth in this Section 23.4 is knowingly made in contemplation of such benefits.

 

84

 

ARTICLE XXIV

 

CONFIDENTIAL INFORMATION

 

For the purposes of this Article XXIV, “Confidential Information” means information delivered to any Purchaser by or on behalf of the Company, any Subsidiary or any Guarantor in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature, provided that such term does not include information that (a) was publicly known or otherwise known to such Purchaser prior to the time of such disclosure (without breach of any confidentiality or fiduciary obligation), (b) subsequently becomes publicly known through no act or omission by such Purchaser or any person acting on such Purchaser’s behalf, (c) otherwise becomes known to such Purchaser other than through disclosure by the Company or any Subsidiary (provided that such Purchaser did not know or have reason to believe that the party disclosing such information was subject to any confidentiality or fiduciary obligation to the Company, any Subsidiary or any Guarantor) or (d) constitutes financial statements delivered to such Purchaser under Section 14.1 that are otherwise publicly available. Each Purchaser will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by such Purchaser in good faith to protect confidential information of third parties delivered to such Purchaser, provided that such Purchaser may deliver or disclose Confidential Information to (i) its directors, officers, employees, partners, managers, shareholders, members, agents, attorneys and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by its Notes), (ii) its financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Article XXIV, or (iii) any other Person (w) to effect compliance with any Law, rule, regulation or order applicable to such Purchaser, (x) in response to any subpoena or other legal process, (y) in connection with any litigation to which such Purchaser is a party or (z) if an Event of Default has occurred and is continuing, to the extent such Purchaser may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under such Purchaser’s Notes and this Agreement (provided that for clauses (w), (x) and (y), such Purchaser shall (1) promptly notify the Company of the existence, terms and circumstances surrounding such request or requirement for disclosure, (2) consult with the Company on the advisability of taking legally available steps to resist or narrow such request or requirement, (3) assist the Company in seeking a protective order or other appropriate remedy and (4) if disclosure is ultimately necessary, disclose only the portion of the information legally required to be disclosed and use commercially reasonable efforts to obtain confidential treatment for such information). Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Article XXIV as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Company embodying the provisions of this Article XXIV.

 

Notwithstanding anything to the contrary in this Article XXIV, each Purchaser and any Affiliate thereof may disclose: (a) the type of business in which the Company and its Subsidiaries are engaged; (b) the percentage and fair value of any Notes held by such Purchaser or any Affiliate under this Agreement and the amount of such Notes; and (c) the relationship of such Purchaser or its Affiliates to the Company and its Subsidiaries in respect of this Agreement; provided that no such disclosure shall include, or in any way describe, the sales or earnings results or projections of the Company or any of its Subsidiaries (except in connection with general statistical summaries or analyses of the portfolio investments that do not specify or identify the Company or any of its Subsidiaries), or any terms of any

 

85

 

contracts to which the Company or any of its Subsidiaries is a party or any counterparty thereto and the terms of such contracts.

 

ARTICLE XXV

 

SUBSTITUTION OF PURCHASER

 

Each Purchaser (including any substitute Purchaser or any transferee of any portion of the purchase commitments pursuant to this Article XXV) shall have the right to substitute any Person as the purchaser of the Notes, other Securities and/or Royalties that it has agreed to purchase hereunder, or transfer or assign a portion of such Purchaser’s commitment for the purchase of Notes, other Securities and/or Royalties to such Person, by written notice to the Company, which notice shall be signed by both such Purchaser and such Person, shall contain such Person’s agreement to be bound by this Agreement, contain a confirmation by such Person of the accuracy with respect to it of the representations set forth in Article VIII, and be accompanied by a properly completed and duly executed Internal Revenue Service Form W-9 (or, if such Person is a Foreign Assignee, a properly completed and duly executed Internal Revenue Service Form W-8, completed in such a manner as to benefit, to the fullest extent permitted by applicable U.S. federal income tax law, from any available reduction of such Foreign Assignee’s liability for U.S. federal income Taxes with respect to amounts to which such Foreign Assignee is entitled pursuant to the Securities or pursuant to the Royalty Agreement). Upon receipt of such notice, if the original Purchaser has elected to substitute such Person or has allocated 100% of its commitments to one or more Persons, any reference to such Purchaser in this Agreement (other than in this Article XXV), shall be deemed to refer to such Person(s) in lieu of such original Purchaser (including any corresponding references to such Person as “Notes Purchaser” or “Royalties Purchaser,” as the case may be). In the event that such Person is so substituted as a Purchaser hereunder and such Person thereafter transfers to such original Purchaser all of the Notes, other Securities and Royalties then held by such Person, upon receipt by the Company of notice of such transfer, any reference to such Person as a “Purchaser” in this Agreement (other than in this Article XXV), shall no longer be deemed to refer to such Person, but shall refer to such original Purchaser, and such original Purchaser shall again have all the rights of an original holder of the Notes, other Securities and Royalties under this Agreement. In the event that a Purchaser transfers or assigns a portion (but not all) of such Purchaser’s commitment for the purchase of Notes, other Securities and/or Royalties, such transferee or assignee shall be deemed an additional “Purchaser” for all purposes under this Agreement (including any corresponding references to such Person as “Notes Purchaser” or “Royalties Purchaser,” as the case may be). Schedule A shall be updated upon the occurrence of any substitution, transfer or assignment contemplated herein.

 

ARTICLE XXVI

 

MISCELLANEOUS

 

26.1  Successors and Assigns.  Except as set forth in Article XXV, this Agreement shall be binding upon, and inure solely to the benefit of, the Purchasers, the Company, the Guarantors, and their respective successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement.

 

26.2  Legal Holidays.  A “Legal Holiday” is a Saturday, a Sunday or other day on which (a) commercial banks in the City of New York are authorized or required by law to close or (b) the Principal Market is not open for trading. If a payment date is a Legal Holiday at a place of payment,

 

86

 

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.

 

26.3  Accounting Terms.  All accounting terms used herein which are not expressly defined in this Agreement have the meanings respectively given to them in accordance with GAAP. Except as otherwise specifically provided herein, (a) all computations made pursuant to this Agreement shall be made in accordance with GAAP, and (b) all financial statements shall be prepared in accordance with GAAP.

 

26.4  Severability.  Any provision of this Agreement that 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, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction.

 

26.5  Construction, Etc.  Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person.

 

Certain capitalized and other terms used in this Agreement are defined in Schedule B; and references to a “Schedule” or an “Exhibit” are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement. For the avoidance of doubt, all Schedules and Exhibits attached to this Agreement shall be deemed to be a part hereof.

 

26.6  Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one (1) instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto.

 

26.7  Table of Contents, Headings, Etc.  The table of contents, cross-reference sheet and headings of the Sections of this Agreement have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof.

 

26.8  Construction.  Each of the Company and the Guarantors acknowledges and agrees that the purchase and sale of the Securities pursuant to this Agreement is an arm’s-length commercial transaction between the Company, on the one hand, and the several Purchasers, on the other, and that each of the Company and the Guarantors has consulted its own legal and financial advisors to the extent it deemed appropriate.

 

26.9  Governing Law.  This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of New York (excluding choice-of-law principles of the laws of such State that would permit the application of the laws of a jurisdiction other than such State), other than to the extent the laws of the State of Nevada (including chapters 78 and 92A of the Nevada Revised Statutes) mandatorily apply.

 

87

 

26.10  Jurisdiction and Process; Waiver of Jury Trial.

 

(a)           Each of the Company and the Guarantors and the Purchasers agrees that any suit or proceeding arising in respect of this Agreement will be tried in the U.S. District Court for the Southern District of New York or in any state court located in the City and County of New York and the Company and the Guarantors and the Purchasers agree to submit to the jurisdiction of, and to venue in, such courts.

 

(b)           The Company consents to process being served by or on behalf of any holder of Notes in any suit, action or proceeding of the nature referred to in Section 26.10(a) by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, return receipt requested, to it at its address specified in Article XXII or at such other address of which such holder shall then have been notified pursuant to said Section. The Company agrees that such service upon receipt (i) shall be deemed in every respect effective service of process upon it in any such suit, action or proceeding and (ii) shall, to the fullest extent permitted by applicable law, be taken and held to be valid personal service upon and personal delivery to it. Notices hereunder shall be conclusively presumed received as evidenced by a delivery receipt furnished by the United States Postal Service or any reputable commercial delivery service.

 

(c)           Nothing in this Section 26.10 shall affect the right of any holder of a Note to serve process in any manner permitted by law, or limit any right that the holders of any of the Notes may have to bring proceedings against the Company in the courts of any appropriate jurisdiction or to enforce in any lawful manner a judgment obtained in one jurisdiction in any other jurisdiction.

 

(d)           Each of the Company, the Guarantors and the Purchasers hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the Transactions.

 

26.11  Disclosure of Tax Information.  Notwithstanding anything herein to the contrary, the Company (and the Company’s employees, representatives, and other agents) and each of the Guarantors (and each of the Guarantors’ employees, representatives, and other agents) are authorized to disclose to any and all persons, the Tax Treatment and Tax Structure of the potential transaction and all materials of any kind (including Tax opinions and other Tax analyses) provided to the Company and to any of the Guarantors relating to that treatment and structure, without the Purchasers imposing any limitation of any kind. For this purpose, “Tax Treatment” means U.S. federal and state income Tax treatment, and “Tax Structure” is limited to any facts that may be relevant to that treatment.

 

26.12  Statements Required in Certificate.  Each certificate (other than certificates provided pursuant to Section 14.1(a)) with respect to compliance by or on behalf of the Company or any Guarantor with a condition or covenant provided for in this Agreement shall include:

 

(p)           a statement that the Person making such certificate or opinion has read such covenant or condition;

 

(q)           a statement that, in the opinion of such Person, it or he has made such examination or investigation as is necessary to enable it or him to express an informed opinion as to whether or not such covenant or condition has been complied with; and

 

(r)            a statement as to whether or not, in the opinion of such Person, such covenant or condition has been complied with.

 

26.13  [Intentionally Deleted]

 

88

 

26.14  Specific Performance.  The parties agree that irreparable damage would occur in the event that any party fails to consummate the transactions contemplated by this Agreement in accordance with the terms of this Agreement and that each of the Company and the Purchasers shall be entitled to specific performance in such event, in addition to any other remedy at Law or in equity. The parties agree that the Company and the Purchasers shall be entitled to an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the terms and provisions of this Agreement in addition to any other remedy to which either Party may be entitled.

 

26.15  Time of the Essence.  Time shall be of the essence of this Agreement.

 

[Signature page follows]

 

89

 

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement by their authorized representatives as of the date first above written.

 

	
 
    	
PROSPECT GLOBAL RESOURCES INC.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   PATRICK L. AVERY
    
	
 
    	
 
    	
Name:
    	
Patrick   Avery
    
	
 
    	
 
    	
Title:
    	
Chief Executive Officer and President
    
	
 
    	
 
    
	
 
    	
AIF VII PG O&R HOLDINGS, L.P.
    
	
 
    	
 
    
	
 
    	
By:
    	
Apollo   Advisors VII (APO FC), L.P., 
    
	
 
    	
 
    	
its   general partner
    
	
 
    	
 
    
	
 
    	
By:
    	
Apollo   Advisors VII (APO FC-GP), LLC,
    
	
 
    	
 
    	
its   general partner
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/   LAURIE D. MEDLEY
    
	
 
    	
 
    	
Name:
    	
Laurie   D. Medley
    
	
 
    	
 
    	
Title:
    	
Vice President
    
	
 
    	
 
    
	
 
    	
AIF VII PG HOLDINGS, L.P.
    
	
 
    	
 
    
	
 
    	
By:
    	
Apollo   Advisors VII, L.P., 
    
	
 
    	
 
    	
its   general partner
    
	
 
    	
 
    
	
 
    	
By:
    	
Apollo   Capital Management VII, LLC, 
    
	
 
    	
 
    	
its   general partner
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   LAURIE D. MEDLEY
    
	
 
    	
 
    	
Name:
    	
Laurie   D. Medley
    
	
 
    	
 
    	
Title:
    	
Vice President
    
	
 
    	
 
    
	
 
    	
ANRP PG HOLDINGS, L.P.
    
	
 
    	
 
    
	
 
    	
By:
    	
Apollo   ANRP Advisors, L.P., 
    
	
 
    	
 
    	
its   general partner
    
	
 
    	
 
    
	
 
    	
By:
    	
Apollo   ANRP Capital Management, LLC, 
    
	
 
    	
 
    	
its   general partner
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   LAURIE D. MEDLEY
    
	
 
    	
 
    	
Name:
    	
Laurie   D. Medley
    
	
 
    	
 
    	
Title:
    	
Vice President
    
	
 
    	
 
    
	
 
    	
ANRP PG O&R HOLDINGS, L.P.
    
	
 
    	
 
    
	
 
    	
By:
    	
Apollo   ANRP Advisors (APO FC), L.P.,
    
	
 
    	
 
    	
its   general partner
    

 

 

	
 
    	
By:
    	
Apollo   ANRP Advisors (APO FC-GP), LLC, 
    
	
 
    	
 
    	
its   general partner
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   LAURIE D. MEDLEY
    
	
 
    	
 
    	
Name:
    	
Laurie   D. Medley
    
	
 
    	
 
    	
Title:
    	
Vice President
    
	
 
    	
 
    
	
 
    	
AP PG GOLDEN SHARE, LLC
    
	
 
    	
 
    
	
 
    	
By:
    	
Apollo   Management VII, L.P., 
    
	
 
    	
 
    	
its   manager
    
	
 
    	
 
    
	
 
    	
By:
    	
AIF   VII Management, LLC, 
    
	
 
    	
 
    	
its   general partner
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   LAURIE D. MEDLEY
    
	
 
    	
 
    	
Name:
    	
Laurie   D. Medley
    
	
 
    	
 
    	
Title:
    	
Vice President
    

 

 

SCHEDULE A

 

INFORMATION RELATING TO PURCHASERS

 

	
Name of Notes
   Purchasers
    	
 
    	
Principal Amount of
   Notes to be
   Purchased
    	
 
    
	
AIF VII PG Holdings, L.P. 
    	
 
    	
$
    	
76,200,000
    	
 
    
	
ANRP PG Holdings, L.P. 
    	
 
    	
$
    	
23,800,000
    	
 
    
	
Total 
    	
 
    	
$
    	
100,000,000
    	
 
    

 

	
Name of Royalty
   Purchasers
    	
 
    	
Percentage of
   Royalty to be
   Purchased
    	
 
    	
Percentage of
   Series A
   Warrants to
   be Received
    	
 
    	
Percentage of
   Series B
   Warrants to
   be Received
    	
 
    	
Percentage of
   Termination
   Fee
   to be Received
    	
 
    
	
AIF VII PG O&R Holdings, L.P. 
    	
 
    	
76.20
    	
%
    	
76.20
    	
%
    	
76.20
    	
%
    	
76.20
    	
%
    
	
ANRP PG O&R Holdings, L.P. 
    	
 
    	
23.80
    	
%
    	
23.80
    	
%
    	
23.80
    	
%
    	
23.80
    	
%
    
	
Total 
    	
 
    	
100
    	
%(1)
    	
100
    	
%
    	
100
    	
%
    	
100
    	
%
    

 

(1)                                 The percentages in this Schedule A refer to the percentage of the Royalty that is allocable to the Royalty Purchasers in the Royalty Agreement. For the avoidance of doubt, the Royalty Purchasers are not entitled to the Royalty that is allocable to Buffalo Management LLC in the Royalty Agreement.

 

Name of Preferred Share Purchaser

 

AP PG Golden Share, LLC

 

1)                                     All payments by wire transfer of immediately available funds to accounts to be specified by the applicable Purchaser no later than two (2) Business Days prior to the date of the applicable payment.

 

2)                                     All notices of payments, written confirmations of such wire transfers and all other communications:

 

c/o Apollo Global Management, LLC

9 West 57th Street

New York, NY 10019

Attention: Laurie Medley

Facsimile: (646) 607-0528

 

Sch. A-1

 

SCHEDULE B

 

DEFINED TERMS

 

As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term:

 

“Acceptable Confidentiality Agreement” shall mean a customary confidentiality agreement containing terms no less favorable to the Company in the aggregate than the terms set forth in the Confidentiality Agreement, dated March 5, 2012, between the Company and Apollo Management VII, L.P.

 

“Accounting Firm” is defined in Section 13.12.

 

“Affiliate” or “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,” as used with respect to any Person, means 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. For purposes of this definition, the terms “controlling,” “controlled by” and “under common control with” have correlative meanings. For purposes of this Agreement, Apollo Global Management, LLC and its Affiliates shall not be deemed to be Affiliates of the Company or any of its Subsidiaries.

 

“Associate” means, when used to indicate a relationship with any Person, (i) any officer or director of such Person, (ii) any spouse, former spouse, child, parent, parent of a spouse, sibling, grandchild or grandparent of any of the Persons listed in clause (i) above, (iii) any Affiliate of any of the Persons listed in clause (i) or (ii) above, (iv) any corporation or organization of which such Person listed in clause (i) or (ii) above is an officer or partner or is directly or indirectly the beneficial owner of 10% or more of any class of equity securities, and (v) any trust or other estate in which any of the Persons listed in clause (i) or (ii) above has a substantial beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity.

 

“Agreement” is defined in the first paragraph of this Agreement.

 

“Applicable Price” is defined in Section 13.4.

 

“Apollo Preferred Shares” means 100 shares of the Company’s Series A Preferred Stock as described in the Certificate of Designation.

 

“Apollo Warrants” are defined in the fifth paragraph of this Agreement.

 

“Appraiser” is defined in Section 13.4(D).

 

“Approval” means any authorization, consent, approval, license, lease, ruling, permit, tariff, rate, certification, exemption, filing, variance, claim, order, judgment, decree, sanction or publication of, by or with, any notice to, any declaration of or with, or any registration by or with, or any other action or deemed action by or on behalf of, any Governmental Authority.

 

“Approved Subordinated Indebtedness” means any indebtedness outstanding from any Obligor to any other Obligor which is subject to the terms and conditions of a subordination agreement in form and substance satisfactory to the Purchasers providing for, among other things, the subordination of the

 

Sch. B-1

 

Indebtedness subject to the subordination agreement to the Indebtedness evidenced by the Notes, and which is incurred on terms and conditions, and pursuant to documentation, acceptable to the holders, acting in their reasonable discretion.

 

“AWP” means American West Potash LLC, a Delaware limited liability company and, as of the date hereof, a wholly owned indirect Subsidiary of the Company.

 

“Bankruptcy Law” means Title 11, United States Code, or any other U.S. Federal or state law for the relief of debtors.

 

“Beneficial Owner” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act as in effect on the date hereof. The terms “Beneficially Owns” and “Beneficially Owned” have a corresponding meaning.

 

“Benefit Plan” shall mean any employee benefit plan, program, policy, practice, undertaking or other arrangement maintained, sponsored or administered by the Company or any of its Subsidiaries, to which the Company or any of its Subsidiaries contributes or is bound, or in respect of which the Company or any of its Subsidiaries has, or will have, any liability or contingent liability, in each case providing benefits to any employees of the Company or any of its Subsidiaries (or any beneficiary or dependent thereof), whether or not written (whether funded or unfunded, insured or uninsured, formal or informal, registered or unregistered), including without limitation any bonus, incentive, deferred compensation, incentive compensation, vacation, stock purchase, stock option, phantom stock, pension, retirement savings, profit sharing, life or accident insurance, hospitalization, health, medical or dental, disability, severance, employment, change of control or fringe benefit plan, program or agreement and any related trusts or other funding vehicles.

 

“Board Observer” is defined in Section 9.11(b).

 

“Board of Directors” means:

 

(a)                                 with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board;

 

(b)                                 with respect to a partnership, the board of directors of the general partner of the partnership;

 

(c)                                  with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and

 

(d)                                 with respect to any other Person, the board or committee of such Person serving a similar function.

 

“Buffalo” is defined in the eighth paragraph of this Agreement.

 

“Business Day” means a day other than a Saturday, Sunday or other day on which commercial banking institutions in New York City are authorized or required by law to close.

 

“Buy-In” is defined in Section 13.3(c).

 

“Buy-In Price” is defined in Section 13.3(c).

 

Sch. B-2

 

“Cap” is defined in Section 11.4(d).

 

“Capital Costs” shall mean all costs to develop, build, equip, commission and ramp up to nameplate capacity the mine, processing facilities, required infrastructure (including any necessary infrastructure to export product whether at the mine site or off the mine site) and administrative facilities at the mine site. Capital Costs shall include direct, indirect costs and contingency, direct and indirect owner’s costs and contingency plus spare parts and first fills.

 

“Capitalized Lease Liabilities” means all monetary obligations of any Person under any leasing or similar arrangement which could be classified as capitalized leases, and, for purposes of this Agreement and each other Note Document, the amount of such obligations shall be the capitalized amount thereof, and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty.

 

“Capital Stock” means:

 

(a)                                 in the case of a corporation, corporate stock;

 

(b)                                 in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;

 

(c)                                  in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and

 

(d)                                 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, but excluding fr om all of the foregoing clauses (a) through (d) any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.

 

“Cash Equivalent Investment” means, at any time:

 

(e)                                  securities denominated in Dollars maturing not more than twelve (12) months from the date of issue, which are issued, guaranteed or insured by the government of the United States of America; or

 

(f)                                   any negotiable certificate of deposit or bankers’ acceptance, guaranteed investment contracts, repurchase agreement or discount debt obligation (in each case, denominated in Dollars), maturing not more than one (1) year after such time, which is issued (or, in the case of a bankers’ acceptance, accepted) by any domestic commercial banking institution that has a credit rating of either A-1 or higher by Standard & Poor’s Rating Services or F1 or higher by Fitch Ratings Ltd or P-1 or higher by Moody’s Investor Services Limited.

 

“CERCLA” is defined in Section 7.20(a)(i).

 

“Certificate of Designation” means the certificate of designation of the Apollo Preferred Shares in the form set forth in Exhibit C.

 

“Change of Control” means the occurrence of any of the following:

 

Sch. B-3

 

(g)                                  (i) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act)), other than Permitted Holders, is or becomes the Beneficial Owner, directly or indirectly, of 35.0% or more of the voting power of the Voting Stock of the Company (or upon any merger or consolidation, the surviving or successor entity); or (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election to such Board of Directors or whose nomination for election was approved by a vote of at least 50.0% of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute at least a majority of the Board of Directors of the Company;

 

(h)                                 the sale, transfer, conveyance, or other disposition in one or a series of related transactions, of all or substantially all of the properties or assets of the Company and the Subsidiaries, taken as a whole (which, for the avoidance of doubt, shall not include merger or consolidation transactions), to any “person” (as that term is used in Section 13(d)(3) of the Exchange Act) other than to Permitted Holders; or

 

(i)                                     the adoption of a plan relating to the liquidation or dissolution of the Company.

 

“Change of Control Offer” means an offer to a holder of Notes to repurchase all or any part of that holder’s Notes in the event a Change of Control occurs.

 

“Change of Control Payment” is defined in Section 15.27(a).

 

“Change of Control Payment Date” means the date of repurchase of Notes by the Company pursuant to a Change of Control Offer.

 

“Claim” is defined in Section 11.3(b).

 

“Claim Notice” is defined in Section 11.3(b).

 

“Closing” is defined in Section 3.1.

 

“Closing Date” is defined in Section 3.1.

 

“Closing Sale Price” means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or last trade price, respectively, of such security prior to 4:00 p.m., New York Time, as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the OTC Link or “pink sheets” by OTC Markets Group Inc. (formerly the Pink OTC Markets Inc.). If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved by an Appraiser selected as provided in Section 13.4(d). All such determinations to be

 

Sch. B-4

 

appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction during the applicable calculation period.

 

“Code” means the Internal Revenue Code of 1986, as amended, and the rules, regulations and published interpretations promulgated thereunder from time to time.

 

“Collateral” means substantially all of the property, real or personal, tangible or intangible, of each Obligor, including, without limitation, any property subject to a Lien in favor of the lenders in respect of the Project Financing Facility.

 

“Collateral Agent” means the agent named as “Collateral Agent” in the Collateral Documents.

 

“Collateral Documents” means any security agreements, mortgages, collateral access agreements, deposit account control agreements, securities account control agreements and any other documents pursuant to which any Obligor grants or perfects a Lien upon any real or personal property as security for payment of the Obligations.

 

“Company Disclosure Schedules” means the disclosure schedules attached hereto that correspond to the numbered sections in Article VII; the information disclosed in any particular section of the Company Disclosure Schedules shall be deemed to relate to and to qualify only the particular representation or warranty set forth in the corresponding numbered section in Article VII; provided, however, that to the extent that an item in a section of the Company Disclosure Schedules is relevant and reasonably apparent on its face to apply to the disclosure required by any other section of Article VII, such item shall be deemed to be disclosed in the section of the Company Disclosure Schedules corresponding to such other section of Article VII whether or not an explicit cross-reference appears.

 

“Common Stock” means the common stock of the Company, par value $0.001 per share.

 

“Company” is defined in the first paragraph of this Agreement.

 

“Company Converstion Date” is defined in Section 13.3(b).

 

“Company Conversion Notice” is defined in Section 13.3(b).

 

“Company Organizational Documents” is defined in Section 7.4.

 

“Company SEC Documents” is defined in Section 7.9(a).

 

“Company Share Delivery Date” is defined in Section 13.3(b).

 

“Company Termination Fee” is defined in Section 10.3.

 

“Compliance Certificate” means a certificate an officer of the Company reasonably satisfactory in form and substance to the Purchasers certifying of compliance with the provisions of this Agreement.

 

“Confidential Information” is defined in Article XXV.

 

“Conversion Amount” is defined in Section 13.1(a) and 13.1(b).

 

“Conversion Date” is defined in Section 13.3(a).

 

Sch. B-5

 

“Conversion Failure” is defined in Section 13.3(c).

 

“Conversion Milestone” means the date on which both of the following has occurred: (i) Project Completion, and (ii) at any time after Project Completion, the arithmetic average of the daily VWAP of the Common Stock for any twenty (20) consecutive Trading Days being 200% or more of the then-applicable Conversion Price (provided that this condition shall only be deemed to be satisfied if the Common Stock is listed on Nasdaq, TSX or NYSE/AMEX (or another national securities exchange in the US or Canada reasonably acceptable to the Majority Purchasers) during such twenty (20) consecutive Trading Day measuring period).

 

“Conversion Price” is defined in Section 13.2(b).

 

“Convertible Securities” means, with respect to any Person, any shares or securities (other than Options) directly or indirectly convertible into or exchangeable or exercisable for shares of capital stock of such Person (including, in the case of the Company, shares of Common Stock).

 

“Cost Overrun Facility” means any committed credit facility made available to the Company for the purposes of funding capital cost overruns and which has been made available on terms and conditions, and pursuant to documentation, acceptable to the Collateral Agent (acting on the instructions of the Majority Purchasers).

 

“Current Capital Estimate” means $1,530,000,000.

 

“Custodian” means any receiver, interim receiver, receiver and manager, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law.

 

“Damages” is defined in Section 11.1.

 

“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.

 

“Definitive Feasibility Study” shall mean a definitive feasibility study with respect to the Holbrook Project from Tetra Tech or another firm reasonably acceptable to the Majority Purchasers which (a) indicates that applicable metallurgical test work has been completed such that the entire flow sheet has been finalized and fixed and is fully specified to support basic and detailed engineering and obtaining firm vendor quotes; (b) indicates that at least 50% of basic engineering has been completed; (c) indicates that procurement is well-advanced; (d) indicates that capital and operating cost estimate with an accuracy of +/- 15%, has been completed and in the case of the capital cost estimate, has minimal reliance on factored estimates and primarily relies on takeoffs and unit rates; (e) indicates that significant trade-off and optimization studies have been completed; (f) indicates that all environmental assessments have been performed and all key permit applications have been submitted; (g) indicates that the Holbrook Project has a schedule that starts no later than the first quarter of 2014 and has a duration from Notice to Proceed (as defined in the EPCM or EPC contract) to Project Completion (as would be defined in a customary project finance facility) that does not exceed fifty-two (52) months; (h) indicates that the Holbrook Project is supported by reserves and resources of all potash members which the Company has the right to mine which are estimated using assumptions, methodologies and a mine plan acceptable to the Purchasers’ independent engineering firm and meet NI 43-101 standards that have a tonnage and grade consistent with that presented in the Reserves and Resources Statement presented in the Preliminary Economic Assessment (“PEA”) by Tetra Tech (which was filed with the SEC on December 22, 2011), and that in any event will (x) have sufficient demonstrable resources of ultimately

 

Sch. B-6

 

recoverable standard product of all potash members that support a mine life of twenty-five (25) years and (y) have sufficient reserves to support a mine life of at least twenty (20) years; and (i) meets the definitive feasibility study requirements of commercial project finance lending banks, policy banks and major export credit agencies to which the Company will be applying for financial support, including compliance with the Equator Principles.

 

“DFS Estimate” is defined in Section 9.8.

 

“Dilutive Issuance” is defined in Section 13.4.

 

“Enforceability Exceptions” is defined in Section 7.2(c).

 

“Environmental Claims” is defined in Section 7.20(a)(iv).

 

“Environmental Laws” is defined in Section 7.20(a)(i).

 

“EPC” is defined in Section 6.8.

 

“EPCM” is defined in Section 6.8.

 

“Equity Interests” means Capital Stock and all Options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).

 

“Equity-based Security” means any capital stock, any preferred stock or any other equity-like or hybrid securities (including debt securities with equity components), including, without limitation, Options, convertible, exchangeable or exercisable securities, stock appreciation rights or any other security or arrangement whose economic value is derived from the value of the equity of the Company or its Subsidiaries.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

 

“ERISA Affiliate” means, with respect to the Company or a Subsidiary of the Company, any trade or business (whether or not incorporated) that, together with the Company or such Subsidiary, is treated as a single employer under Section 414(b) or (c) of the Code, or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.

 

“Event of Default” is defined in Article XVI.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

 

“Ex-Dividend Date” means, with respect to any issuance, dividend or distribution, the first date on which the shares of Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive the issuance, dividend or distribution in question.

 

“Expiration Date” is defined in Section 13.9.

 

“Expiration Time” is defined in Section 13.9.

 

Sch. B-7

 

“FCPA” is defined in Section 7.7(b).

 

“Foreign Assignee” means an assignee of an interest in the Securities or the Royalty Agreement (including pursuant to Article XXV) that is a Foreign Purchaser.

 

“Foreign Purchaser” means a Purchaser other than a Purchaser that is, or is treated as, a “United States person” for U.S. federal income tax purposes, within the meaning of Section 7701(a)(30) of the Code.

 

“Form 10-K” is defined in Section 7.16(b).

 

“Form 10-Q” is defined in Section 14.1.

 

“GAAP” means generally accepted accounting principles in the United States of America 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, as in effect from time to time, provided that if any change in GAAP would alter the computation or determination of any financial ratio or other test provided for under this Agreement such ratio or other test shall continue to be computed in accordance with GAAP as in effect prior to such change until the Majority Purchasers and the Company shall have agreed whether (and if so, how) to amend this Agreement to eliminate the effect of such change on such computation or determination.

 

“Governmental Authority” means:

 

(j)                                    the government of

 

(i)                                     the United States of America or any state or other political subdivision thereof, or

 

(ii)                                  any other jurisdiction in which the Company or any Subsidiary conducts all or any part of its business, or which asserts jurisdiction over any properties of the Company or any Subsidiary, or

 

(k)                                 any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government.

 

“Grandhaven” is defined in Section 9.7.

 

“Grandhaven Agreement” means the Potash Royalty Purchase and Sale Agreement and Option, dated November 22, 2011, between the Company and Grandhaven.

 

“Grandhaven Agreement Amendment” is defined in Section 9.9.

 

“Guarantee” means a guarantee other than by endorsement of negotiable instruments for collection or deposit in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness.

 

Sch. B-8

 

“Guarantors” means each entity that signs this Agreement as a Guarantor on the date hereof and each entity that becomes a party hereto after the date hereof, including pursuant to Section 15.24, and each of their respective successors and assigns, in each case, until the Note Guarantee of such Person has been released in accordance with the provisions of this Agreement.

 

“Hazardous Substances” means (i) any pollutant, contaminant, chemical or toxic or hazardous material or substance or waste or any other material or substance, to the extent exposure to such material or substance is now or hereafter prohibited, limited or regulated under any Environmental Law, (ii) any petrochemical or petroleum distillates or by-products, acidizing, well improvement, hydraulic fracturing (“fracking”) or drilling fluids, produced waters, radioactive materials (including naturally occurring radioactive materials), asbestos in any form, urea formaldehyde foam insulation, transformers or other equipment that contain dielectric fluid containing polychlorinated biphenyls, explosives, and radon gas, and (iii) any chemicals, materials, wastes, or substances defined, listed, or classified as or included in the definition or designations of “hazardous substances,” “solid waste,” “regulated substances,” “hazardous wastes,” “hazardous materials,” “restricted hazardous materials,” “extremely hazardous substances,” “toxic substances,” “contaminants” or “pollutants” or words of similar meaning and regulatory effect or with respect to which liability or standards of conduct are imposed.

 

“Hedging Agreement” means any agreement evidencing or creating any Hedging Obligations.

 

“Hedging Obligations” means, with respect to any specified Person, the obligations of such Person under:

 

(l)                                     interest rate swap agreements, interest rate cap agreements, interest rate collar agreements and other agreements or arrangements designed to protect such Person against fluctuations in interest rates;

 

(m)                         currency exchange swap agreements, currency exchange cap agreements, currency exchange collar agreements and other agreements or arrangements designed to protect such Person against fluctuations in currency exchange values;

 

(n)                                 commodity swap agreements, commodity cap agreements, commodity collar agreements and other agreements or arrangements designed to protect such Person against fluctuations in commodity prices; and

 

(o)                                 other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates.

 

“Holbrook Project” is defined in the fourth paragraph of this Agreement.

 

“holder” means, with respect to any Note the Person in whose name such Note is registered in the register maintained by the Company pursuant to Section 18.1.

 

“Indebtedness” means, with respect to any specified Person, any indebtedness of such Person, whether or not contingent:

 

(p)                                 in respect of borrowed money;

 

(q)                                 raised pursuant to any note purchase facility or evidenced by bonds, notes, debentures, loan stock or similar instruments or letters of credit (or reimbursement agreements in respect thereof);

 

Sch. B-9

 

(r)                                    in respect of banker’s acceptances;

 

(s)                                   representing Capitalized Lease Liabilities;

 

(t)                                    representing the balance deferred and unpaid of the purchase price of any Property due more than six (6) months after such Property is acquired, except any such balance that constitutes an accrued expense or trade payable (other than any contingent payment obligations of a Person based on the performance of a business or asset or Capital Stock purchased by such Person);

 

(u)                                 representing the net loss value of any Hedging Obligations;

 

(v)                                 representing receivables sold or discounted (other than any receivables to the extent they are sold on a non-recourse basis);

 

(w)                               representing any amount raised under any other transaction (including any forward sale or purchase agreement) having the commercial effect of a borrowing;

 

(x)                                 representing any counter-indemnity obligation in respect of a guarantee, indemnity, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution; or

 

(y)                                 representing the amount of any liability in respect of any guarantee or indemnity for any of the items referred to in paragraphs (a) to (i) above;

 

if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term “Indebtedness” includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person.

 

“Indemnified Person” is defined in Section 11.3(a).

 

“Indemnifying Person” is defined in Section 11.3(a).

 

“Indemnified Taxes” is defined in Section 9.15(c).

 

“Indemnity Tax Benefit” is defined in Section 11.4(g).

 

“Initial Conversion Price” is defined in Section 13.2(a).

 

“Insolvency Default” means any condition or event which, after notice, lapse of time or both, would constitute an Event of Default of the nature referred to in clauses (j) or (k) of Article XVI.

 

“Investors Rights Agreement” is defined in the tenth paragraph of this Agreement.

 

“Intellectual Property Rights” is defined in Section 7.21.

 

“Intercreditor Agreement” means an agreement between the Collateral Agent, on behalf of the holders, and the agent or other representative for the lenders under the Project Finance Facility which

 

Sch. B-10

 

will provide (a) for the subordination of the Liens securing the Obligations to the Liens securing the Indebtedness under the Project Finance Facility, (b) that the Liens on the Collateral securing the Notes shall not, other than pursuant to a proceeding under Bankruptcy Law, be released absent the consent of the Collateral Agent unless there has been final and full payment of the Obligations, (c) that the holders of the Notes will have enforcement rights over the Collateral subject to an agreed upon standstill period if the holders of the obligations in respect of the Project Finance Facility are not exercising such enforcement rights, (d) that the holders of the Notes will have the right to purchase the Indebtedness and other liquidated obligations under the Project Finance Facility at par during such standstill period and (e) such other terms as are reasonably satisfactory to the Purchasers.

 

“Investment Company Act” is defined in Section 7.14.

 

“Investments” means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees or similar obligations relative to the liabilities of such other Persons), advances or capital contributions (excluding commission, travel and similar advances to officers, agents and employees made in the ordinary course of business and excluding advances made to customers and suppliers with respect to current or anticipated purchases of inventory in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP, excluding, for the avoidance of doubt, accounts receivable arising in the ordinary course of business.

 

“Karlsson” means The Karlsson Group, Inc., an Arizona corporation.

 

“Karlsson Agreements” means the agreements entered into in connection with the Karlsson Purchase, as in effect on the date hereof or as amended with the consent of the Majority Purchasers or as permitted by Section 9.1(o).

 

“Karlsson Note” means that certain Senior First Priority Secured Promissory Note, dated August 1, 2012, made by PGRI Delaware in favor of Karlsson in the principal amount of $125,000,000, together with the related financing agreements.

 

“Karlsson Purchase” means the transactions contemplated by that certain Membership Interest Purchase Agreement, dated as of May 30, 2012, between PGRI Delaware and Karlsson, including all ancillary agreements and documentation entered in connection therewith.

 

“Knowledge” means, with respect to the Company, the knowledge, after reasonably inquiry, of Patrick Avery, Brian Wallace, Wayne Rich, Jonathan Bloomfield and Gregory Dangler.

 

“Law” means all laws, statutes, rules, regulations, ordinances, orders, decrees, requirements, judgments and codes of Governmental Authorities.

 

“Legal Holiday” is defined in Section 26.2.

 

“Liabilities” shall mean any and all Indebtedness, liabilities, costs, expenses and obligations, whether accrued or fixed, known or unknown, absolute or contingent, matured or unmatured or determined or determinable, whether or not required to be recorded or reflected in a balance sheet in accordance with GAAP.

 

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected

 

Sch. B-11

 

under applicable law, including any conditional sale or other title-retention agreement, any lease (other than an operating lease) in the nature thereof, any option or other agreement to sell or give a security interest in and, any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction. For purposes of the Note Documents, any Person shall be deemed to own, subject to a Lien, any property that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement (other than an operating lease) relating to such property.

 

“Majority Purchasers” means, (i) prior to Closing, Purchasers with at least a majority of purchase commitment for the Notes as set forth in Schedule A and (ii) from and after the Closing, Purchasers (including any transferee holders who subsequently become Purchasers) holding at least a majority of the principal amount of the Notes at the time outstanding (exclusive of Notes then owned by the Company or any of its Affiliates).

 

“Material Adverse Effect” means any development, event, state of facts, change or effect that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on (a) the ability of AWP to develop and operate the Holbrook Project and the Mine in a manner which is consistent with the financial projections; (b) the business, assets, liabilities, operations, performance, properties, condition (financial or otherwise) or prospects of the Company, AWP or the Holbrook Project, or the Company and its Subsidiaries taken as a whole, (c) the ability of any Obligor to perform or comply with its obligations under this Agreement, the Note Documents or any Project Document or with respect to the Transactions; (d) the legality, validity or enforceability of the Note Documents or any Project Documents; or (e) following the Springing Lien Trigger Date, the rights and remedies of any holder under the Collateral Documents.

 

“Material Contracts” means any contract to which the Company or any of its Subsidiaries is a party to or is expressly bound by that:

 

(z)                                  is a “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC);

 

(aa)                          relates to any joint venture, partnership, limited liability or other similar agreements or arrangements relating to the formation, creation, operation, management or control of any joint venture or partnership that is material to the business of the Company and any of its Subsidiaries, taken as a whole, or in which the Company owns more than a 15% voting or economic interest;

 

(bb)                          that is an indenture, credit agreement, loan agreement, security agreement, guarantee, note, mortgage or other contract providing for or securing indebtedness for borrowed money or deferred payment (in each case, whether incurred, assumed, guaranteed or secured by any asset) in excess of $1,000,000;

 

(cc)                            prohibits the payment of dividends or distributions in respect of any Equity Interest of the Company or any of any of its Subsidiaries, prohibits the pledging of any Equity Interest of any of the Company’s Subsidiaries or prohibits the issuance of guarantees by any of the Company’s Subsidiaries;

 

(dd)                          is a settlement, conciliation or similar agreement (x) with any Governmental Authority or (y) which would require the Company or any of the Company’s Subsidiaries to pay consideration of more than $1,000,000 after the date of this Agreement;

 

Sch. B-12

 

(ee)                            (A) contains a standstill or similar agreement pursuant to which the Company or any of the Company’s Subsidiaries has agreed not to acquire assets or securities of a third party, or (B) which contains any “non-solicitation”, “no hire” or similar provision which restricts the Company or any of the Company’s Subsidiaries in soliciting, hiring, engaging, retaining or employing such third party’s current or former employees in a manner, or to an extent, that would interfere in any material respect with the ordinary course of operations of the business of the Company or any of its Subsidiaries;

 

(ff)                              relates to any acquisition by the Company or any of its Subsidiaries of equity interests or any material assets (other than acquisitions of inventory or equipment in the ordinary course of business) pursuant to which the Company or any of its Subsidiaries has continuing indemnification (other than indemnification obligations with respect to directors and officers), “earn-out” or other contingent payment or guarantee obligations, in each case, that could result in payments in excess of $1,000,000;

 

(gg)                            contains any covenant that (A) materially limits the ability of the Company or any of the Company’s Subsidiaries to engage in any line of business, or to compete with any Person or operate at any geographic location, except for radius restrictions that may be contained in contracts entered into in the ordinary course of business consistent with past practice, or expressly requiring the Company and/or any of the Company’s Subsidiaries to purchase an amount of goods or services from a particular Person in an amount in excess of $1,000,000 annually, or $2,000,000 in the aggregate, or (B) could require the disposition of any material assets or material line of business of the Company or any of the Company’s Subsidiaries;

 

(hh)                          involves any directors, executive officers (as such term is defined in the Exchange Act) or 5% shareholders of the Company or any of their affiliates (other than the Company or any of the Company’s Subsidiaries) or immediate family members;

 

(ii)                                  relates to the employment of any individual on a full-time or part-time consulting or other basis providing annual compensation in excess of $200,000;

 

(jj)                                contains a license in respect of Intellectual Property (except for (A) licenses of commercially available software granted to the Company or any of the Company’s Subsidiaries and (B) licenses granted by the Company or any of the Company’s Subsidiaries to franchisees in the ordinary course of business consistent with past practice) and that is material to the conduct of the business of the Company and any of its Subsidiaries, taken as a whole;

 

(kk)                          by its terms calls for aggregate payments by the Company or any of the Company’s Subsidiaries of more than $1,000,000 over the remaining term of such Contract, except for any such Contract entered into in the ordinary course of business consistent with past practice or that may be canceled, without any material penalty or other material liability to the Company or any Company Subsidiaries, upon notice of ninety (90) days or less;

 

(ll)                                  entered into in connection with, or otherwise relating to, the Karlsson Purchase; or

 

(mm)                  grants to any Person any right of first offer or right of first refusal to purchase, lease, sublease, use, possess or occupy all or a substantial part of the material assets of the Company or any of its Subsidiaries.

 

“Materials of Environmental Concern” is defined in Section 7.20(a)(i).

 

Sch. B-13

 

“Maturity Date” when used with respect to any Note, means the later of (i) the seventh (7th) anniversary of the Closing Date and (ii) the date that is six (6) months after the maturity date of the Senior Project Finance Bank Debt (as such maturity date shall be in effect on the date of initial incurrence of the Senior Project Finance Bank Debt).

 

“Merger Event” is defined in Section 13.15(a).

 

“Mine” means, collectively, all properties, assets or other rights, whether real or personal, tangible or intangible, now owned or leased or hereafter acquired by or for the benefit of the Company or any of its Subsidiaries which assets are used or intended for use in or forming part of the Holbrook Project (and, for the avoidance of doubt, shall include (i) the potash deposits located at the Holbrook Project and (ii) all associated beneficiation facilities, together with all plant sites, waste dumps, ore dumps, crushing circuits, abandoned heaps, power-supply systems and ancillary and infrastructure facilities which are used in connection with the operation of the Holbrook Project).

 

“Mineral Rights” means all mineral interests, mining concessions, mining tenements or other mineral rights owned by or subject to any lease, license or similar agreement in favor of the Company and its Subsidiaries.

 

“Minimum Off-Take Arrangements” is defined in Section 9.10.

 

“Mining Rights” means all interests in the surface of any lands, the minerals in (or that may be extracted from) any lands, all royalty agreements, water rights, patented and unpatented mining claims, fee interests, mineral leases, mining licenses, profits-a-prendre, joint ventures and other leases, rights-of-way, inurements, licenses, permits and other mining rights and interests used by or necessary to the Company or any of its Subsidiaries to construct, develop and operate the Mine.

 

“Money Laundering Laws” is defined in Section 7.33.

 

“Moody’s” means Moody’s Investors Service, Inc., or any successor rating agency.

 

“Multiemployer Plan” means any “multiemployer plan” (as such term is defined in section 4001(a)(3) of ERISA).

 

“Necessary Permits” mean any Permits materially necessary for the construction, production and operation of the Holbrook Project (including any related to the logistics chain), including any Permits scheduled in Schedule 6.9, but excluding any Permits that may be needed for activities within the boundary of the Petrified Forest National Park.

 

“New Issuance Price” is defined in Section 13.4.

 

“Note Documents” means this Agreement, the Notes, the Investors Rights Agreement, the Royalty Agreement and the Collateral Documents.

 

“Note Guarantee” means the Guarantee by each Guarantor of the Company’s obligations under this Agreement and the Notes, executed pursuant to the provisions of this Agreement, with such variations as may be required under local law in the event of a Note Guarantee delivered by a non-U.S. Guarantor.

 

“Notes” is defined in the fifth paragraph of this Agreement.

 

Sch. B-14

 

“Notes Purchaser” is defined in the fifth paragraph of this Agreement, provided that if any such Notes Purchaser transfers all or a portion of such Notes Purchaser’s commitment pursuant to Article XXV or all or a portion of the Notes held by such Notes Purchaser, such transferee shall be deemed a “Notes Purchaser” for all purposes under this Agreement.

 

“Obligations” means all advances to, and debts, liabilities, obligations, covenants and duties of, any Obligor arising under any Note Document or otherwise with respect to any Note, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including principal, interest and fees, including interest and fees that accrue after the commencement by or against any Obligor or any Affiliate thereof of any proceeding under any debtor- relief laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.

 

“Obligor” means the Company or any Guarantor.

 

“OFAC” is defined in Section 7.34.

 

“Officer” means the Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer or any Executive Vice President, Senior Vice President, Vice President, Treasurer or any Assistant Treasurer or Secretary or any Assistant Secretary of the specified Person, or equivalent officer in the case of non-corporate or non-U.S. entities.

 

“Officer’s Certificate” means a certificate signed by an Officer (or two Officers to the extent specifically required by this Agreement) of the specified Person and delivered to each holder of Notes then outstanding.

 

“Operating Costs” shall mean all inside the fence cash costs necessary to produce Potash with 60% grade delivered to the mine gate to customers, including: mining, processing, compaction, product storage and handling, load-out, tailings disposal, environmental and safety and mine site G&A, but excluding any royalty-type payments and Taxes on mine-generated income.

 

“Options” means, with respect to any Person, any rights, warrants or options to subscribe for or purchase shares of capital stock or Convertible Securities of such Person (including, in the case of the Company, shares of Common Stock).

 

“Organizational Documents” means, with respect to each Obligor, (a) its certificate or articles of incorporation, bylaws, operating agreement, partnership agreement or similar documents in any applicable jurisdiction; and (b) all shareholder agreements, voting trusts and similar arrangements applicable to any of its authorized Capital Stock or other equity interests.

 

“Original Agreement” is defined in the second paragraph of this Agreement.

 

“Original Financial Statements” means the audited consolidated financial statements of the Company and its Subsidiaries for the fiscal year ended March 31, 2012.

 

“Outside Date” is defined in Section 10.1(b)(i).

 

“Party” means each of the Company, the Guarantors and the Purchasers, and “Parties” means all such Persons.

 

“Patriot Act” is defined in Section 7.35.

 

Sch. B-15

 

“Payment Default” is defined in Article XVI.

 

“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto.

 

“Permitted Junior Debt” means any Indebtedness of the Company issued or incurred after the receipt of the Requisite Shareholder Approval and prior to the Closing which does not include terms that are inconsistent with or contrary to the terms set forth in Schedule C-2.

 

“Permitted Preferred Stock” means any preferred stock of the Company issued after the receipt of the Requisite Shareholder Approval and prior to the Closing, which does not include terms that are inconsistent with or contrary to the terms set forth in Schedule C-1.

 

“Permits” is defined in Section 7.8.

 

“Permitted Holders” means the Purchasers and holders and their respective Affiliates.

 

“Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.

 

“PGRI Delaware” means Prospect Global Resources Inc., a Delaware corporation and, as of the date hereof, a wholly owned Subsidiary of the Company.

 

“Plan” means an “employee benefit plan” (as defined in section 3(3) of ERISA, but excluding any Multiemployer Plan) subject to Title I of ERISA that is, or within the preceding six (6) years has been, established or maintained, or to which contributions are, or within the preceding six (6) years have been, made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability.

 

“Potash” means potassium salts, including potassium chloride, potassium nitrate, potassium sulfate and sulfate of potash magnesia, or langbeinite.

 

“Preemptive Rights Cap Amount” means, with respect to a Preemptive Rights Issuance, a number of securities which, if divided by the sum of (i) such number of securities plus (ii) the number of securities issued in such Preemptive Rights Issuance, would represent a percentage that is equal to the Purchaser Percentage Interest (as of immediately prior to the Preemptive Rights Issuance). A Royalty Purchaser’s “pro rata portion” of the Preemptive Rights Cap Amount applicable to a Preemptive Rights Issuance shall be determined by the Majority Purchasers, from time to time, with notice to the Company, in a manner intended to maintain the relative percentage interests of ownership of Company securities of the Purchasers and their ultimate investors.

 

“Preemptive Rights Issuance” is defined in Section 9.13(a).

 

“Preemptive Rights Notice” is defined in Section 9.13(b).

 

“Preferred Share Purchaser” is defined in the fifth paragraph of this Agreement.

 

“Preferred Stock” means any class of capital stock of a Person that is preferred over any other class of capital stock (or similar equity interests) of such Person as to the payment of dividends or the payment of any amount upon liquidation or dissolution of such Person.

 

Sch. B-16

 

“Principal Market” means the Nasdaq Stock Exchange, or, if the Nasdaq Stock Exchange is not the principal trading market for the shares of Common Stock, then on the principal securities exchange or securities market on which the shares of Common Stock are then traded.

 

“Proceedings” is defined in Section 7.6.

 

“Project Assets” means all properties, assets or other rights, whether real or personal, tangible or intangible, now owned or hereafter acquired by or for the benefit of the Company or any of its Subsidiaries, which are used or intended for use in or forming part of the Holbrook Project.

 

“Project Completion” means (a) until the definition in clause (b) hereto becomes effective, the earliest date on which all of the following have occurred with respect to the Holbrook Project: (i) all mining equipment has been tested successfully; (ii) the mine is operating at 90% of nameplate capacity; (iii) both underground and surface ore storage spaces are full; and (iii) the mine has produced more than 200,000 tonnes of Potash or (b) after the entry into the Project Finance Facility, the definition of “Project Completion” (or analogous term) contained in the Project Finance Facility, provided that such definition is reasonably satisfactory to the Majority Purchasers.

 

“Project Documents” means instruments relating to the construction, development or operations of the Holbrook Project pursuant to which either (i) the aggregate amount payable thereunder by the Obligors exceeds (or may reasonably be expected to exceed) U.S. $2,000,000 or (ii) the remaining term thereunder is of more than twelve (12) months.

 

“Project Financing Facility” means one or more debt facility with banks or other institutional lenders or governmental lenders providing for loans for the purpose of financing the Holbrook Project, as amended, restated, modified, renewed, refunded, replaced (whether upon or after termination or otherwise) or refinanced in whole or in part from time to time, whether by the same or any other lender or group of lenders, in each case on terms and conditions, and pursuant to documentation, acceptable to the holders.

 

“Project Financing Facility Closing Date” means the first date on which a credit agreement (or similar agreement) governing the Project Financing Facility is executed and delivered in accordance therewith.

 

“Project Party” means the Company and each of its Subsidiaries and any affiliate, agent, advisor (excluding legal advisers and other similar professional advisors not actually engaged in the construction, development, operation or maintenance of the Mine), contractor, consultant, officer, director or other associate of the Company or any of its Subsidiaries retained, employed or consulted by the Company or any of its Subsidiaries in connection with the consummation or the Holbrook Project or the development or operation of the Mine.

 

“Property” means, with respect to any Person, any interest of such Person in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, including Capital Stock in, and other securities of, any other Person.

 

“Proxy Statement” is defined in Section 9.6(a)(ii).

 

“Purchaser Conversion Date” is defined in Section 13.3(a).

 

“Purchaser Conversion Notice” is defined in Section 13.3(a).

 

“Purchaser Designee” is defined in Section 9.11(a).

 

Sch. B-17

 

“Purchaser Expenses” means all reasonable out-of-pocket expenses reasonably incurred by the Purchasers or on their behalf in connection with their due diligence of the Company, the negotiation, preparation, execution, delivery and performance of this Agreement and the other documents to be delivered in connection with this Agreement, and the undertaking, structuring, financing, evaluation and consummation of the Transactions (including, without limitation, in connection with obtaining the consents, approvals, authorizations of or delivering any notices or filings in connection therewith to, Governmental Authorities necessary in connection with the execution, delivery and performance of this Agreement, the other documents to be delivered in connection with this Agreement, or the Transactions), including, without limitation, reasonable fees and expenses of legal, accounting, industry, consulting and financial advisors; provided that the Company shall be an addressee of any report generated by SRK Consulting and McKinsey and shall share ownership of such reports with Purchasers whether or not the Closing occurs. For avoidance of doubt, in lieu of reimbursement, Purchasers shall be entitled to direct any third-party invoices directly to the Company for payment directly by the Company.

 

“Purchaser Percentage Interest” means, with respect to any Preemptive Rights Issuance, the percentage of the total number of votes that may be cast in the election of directors generally of the Company immediately prior to such Preemptive Rights Issuance that is represented by (a) the Notes (calculated as if all of the Notes were issued and outstanding immediately prior to such Preemptive Rights Issuance), (b) all of the shares of Common Stock previously issued or then issuable under the Apollo Warrants (calculated as if all such Common Stock were issued and outstanding immediately prior to such Preemptive Rights Issuance), (c) any shares of Common Stock issued to the Notes Purchasers pursuant to Sections 9.8 and 9.12 and (d) any securities with respect to which the Notes Purchasers have elected to purchase pursuant to Section 9.13 in connection with any Preemptive Rights Issuances that occurred prior to such Preemptive Rights Issuance (calculated as if all such elected securities (and all securities that were issued in such prior Preemptive Rights Issuances) were issued and outstanding immediately prior to such Preemptive Rights Issuance).

 

“Purchase Price” is defined in Section 2.1.

 

“Purchaser Share Delivery Date” is defined in Section 13.3(a).

 

“Purchasers” is defined in the first paragraph of this Agreement; provided, that following the Closing Date, each holder of a Note, by its acceptance of a Note, will be deemed a Purchaser and will be entitled to the benefits and subject to the obligations of this Agreement as though it were a party to this Agreement.

 

“Reference Balance Sheet” is defined in Section 7.18(b).

 

“Reference Property” is defined in Section 13.15(a).

 

“refinance” means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, repurchase, redeem, defease or retire, or to issue other Indebtedness, in exchange or replacement for, such Indebtedness. “refinanced” and “refinancing” shall have correlative meanings.

 

“Representatives” of any Person means the directors, officers, employees, shareholders, partners, agents, advisors, representatives of such Person or any other persons acting under the direction of any of them or any of their affiliates.

 

“Requisite Shareholder Approval” is defined in Section 9.5.

 

Sch. B-18

 

“Responsible Officer” means any Senior Financial Officer and any other Officer of the Company with responsibility for the administration of the relevant portion of this Agreement.

 

“Restricted Payments” is defined in Section 15.16.

 

“Royalty” is defined in Section 2.1(c).

 

“Royalty Agreement” is defined in the eighth paragraph of this Agreement.

 

“Royalty Purchasers” is defined in the fifth paragraph of this Agreement, provided that any assignee or transferee of any such Royalty Purchaser pursuant to the terms of the Royalty Agreement shall be deemed a “Royalty Purchaser” for all purposes under this Agreement.

 

“Rule 144A” means Rule 144A promulgated under the Securities Act.

 

“S&P” means Standard & Poor’s Ratings Group, or any successor rating agency.

 

“SEC” shall mean the Securities and Exchange Commission of the United States, or any successor thereto.

 

“Second Lien Intercreditor Agreement” means an agreement between the Collateral Agent, on behalf of the holders, and the agent or other representative for the lenders under the Cost Overrun Facility, which will provide (1) that the Liens securing the Indebtedness under the Cost Overrun Facility are equally and ratably secured with, but may rank senior in payment priority to, the Obligations and (2) such other terms as are reasonably satisfactory to the Collateral Agent.

 

“Securities” is defined in the fifth paragraph of this Agreement.

 

“Securities Act” means the Securities Act of 1933, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

 

“Senior Financial Officer” means the chief financial officer, principal accounting officer, treasurer or comptroller of the Company.

 

“Series A Warrants” is defined in the fifth paragraph of this Agreement.

 

“Series B Warrants” is defined in the fifth paragraph of this Agreement.

 

“Share Delivery Date” is defined in Section 13.3(b).

 

“Shareholders Meeting” is defined in Section 9.5.

 

“Solvent” means, when used with respect to any Person, as of any date of determination, that on such date (a) the present fair saleable value of the present assets of such Person and its Subsidiaries taken as a whole, exceeds the sum of their debts (including contingent liabilities); (b) the present fair salable value of the property of the such Person and its Subsidiaries, taken as a whole, will be greater than the amount that will be required to pay the probable liability of their debts and other liabilities (including contingent liabilities), as such debts and other liabilities become absolute and matured; (c) such Person and its Subsidiaries, taken as a whole, will be able to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (d) such Person and its Subsidiaries, taken as a whole, will not have unreasonably small capital with 

 

Sch. B-19

 

which to conduct their business as contemplated on such date. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

 

“Spin-off” is defined in Section 13.7.

 

“Springing Lien Trigger Date” means the earlier of (i) the date on which the principal of and interest on indebtedness outstanding under the Karlsson Note is paid in full and (ii) the Project Financing Facility Closing Date.

 

“Stockholder Rights Plan” is defined in Section 13.11(f).

 

“Subsidiary” means, with respect to any specified Person:

 

(nn)                          any corporation, association or other business entity of which more than 50.0% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency and after giving effect to any voting agreement or shareholders’ agreement that effectively transfers voting power) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and

 

(oo)                          any partnership (i) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (ii) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof); and

 

(pp)                          any other Person that is consolidated in the consolidated financial statements of the specified Person in accordance with GAAP.

 

“substitute transaction” is defined in Section 9.7(x).

 

“Support Agreements” is defined in the seventh paragraph of this Agreement.

 

“Supplemental Payment” is defined in that certain Supplemental Payment Agreement, dated August 1, 2012, by and among the Company, AWP and Karlsson.

 

“Supplemental Payment Gross Up” is defined in Section 9.18.

 

“Tax” or “Taxes” means all taxes, including income tax, surtax, remittance tax, presumptive tax, net worth tax, special contribution, production tax, pipeline transportation tax, value added tax, withholding tax, gross receipts tax, windfall profits tax, profits tax, severance tax, personal property tax, real property tax, sales tax, service tax, transfer tax, use tax, excise tax, premium tax, customs duties, stamp tax, motor vehicle tax, entertainment tax, insurance tax, capital stock tax, franchise tax, occupation tax, payroll tax, employment tax, social security, unemployment tax, disability tax, alternative or add-on minimum tax, estimated tax, and any other tax, together with any interest, fine or penalty thereon, or addition thereto.

 

“Tax Proceeding” means any Tax audit, contest, suit, litigation, defense, investigation, claim or other proceeding with or against any Governmental Authority.

 

Sch. B-20

 

“Tax Structure” is defined in Section 26.11.

 

“Tax Treatment” is defined in Section 26.11.

 

“tonne” means a metric tonne.

 

“Trading Day” means any day on which the shares of Common Stock are traded on the Principal Market, provided that “Trading Day” shall not include any day on which the shares of Common Stock are scheduled to trade on such exchange or market for less than 4.5 hours or any day that the shares of Common Stock are suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00 p.m., New York City Time).

 

“Threshold” is defined in Section 11.4(d).

 

“Transaction Fee” is defined in Section 2.2.

 

“Transactions” is defined in the sixth paragraph of this Agreement.

 

“Transfer Agent” means the Company’s transfer agent for its Common Stock from time to time.

 

“UK Bribery Act” is defined in Section 7.7(b).

 

“Valuation Period” is defined in Section 13.7.

 

“Valuation Event” is defined in Section 13.4(D).

 

“Voting Stock” of any specified Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.

 

“VWAP” is defined in Section 9.12(b).

 

“Weighted Average Consideration” is defined in Section 13.15(b)(ii).

 

Sch. B-21

 

SCHEDULE C-1

 

TERMS OF PERMITTED PREFERRED STOCK

 

	
Cash   Dividends
    	
 
    	
None.  Any dividends must be paid in kind.
    
	
 
    	
 
    	
 
    
	
Payment-in-Kind   Dividend Rate
    	
 
    	
Up   to 12% per annum, provided that up to 14% per annum shall be   permissible so long as the interest rate on the Notes is increased by the   number of basis points by which such dividend rate exceeds 12% (e.g., if the   dividend rate on the Permitted Preferred Stock is set at 13.5%, then the   Notes will have their interest rate increased 150 basis points to 11.5%),   with 4/10 of such increase being an increase to the cash portion of the   interest rate on the Notes.
    
	
 
    	
 
    	
 
    
	
Convertibility
    	
 
    	
If   the Permitted Preferred Stock is convertible, it shall only be convertible   into Common Stock of the Company at a conversion price greater than the   Applicable Price.
    
	
 
    	
 
    	
 
    
	
Mandatory   Redemption 
    	
 
    	
None.
    
	
 
    	
 
    	
 
    
	
Optional   Redemption by the Company
    	
 
    	
Redeemable   at any time by the Company without penalty or premium (other than unpaid and   accrued dividends).
    
	
 
    	
 
    	
 
    
	
Optional   Redemption by Holders
    	
 
    	
Redeemable   for cash or shares of Common Stock of the Company only if the Notes have   already been repaid in full or converted in full into Common Stock.
    

 

Sch. C-1-1

 

SCHEDULE C-2

 

TERMS OF PERMITTED JUNIOR DEBT

 

	
Interest   Rate
    	
 
    	
Up   to 12% per annum, provided that up to 14% per annum shall be   permissible so long as the interest rate on the Notes is increased by the   number of basis points by which such interest rate on the Permitted Junior   Debt exceeds 12% (e.g., if interest rate of the Permitted Junior Debt is set   at 13.5%, then the Notes will have their interest rate increased 150 basis   points to 11.5%), with 4/10 of such increase being an increase to the cash   portion of the interest rate on the Notes.
    
	
 
    	
 
    	
 
    
	
Interest   Type
    	
 
    	
Payment-in-Kind   only; no cash.
    
	
 
    	
 
    	
 
    
	
Maturity
    	
 
    	
No   earlier than 12 months after the Maturity Date of the Notes.
    
	
 
    	
 
    	
 
    
	
Ranking
    	
 
    	
Junior   to the Notes.
    
	
 
    	
 
    	
 
    
	
Collateral
    	
 
    	
Unsecured.
    
	
 
    	
 
    	
 
    
	
Mandatory   prepayments  
    	
 
    	
None.
    
	
 
    	
 
    	
 
    
	
Optional   repayment/prepayment penalty  
    	
 
    	
Repayable   at any time without penalty or premium (other unpaid and accrued interest).
    
	
 
    	
 
    	
 
    
	
Covenants
    	
 
    	
No   less favorable to the Company than the Notes. Covenants shall not include any   restrictions on the payment of the Royalty under the Royalty Agreement.
    
	
 
    	
 
    	
 
    
	
Events   of Default 
    	
 
    	
Exercise   of remedies subject to indefinite standstill.
    

 

Sch. C-2-1

 

SCHEDULE C-3

 

TERMS OF NOTES IN KARLSSON DEFAULT

 

	
Interest Rate
    	
 
    	
Then-applicable   interest rate on the Karlsson Note + 500 bps.
    
	
 
    	
 
    	
 
    
	
Interest Type
    	
 
    	
Non-cash;   payment-in-kind only.
    
	
 
    	
 
    	
 
    
	
Maturity
    	
 
    	
One   year.
    
	
 
    	
 
    	
 
    
	
Ranking
    	
 
    	
Junior   to Project Finance Facility.
    
	
 
    	
 
    	
 
    
	
Mandatory prepayments
    	
 
    	
Mandatorily   prepayable for any subsequent borrowings from the Project Finance Facility.
    
	
 
    	
 
    	
 
    
	
Optional repayment/prepayment   penalty
    	
 
    	
Repayable   at any time with no penalty.
    
	
 
    	
 
    	
 
    
	
Covenants
    	
 
    	
None.
    
	
 
    	
 
    	
 
    
	
Default interest
    	
 
    	
2%   above otherwise applicable rate.
    
	
 
    	
 
    	
 
    
	
Events of Default
    	
 
    	
Non-payment   of amounts due, and cross-default to the Securities Purchase Agreement.
    

 

Sch. C-3-1

 

EXHIBIT A

 

[Form of Note]

 

Prospect Global Resources, Inc.

 

10% Convertible Springing Second-Lien Notes due 2020

 

	
No. [            ]
    	
 
    	
[Date]
    
	
$[            ]
    	
 
    	
PPN[            ]
    

 

FOR VALUE RECEIVED, the undersigned, Prospect Global Resources Inc. (herein called the “Company”), a corporation organized and existing under the laws of the State of Nevada, hereby promises to pay to [                        ], or its registered assigns (“Holder”), the initial principal sum of [                        ] DOLLARS (or so much thereof as shall not have been prepaid) on the Maturity Date (as defined in the Securities Purchase Agreement referred to below) , with interest (computed on the basis of a three hundred and sixty (360)-day year of twelve, thirty (30)-day months and actual days elapsed) on the unpaid balance hereof at the rate of 10.0% per annum from the date hereof, payable in the form set forth below semiannually, on the [  ·  ]th day of [  ·  ] and [  ·  ] in each year (each an “Interest Payment Date”), commencing with the [  ·  ] or [  ·  ] next succeeding the date hereof, until the principal hereof shall have become due and payable. The Company shall pay interest on overdue principal and on overdue interest (to the full extent permitted by law) at the rate borne by the Notes.

 

Payments of principal on this Note are to be made in lawful money of the United States of America by wire transfer to the Holder.

 

A portion of the interest payable on this note corresponding to 4.0% per annum shall be made in lawful money of the United States of America by wire transfer to the Holder on each Interest Payment Date. A portion of the interest payable on this note corresponding to 6.0% per annum (the “PIK Portion”) shall be made by increasing the principal amount of this Note, or if the Holder shall so elect not fewer than five (5) Business Days prior to any applicable Interest Payment Date, by issuing additional Notes, in each case on each Interest Payment Date in an amount equal to the PIK Portion. Unless the election described in the immediately preceding sentence shall have been made, the principal amount of this Note shall be automatically increased on the applicable Interest Payment Date, and this Note shall thereafter evidence such increased principal amount which shall, from and after the applicable Interest Payment Date, accrue interest as set forth herein. To the extent the Holder shall have made such election, Company shall execute and deliver to the Holder on the applicable Interest Payment Date a new Note or Notes with a face amount equal to the PIK Portion then payable.

 

This Note is one of a series of Senior Notes (herein called the “Notes”) issued pursuant to the Securities Purchase Agreement, dated as of November [  ·  ], 2012 (as from time to time amended, the “Securities Purchase Agreement”), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, to have made the representations set forth in Section 8.5 of the Securities Purchase Agreement and agreed to the confidentiality provisions set forth in Article XXIV of the Securities Purchase Agreement. Unless otherwise indicated, capitalized terms used in this Note shall have the respective meanings ascribed to such terms in the Securities Purchase Agreement. To the extent that any provision of any Note conflicts with the express provisions of the Securities Purchase Agreement, the provisions of the Securities Purchase Agreement shall govern and be controlling.

 

A-1

 

This Note is a registered Note and, as provided in the Securities Purchase Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary.

 

The Holder shall have the voting rights set forth in Article XII of the Securities Purchase Agreement.

 

The Holder shall have the right to convert this Note into Common Stock of the Company in accordance with Article XIII of the Securities Purchase Agreement.

 

This Note is not subject to optional prepayment or redemption by the Company; provided that this Note may be converted into Common Stock of the Company at the election of the Company to the extent set forth in Section 13.1(b) of the Securities Purchase Agreement.

 

If an Event of Default occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price and with the effect provided in the Securities Purchase Agreement.

 

Upon the occurrence of a Change of Control and subject to further limitations contained in the Securities Purchase Agreement, the holder of this Note may require the Company to redeem this Note in the manner, at the price and with the effect provided in the Securities Purchase Agreement.

 

This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York, excluding choice-of-law principles of the law of such state that would require the application of the laws of a jurisdiction other than such state.

 

	
 
    	
Prospect   Global Resources Inc.
    
	
 
    	
 
    
	
 
    	
By
    	
 
    
	
 
    	
 
    	
[Title]
    

 

A-2

 

EXHIBIT B-1

 

PROSPECT GLOBAL RESOURCES INC.

CONVERSION NOTICE

 

Reference is made to the 10% Convertible Springing Second-Lien Note (the “Note”) issued to the undersigned by Prospect Global Resources Inc., a Nevada corporation (the “Company”). In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of Common Stock par value $0.001 per share (the “Common Stock”) of the Company, as of the date specified below.

 

Date of Conversion:

 

Aggregate Conversion Amount to be converted:

 

Please confirm the following information:

 

Conversion Price:

 

Number of shares of Common Stock to be issued:

 

Please issue the Common Stock into which the Note is being converted in the following name and to the following address:

 

Issue to:

 

Facsimile Number:

 

Authorization:

 

	
By:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Title:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Dated:
    	
 
    	
 
    

 

Account Number:

 

(if electronic book entry transfer)

 

Transaction Code Number:

 

(if electronic book-entry transfer)

 

B-1-1

 

ACKNOWLEDGMENT

 

The Company hereby acknowledges this Conversion Notice and hereby directs [transfer agent] to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated [            ] from the Company and acknowledged and agreed to by [transfer agent].

 

	
 
    	
Prospect   Global Resources Inc.
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:   
    
	
 
    	
 
    	
Title:
    

 

B-1-2

 

EXHIBIT B-2

 

PROSPECT GLOBAL RESOURCES INC.

CONVERSION NOTICE

 

Reference is made to the 10% Convertible Springing Second-Lien Note (the “Note”) issued to the holder named below by Prospect Global Resources Inc., a Nevada corporation (the “Company”). In accordance with and pursuant to the Note, the Company hereby elects to require the conversion of the Conversion Amount (as defined in the Note) of the Note indicated below into shares of Common Stock par value $0.001 per share (the “Common Stock”) of the Company, as of the date specified below.

 

Holder:

 

Date of Conversion:

 

Aggregate Conversion Amount to be converted:

 

Please confirm the following information:

 

Conversion Price:

 

Number of shares of Common Stock to be issued:

 

Please indicate and return to the Company within one (1) Business Day of the receipt of this notice the information below:

 

Issue to:

 

Facsimile Number:

 

Authorization:

 

	
By:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Title:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Dated:
    	
 
    	
 
    

 

Account Number:

(if electronic book entry transfer)

 

Transaction Code Number:

(if electronic book-entry transfer)

 

B-2-1

 

ACKNOWLEDGMENT

 

The undersigned hereby acknowledges this Conversion Notice and hereby agrees that the [transfer agent] shall issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated [                        ] from the Company and acknowledged and agreed to by [transfer agent].

 

	
 
    	
[Holder]
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:   
    
	
 
    	
 
    	
Title:
    

 

B-2-2

 

EXHIBIT C-1

 

FORM OF CERTIFICATE OF DESIGNATION

 

See attached.

 

C-1-1

 

PROSPECT GLOBAL RESOURCES INC.

Attachment “A” to Certificate of Designation

 

CERTIFICATE OF DESIGNATION

of

SERIES A PREFERRED STOCK

of

PROSPECT GLOBAL RESOURCES INC.

(Pursuant to the Nevada Revised Statutes 78.1955)

 

Prospect Global Resources Inc., a Nevada corporation (the “Corporation”), does by this certificate certify that, pursuant to the authority contained in its articles of incorporation (as amended from time to time, the “Articles of Incorporation”) and the provisions of Nevada Revised Statutes (“NRS”) 78.1955, the Corporation’s Board of Directors (the “Board”) has duly adopted the following resolution creating a series of Preferred Stock designated as “Series A Preferred Stock”:

 

RESOLVED, that the Corporation hereby designate and create a series of authorized Preferred Stock of the Corporation, designated as “Series A Preferred Stock”, as follows:

 

Of the 100,000,000 shares of Preferred Stock, $0.001 par value per share, authorized to be issued by the Corporation pursuant to its Articles of Incorporation, 100 shares of such Preferred Stock are hereby designated as “Series A Preferred Stock.” The voting powers, designations, preferences, limitations, restrictions and relative rights of the Series A Preferred Stock are as set forth below:

 

ARTICLE I

Number of Shares

 

The designation of this series shall be Series A Preferred Stock (the “Series A Stock”). The number of authorized shares of the Series A Preferred Stock shall be 100.

 

ARTICLE II

Rank

 

The Series A Preferred Stock shall rank pari passu to the Corporation’s common stock, $0.001 par value per share (the “Common Stock”) as to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.

 

ARTICLE III

Dividends

 

Holders of the Series A Preferred Stock shall not be entitled to receive any dividends with respect to the Series A Preferred Stock.

 

ARTICLE IV

Liquidation Preference

 

Holders of the Series A Preferred Stock shall not be entitled to any liquidation preference with respect to the Series A Preferred Stock.

 

C-1-2

 

ARTICLE V

Voting and Related Rights

 

A.                                    The holders of a majority of the Series A Preferred Stock (the “Majority Holders”) shall have the right to elect the following number of directors at any meeting of stockholders of the Corporation (or by written consent) at which directors are to be elected, designated or appointed: (i) if the Investor Percentage Interest (as defined in the Investors Rights Agreement, dated November 29, 2012 by and among the Corporation and the investors named therein (the “Investor Rights Agreement”)) at such time equals or exceeds twenty-two and four tenths percent (22.4%) (the “Initial Threshold”), four directors (subject to upwards adjustment pursuant to Paragraph B below); and (ii) if the Investor Percentage Interest at such time is less than the Initial Threshold, a number of directors equal to the Investor Percentage Interest multiplied by the total number of directors on the Board (inclusive of the directors elected by the Majority Holders pursuant to this Article V), provided that (x) if the application of clause (ii) results in a fractional number of Board members of greater than one, the number of directors that the Majority Holders shall be entitled to elect shall be (A) if the Investor Percentage Interest at such time equals or exceeds twenty percent (20%), rounded up to the nearest whole number and (B) if the Investor Percentage Interest at such time is below twenty percent (20%), rounded up or down to the nearest whole number and (y) if the application of clause (ii) results in a fractional number of Board members of less than one, the Majority Holders shall not have the right to elect any member of the Board.

 

B.                                    From and after the Closing (as defined below), without the written consent of the Majority Holders, the Corporation shall not change the number of directors on the Board from nine; provided that without the written consent of the Majority Holders, the Corporation may increase the size of the Board by one member solely in connection with the grant of a director designation or nomination right to new investors in connection with capital- raising transactions occurring after the Closing (as defined in the Securities Purchase Agreement dated November 29, 2012 by and among the Corporation, certain guarantors named therein and the purchasers named therein (as amended and restated on December 21, 2012, and from time to time thereafter, the “Purchase Agreement”)); provided, further, that, (i) the Corporation shall be able to exercise such right only once and (ii) in the event of such increase in the number of directors, the Majority Holders shall thereafter be entitled to elect an additional director to the Board (in addition to the number of directors they are entitled to elect pursuant to Paragraph A above). If, pursuant to the terms of the Purchase Agreement, the Corporation prior to the Closing increased the size of its Board by one member in connection with the grant of a director designation or nomination right to new investors in connection with capital-raising transactions occurring prior to the Closing, then (i) the Corporation shall not be entitled to exercise the right set forth in the prior sentence and (ii) references to “nine” and “four” in Paragraph A above and the first sentence of this Paragraph B shall instead be “eleven” and “five”, respectively.

 

C.                                    In the event of the death, disability, resignation or removal of a director elected, designated or appointed by the Majority Holders (other than pursuant to Section 1.5 of the Investors Rights Agreement), the Majority Holders may elect or appoint a replacement director to fill the resulting vacancy; provided that if a director elected by the Majority Holders is removed for cause, the replacement director will not 

 

C-1-3

 

be the same person who was removed. Other than pursuant to Section 1.5 of the Investors Rights Agreement or for cause, a director elected, designated or appointed by the Majority Holders may not be removed without the prior written consent of the Majority Holders.

 

D.                                    The Corporation will at all times provide the directors elected by the Majority Holders with the same rights to indemnification that it provides to the other members of the Board. The directors elected by the Majority Holders shall each receive director fees and rights to expense reimbursement that are no less favorable to them than the fees and reimbursement provided to any other non-management director (in their capacity as directors).

 

E.                                     Except as otherwise provided in this Certificate of Designation for Series A Preferred Stock (the “Certificate of Designation”), the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock (together with the holders of Notes (as defined in the Purchase Agreement)) shall vote together as one class on all other matters submitted to a vote of the stockholders of the Corporation.

 

F.                                      Except as otherwise provided herein or to the extent they may vote as a separate class under the NRS, the holders of shares of Series A Preferred Stock shall have no special voting rights and their consent shall not be required for taking any corporate action, except to the extent they are entitled to vote with holders of shares of Common Stock as set forth herein.

 

ARTICLE VI

Restrictions on Transfer

 

The outstanding shares of Series A Preferred Stock may only be transferred (a) to an Affiliate (as defined in the Purchase Agreement) of the initial holder of the Series A Preferred Stock, or (b) with the consent of the Board.

 

ARTICLE VII

Conversion

 

Each outstanding share of Series A Preferred Stock shall automatically convert to one share of Common Stock upon the earlier to occur of (a) a transfer of such share of Series A Preferred Stock in violation of Article VI above and (b) the first business day following the first day after the Closing on which the Investor Percentage Interest is equal to 0.0%.

 

ARTICLE VIII

Redemption

 

The shares of Series A Preferred Stock shall not be redeemable.

 

ARTICLE IX

Reacquired Shares

 

Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation be restored to the status 

 

C-1-4

 

of authorized and unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein and in the Articles of Incorporation.

 

ARTICLE X

Amendment of Certificate of Designation

 

This Certificate of Designation may only be amended with the written consent of the Majority Holders. Except as otherwise provided in the Articles of Incorporation, no consent by the holders of shares of any other class or series of the Corporation’s capital stock shall be required to amend this Certificate of Designation.

 

IN WITNESS WHEREOF, this Certificate of Designation of Series A Preferred Stock is executed on behalf of the Corporation as of                        , 2013.

 

	
 
    	
PROSPECT   GLOBAL RESOURCES INC.
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    

 

C-1-5

 

EXHIBIT D

MINIMUM OFFTAKE ARRANGEMENTS

 

Guidelines for the Minimum Off-Take Arrangements

 

	
Best Efforts Obligation
    	
 
    	
As   described in the Securities Purchase Agreement to which this Exhibit is   attached, Prospect will use best efforts to enter into definitive agreements   (“Customer Agreements”) with respect to the Minimum Off-Take   Arrangements no later than the Closing, on the terms in all material respects   as set forth below and subject to modifications required by the providers of   the Project Finance Facility.
    
	
 
    	
 
    	
 
    
	
Customers
    	
 
    	
Prospect   will enter into Customer Agreements with 2 to 4 customers; provided, however,   that no such customer shall be committed to purchase more than 50% of the   annual volume (as set forth below under “Minimum Volumes”) for any   year unless such customer’s commitment for such year does not exceed 250,000   tonnes.
    
	
 
    	
 
    	
 
    
	
Initial Delivery Date
    	
 
    	
The   Customer Agreements shall provide that the anticipated initial delivery date   of potash to the customers shall be first calendar month following   commencement of commercial levels of production and/or Project Completion,   whatever comes first; provided, however, that if Prospect cannot meet the   anticipated initial delivery date due to a delay in construction, mining   operations, permitting or force majeure, the parties will agree to negotiate   in good faith to adjust delivery dates and obligations; provided further,   that if Prospect is unable to commence deliveries by June 30, 2017   (structured, for example, with a base 18 month grace period and one   6 month extension), the customer has the right to terminate the   contract.
    
	
 
    	
 
    	
 
    
	
Term
    	
 
    	
The   Customer Agreements shall have a minimum term (the “Term”) of three   (3) years; provided that if the initial delivery date is not on a   January 1st then   the Term shall be for three years and a fraction of a year so that the term   ends on a December 31st.
    
	
 
    	
 
    	
 
    
	
Pricing Terms
    	
 
    	
The   price at the signing of each sales agreement shall be calculated as follows:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(a)
    	
for   granular potash, the average of weekly Green Markets indices of Saskatchewan,   Carlsbad, Midwest and Vancouver, less a discount of $5 a tonne; and
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
(b)
    	
for   standard potash, the average of weekly Green Markets indices of Saskatchewan   and Vancouver, less a discount of $5 a tonne.
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Prospect   will allow pricing terms for more than one quarter and up to four quarters;   provided that the Customer Agreements in the aggregate shall have a mix of   terms and durations intended to provide a portfolio of risk across the   portfolio.
    

 

D-1

 

	
 
    	
 
    	
As   a component of the off-take arrangements, Prospect will use best efforts to   provide “collar” pricing designed to provide greater certainty to both   parties with respect to budgeting and planning over a range of years. Under   collar pricing, Prospect and the buyer will agree on the “floor” or minimum   price to be paid by the buyer even if the indices price (above) falls below   the floor price and a “ceiling” or maximum price to be paid by the buyer even   if the indices price rises above the ceiling price. The floor and ceiling   prices will be symmetrical (i.e., equidistant from the initial price)   and Prospect shall be within a reasonable range (for illustrative purposes,   the parties believe that a reasonable floor/ceiling range around the current   spot as of the date hereof would be in the range of ±10 to 20%).
    
	
 
    	
 
    	
 
    
	
Payment Terms
    	
 
    	
The   payment terms in the Customer Agreements will be consistent with customary   payments terms for potash off-take agreements, provided that in no event   shall the payment terms allow for a payment period of longer than   30 days from delivery.
    
	
 
    	
 
    	
 
    
	
Minimum Volumes
    	
 
    	
The   customers under the Customer Agreements will be required to purchase in the   aggregate, in each calendar year during the Term, at least the following   quantities on a take or pay basis:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Years   1-3:
    	
1,000,000   tonnes
    
	
 
    	
 
    	
Year   4:
    	
750,000   tonnes
    
	
 
    	
 
    	
Year   5:
    	
750,000   tonnes
    
	
 
    	
 
    	
Year   6:
    	
500,000   tonnes
    
	
 
    	
 
    	
Year   7:
    	
250,000   tonnes
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
For   the avoidance of doubt, the volumes set forth above are the minimum volumes   that will be required. After Prospect has commenced production, its Board of   Directors may determine whether to seek additional off-take volumes.
    
	
 
    	
 
    	
 
    
	
Minimum Specifications
    	
 
    	
The   Customer Agreements will include customary minimum specifications for   shipments. The Customer Agreements will also include terms describing the   consequences for the failure to meet the minimum specifications, which   consequences shall be no less favorable to Prospect than the following   consequences:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
·
    	
If   during the Ramp Up Period (defined below), shipments fail to meet minimum   specifications, the parties will agree to customary and appropriate price   adjustments to reflect the lower quality. The “Ramp Up Period” shall   have the same definition as that used in the Senior Project Finance Bank   Debt.
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
·
    	
After   the Ramp Up Period, if two of three consecutive deliveries fail to meet the   minimum specifications, the customer can suspend ordered but not yet   delivered deliveries. The customer will not be required to take a new   delivery until Prospect demonstrates (to the customer’s reasonable   satisfaction) that it can meet the minimum specifications. If Prospect cannot   demonstrate that it can meet the minimum specifications within 180 days,   the customer will have the right to terminate the contract.
    
					

 

D-2

 

	
Termination
    	
 
    	
In   addition to a termination pursuant to “Minimum Specifications” above, the   only other termination provisions in the Customer Agreements will be   (a) termination by either party following a continuous, 12-month period   of force majeure, (b) for a material breach by the other party (which is   uncured within 60 days after notification) or (c) upon a bankruptcy   or insolvency-related event of the other party.
    
	
 
    	
 
    	
 
    
	
Financial Guarantees
    	
 
    	
Customers   will be required to provide a guarantee or standby L/C for the benefit of   Prospect that is reasonably satisfactory to Prospect’s lenders. The L/C will   be for one year’s forecasted purchases. Once this is in place, orders and   shipments can begin. Customers will be required to pay for each shipment   using irrevocable letters of credit payable at sight against bills of lading.   Customers will have a minimum credit rating of AA as defined by S&P or   Moody’s and/or LCs of a similar credit quality.
    
	
 
    	
 
    	
 
    
	
Assignments
    	
 
    	
No   assignment by the customer without prior written consent of Prospect other   than to a bank, financial institution, security trustee or security agent for   a bond or other financing.
    
	
 
    	
 
    	
 
    
	
Exclusivity
    	
 
    	
The   Customer Agreements will be on a non-exclusive basis, and Prospect shall be   permitted to sell to any other party.
    
	
 
    	
 
    	
 
    
	
Governing Law
    	
 
    	
Delaware.
    

 

D-3

 

EXHIBIT E-1

 

FORM OF SERIES A WARRANT

 

See attached.

 

E-1-1

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS.

 

SERIES A WARRANT TO PURCHASE

COMMON STOCK OF PROSPECT GLOBAL RESOURCES INC.

 

                , 2012

 

PROSPECT GLOBAL RESOURCES INC., a Nevada corporation (the “Company”), HEREBY CERTIFIES THAT, for value received,                           , or registered assigns, is entitled to purchase, in whole or part and from time to time, up to [25,925,926](1) fully paid and non-assessable shares of Common Stock at a purchase price of $[2.70](2) per share (the “Warrant Price”), in each case subject to adjustment pursuant to Section 6. As used herein, the term “Common Stock” means the Company’s Common Stock, par value $0.001 per share, as constituted on the date of original issue of this Warrant, and any shares of capital stock or other property into which such shares of Common Stock may thereafter be changed or that may be issued in respect of, in exchange for, or in substitution of such Common Stock. As used herein, the term “Warrants” means this Warrant and all warrants delivered in substitution or exchange for such warrants. The term “Warrant” means one of the Warrants. This Warrant is being issued in connection with the Securities Purchase Agreement dated as of November             , 2012 by and among the Company, certain guarantors named therein and the purchasers named therein for the purchase of $100,000,000 in 10% Convertible Springing Second-Lien Notes Due 2020 and other securities and interests of the Company (as amended from time to time, the “Securities Purchase Agreement”). Capitalized terms not otherwise defined herein have the meanings set forth in the Securities Purchase Agreement.

 

(1)  Note to Draft:  Number of shares exercisable represents the aggregate number exercisable under all Series A Warrants; multiple warrants may be issued to multiple Purchasers. If any of the events described in Section 6 of this Warrant occur between the date of the Original Securities Purchase Agreement and the date this Warrant is issued, the number of shares of Common Stock that this Warrant is exercisable for shall be adjusted as if Section 6 were in effect as of the date of the Original Securities Purchase Agreement—and such adjusted number shall replace the number listed above in brackets in the definitive Warrant that is issued.

 

(2)  Note to Draft:  If any of the events described in Section 6 of this Warrant occur between the date of the Original Securities Purchase Agreement and the date this Warrant is issued, the Warrant Price shall be adjusted as if Section 6 were in effect as of the date of the Original Securities Purchase Agreement—and such adjusted price shall replace the price listed above in brackets in the definitive Warrant that is issued.

 

1.                                      Term of Warrants; Exercise of Warrants.

 

E-1-2

 

(a)           Subject to the terms hereof, the holder of this Warrant shall have the right, at any time and from time to time, from and after the date hereof until 11:59 PM New York City Time on the date that is one hundred and eighty (180) days after the Closing Date (as defined in the Securities Purchase Agreement), to purchase from the Company up to the number of shares of Common Stock which such holder may at the time be entitled to purchase pursuant to this Warrant, upon surrender to the Company, at its address for receipt of notices pursuant to Section 9 hereof, of this Warrant, together with the Notice of Exercise form at the end hereof duly completed and signed, accompanied by payment to the Company of the Warrant Price for the number of shares with respect to which this Warrant is being exercised.

 

(b)           Payment of the aggregate Warrant Price shall be made by wire transfer to an account specified in writing (including by email) by the Company.

 

(c)           Upon such surrender of this Warrant and payment of such Warrant Price as aforesaid, the Company shall issue and cause to be delivered with all reasonable dispatch to or upon the written order of the holder of this Warrant and in such name or names as such holder may designate, a certificate or certificates for the number of full shares of Common Stock so purchased. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become a holder of such shares of Common Stock as of the close of business on the date of the surrender of this Warrant and, if applicable, payment of the Warrant Price as aforesaid, notwithstanding that the certificates representing such shares shall not actually have been delivered or that the stock transfer books of the Company shall then be closed. The Company hereby represents and warrants that any Common Stock issued upon the exercise of this Warrant will be duly and validly authorized and issued, fully paid and nonassessable and free from all taxes, liens and charges (other than liens or charges created by the holder of the Warrant or taxes in respect of any transfer occurring contemporaneously therewith). The Company will at all times reserve and keep available out of its authorized but unissued Common Stock, solely for the purpose of providing for the exercise of this Warrant, the aggregate number of shares of Common Stock, as the case may be, then issuable upon exercise of this Warrant. The Company will (i) procure, at its sole expense, the listing of the Common Stock and other securities issuable upon exercise of this Warrant, subject to issuance or notice of issuance on all stock exchanges on which the Common Stock are then listed or traded and (ii) maintain the listing of such Common Stock after issuance. The Company will ensure that the Common Stock may be issued without violation of any applicable law or regulation or of any requirement of any securities exchange on which the Common Stock are listed or traded.

 

(d)           This Warrant shall be exercisable, at the election of the holder of this Warrant, either in full or from time to time in part. In the event that this Warrant is exercised with respect to less than the aggregate number of shares of Common Stock this Warrant then entitles such holder to purchase, the Company shall deliver to or upon the order of such holder hereof a new Warrant evidencing the rights of such holder to purchase the unpurchased shares of Common Stock then called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. In the alternative, at the request of the holder upon any partial exercise of this Warrant, appropriate notation may be made on this Warrant and the same shall be returned to such holder.

 

E-1-3

 

2.             Payment of Taxes. The Company shall pay all documentary stamp taxes, transfer tax or other incidental expenses if any, attributable to the initial issuance of the shares of Common Stock upon exercise of this Warrant, provided that the Company shall not be required to pay any tax or taxes which may be payable with respect to any secondary transfer of a Warrant or the shares of Common Stock issued upon exercise of any Warrant.

 

3.             Transferability. The Warrants are not transferable without the Company’s written consent; provided, that the Warrants may be transferred in whole or in part without the Company’s written consent to any Affiliate (as defined in the Securities Purchase Agreement) of the holder of this Warrant.

 

4.             Exchange of Warrant Certificate. Any Warrant certificate may be exchanged for another certificate or certificates entitling the holder thereof to purchase a like aggregate number of shares of Common Stock as this certificate then entitles such holder to purchase. Any holder of a Warrant desiring to exchange such Warrant certificate shall make such request in writing delivered to the Company, and shall surrender, properly endorsed, the certificate evidencing the Warrant to be so exchanged. Thereupon, the Company shall execute and deliver one or more new Warrant certificates as so requested.

 

5.             Mutilated or Missing Warrant. In case any Warrant certificate shall be mutilated, lost, stolen or destroyed, the Company shall, at the request of the holder thereof, issue and deliver in exchange and substitution for and upon cancellation of the mutilated certificate or certificates, or in lieu of and substitution for the certificate or certificates lost, stolen or destroyed, a new Warrant certificate or certificates of like tenor and representing an equivalent right or interest, but only upon receipt of evidence satisfactory to the Company of such loss, theft or destruction of such Warrant and indemnity, if requested, satisfactory to the Company.

 

6.             Adjustment of Warrant Price and Number of Shares. The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the happening of certain events, as follows:

 

(a)           (i) If and whenever on or after the date hereof the Company issues or sells, or in accordance with Section 13.4 of the Securities Purchase Agreement is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company) for a consideration per share (the “New Issuance Price”) less than a price equal to the Warrant Price in effect immediately prior to such issue or sale or deemed issuance or sale (such Warrant Price then in effect is referred to as the “Applicable Price”) (the foregoing a “Dilutive Issuance”), other than an issuance or sale or deemed issuance or sale covered by Section 13.5 of the Securities Purchase Agreement, then the Warrant Price then in effect shall be reduced to a price determined in accordance with the following formula:

 

	
 
    	
R1 = R ×
    	
OS + A

 

OS + B
    	
 
    

 

Where:

 

	
 
    	
R1 =
    	
the Warrant Price in effect immediately after such Dilutive Issuance;
    
	
 
    	
R =
    	
the Warrant Price in effect immediately prior to such Dilutive   Issuance;
    

 

E-1-4

 

	
 
    	
OS =
    	
the number of shares of Common Stock outstanding immediately prior to   such Dilutive Issuance (treating for this purpose as outstanding all shares   of Common Stock issuable upon exercise of Options outstanding immediately   prior to such issue (excluding the Apollo Warrants) or upon conversion or   exchange of Convertible Securities (excluding the Notes) outstanding   immediately prior to such issue (to the extent such Options or Convertible   Securities have an exercise or conversion price below R);
    
	
 
    	
A =
    	
the number of shares of Common Stock that would have been issued (or   be deemed to have been issued) if such Dilutive Issuance had been issued at a   price per share equal to R (determined by dividing the aggregate consideration   received by the Company in respect of such issue by R); and
    
	
 
    	
B =
    	
the number of shares of Common Stock issued (or deemed to have been   issued) in such Dilutive Issuance.
    

 

For purposes of this Section 6(a)(i), clauses (A) through (D) of Section 13.4 of the Securities Purchase Agreement shall apply to the adjustments contemplated in this Section 6(a)(i), mutandis mutatis.

 

(ii)    In the event of any such Dilutive Issuance, the number of shares of Common Stock issuable upon the exercise of this Warrant shall be increased to the number obtained by dividing (x) the product of (1) the number of shares of Common Stock issuable upon the exercise of this Warrant immediately prior to such Dilutive Issuance, and (2) the Warrant Price in effect immediately prior to such Dilutive Issuance, by (y) the new Warrant Price determined in accordance with Section 6(a)(i).

 

(b)           With respect to any event contemplated in Sections 13.5, 13.6, 13.7, or 13.8 of the Securities Purchase Agreement, the adjustments contemplated by such sections shall be applied to the Warrant Price as if all references to Conversion Price in such sections were references to Warrant Price and all reference to conversion of Notes in such sections were references to exercise of the Warrant. The number of shares of Common Stock issuable upon the exercise of this Warrant shall be adjusted to the number obtained by dividing (x) the product of (1) the number of shares of Common Stock issuable upon the exercise of this Warrant immediately prior to the event giving rise to such adjustment, and (2) the Warrant Price in effect immediately prior to the event giving rise to such adjustment, by (y) the new Warrant Price determined in accordance with this Section 6(b).

 

(c)           With respect to any event contemplated in Section 13.14 of the Securities Purchase Agreement, the Warrant shall be exercisable for the same type and amount of shares of stock, other securities or other property or assets (including cash or any combination thereof) that the holder of this Warrant would have owned or been entitled to receive upon such Merger Event had such holder exercised this Warrant immediately prior to such Merger Event. In determining the kind and amount of shares of stock, other securities or other property or assets (including cash or any combination thereof) receivable upon consummation of such Merger Event, if the holders of Common Stock have the right to elect the kind or amount of consideration receivable upon consummation of such Merger Event, the holder of the Warrant shall have the right to make a similar election upon exercise of this Warrant with respect to the number of shares of stock, other securities or other property or assets (including cash or any combination thereof) which the holder of this Warrant will receive upon exercise of this Warrant.

 

E-1-5

 

(d)           Sections 13.10, 13.11, 13.12, 13.13, 13.15, 13.16 and 13.17 of the Securities Purchase Agreement shall apply to the adjustments contemplated in this Section 6, mutandis mutatis.

 

7.             Fractional Interests. The Company shall not be required to issue fractional shares of Common Stock on the exercise of any Warrant. If any fraction of a share would, except for the provisions of this Section 7, be issuable on the exercise of this Warrant (or specified portions thereof), the Company shall issue a full share of Common Stock in lieu of such fractional share.

 

8.             No Rights as Stockholder; Notices. Nothing contained in this Warrant shall be construed as conferring upon the holder or its transferees any rights as a stockholder of the Company, including the right to vote, receive dividends, consent or receive notices as a stockholder with respect to any meeting of stockholders for the election of directors of the Company or any other matter. The Company will at no time close its transfer books against transfer of this Warrant in any manner which interferes with the timely exercise of this Warrant.

 

9.             Notices. All notices and communications provided for hereunder, unless otherwise specified, shall be in writing and shall be deemed delivered (a) on a Business Day if sent by telecopy during the Business Day or on the next Business Day if sent after a Business Day has ended or (b) the next Business Day after delivery to a recognized overnight delivery service (with charges prepaid). Any such notice must be sent:

 

(i)            if to any holder of Warrants, at the address specified for such communications in the Securities Purchase Agreement, or at such other address as holder of Warrants (or its transferee) shall have specified to the Company in writing, and

 

(ii)           if to the Company, to the Company at the address set forth below or at such other address as the Company shall have specified to the holder of the Warrant in writing:

 

Prospect Global Resources Inc.

 

1450 17th Street

Suite 1550

Denver, CO 80439

Attention: Chief Executive Officer

 

with a copy (which shall not constitute notice) to:

 

Brownstein Hyatt Farber Schreck, LLP

 

410 17th Street

Suite 2200

Denver, CO 80439

Attention: Jeff Knetsch

 

10.          Successors. This Warrant shall bind and inure to the benefit of the Company and its permitted successors and assigns hereunder and, in addition, shall inure to the benefit of and be enforceable by all holders from time to time of the Warrants.

 

E-1-6

 

11.          Applicable Law. This Warrant shall be enforced in accordance with, and the rights of the Company and the holder of this Warrant shall be governed by, the laws of the State of New York (without regard to conflicts of laws principles thereof).

 

12.          Benefits of this Agreement. Nothing in this Warrant shall be construed to give to any person or corporation other than the Company and the holder of this Warrant any legal or equitable right, remedy or claim under this Warrant and this Warrant shall be for the sole and exclusive benefit of the Company and the holder hereof.

 

13.          Amendment. This Warrant may be amended by the Company in any respect at any time or from time to time upon the written consent of the holder of this Warrant.

 

E-1-7

 

IN WITNESS WHEREOF, the Company has executed this Warrant.

 

	
 
    	
PROSPECT   GLOBAL RESOURCES INC.
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Patrick   L. Avery,
    
	
 
    	
 
    	
Chief   Executive Officer
    

 

E-1-8

 

NOTICE OF EXERCISE

 

(1)           The undersigned hereby elects to purchase                          shares of Common Stock of PROSPECT GLOBAL RESOURCES INC., pursuant to the provisions of Section 1 of the attached Warrant, and tenders herewith payment of the purchase price for such shares in full.

 

(2)           Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below:

 

	
 
    	
 
    
	
 
    	
 (Name)
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 (Name)
    

 

(3)           Please issue a new Warrant for the unexercised portion of the attached Warrant in the name of the undersigned or in such other name as is specified below:

 

	
 
    	
 
    	
 
    
	
 
    	
 
    	
 (Name)
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 (Date)
    	
 
    	
(Signature)
    

 

E-1-9

 

EXHIBIT E-2

 

FORM OF SERIES B WARRANT

 

See attached.

 

E-2-1

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS.

 

SERIES B WARRANT TO PURCHASE

COMMON STOCK OF PROSPECT GLOBAL RESOURCES INC.

             , 2012

 

PROSPECT GLOBAL RESOURCES INC., a Nevada corporation (the “Company”), HEREBY CERTIFIES THAT, for value received,                              , or registered assigns, is entitled to purchase, in whole or part and from time to time, up to [21,538,461](1) fully paid and non-assessable shares of Common Stock at a purchase price of $[3.25](2) per share (the “Warrant Price”), in each case subject to adjustment pursuant to Section 6. As used herein, the term “Common Stock” means the Company’s Common Stock, par value $0.001 per share, as constituted on the date of original issue of this Warrant, and any shares of capital stock or other property into which such shares of Common Stock may thereafter be changed or that may be issued in respect of, in exchange for, or in substitution of such Common Stock. As used herein, the term “Warrants” means this Warrant and all warrants delivered in substitution or exchange for such warrants. The term “Warrant” means one of the Warrants. This Warrant is being issued in connection with the Securities Purchase Agreement dated as of November      , 2012 by and among the Company, certain guarantors named therein and the purchasers named therein for the purchase of $100,000,000 in 10% Convertible Springing Second-Lien Notes Due 2020 and other securities and interests of the Company (as amended from time to time, the “Securities Purchase Agreement”). Capitalized terms not otherwise defined herein have the meanings set forth in the Securities Purchase Agreement.

 

(1)  Note to Draft:  Number of shares exercisable represents the aggregate number exercisable under all Series A Warrants; multiple warrants may be issued to multiple Purchasers. If any of the events described in Section 6 of this Warrant occur between the date of the Original Securities Purchase Agreement and the date this Warrant is issued, the number of shares of Common Stock that this Warrant is exercisable for shall be adjusted as if Section 6 were in effect as of the date of the Original Securities Purchase Agreement—and such adjusted number shall replace the number listed above in brackets in the definitive Warrant that is issued.

 

(2)  Note to Draft:  If any of the events described in Section 6 of this Warrant occur between the date of the Original Securities Purchase Agreement and the date this Warrant is issued, the Warrant Price shall be adjusted as if Section 6 were in effect as of the date of the Original Securities Purchase Agreement—and such adjusted price shall replace the price listed above in brackets in the definitive Warrant that is issued.

 

Section 1. Term of Warrants; Exercise of Warrants.

 

(a)           Subject to the terms hereof, the holder of this Warrant shall have the right, at any time and from time to time, from and after the date hereof until 11:59 PM New York City Time on the date 

 

E-2-2

 

that is one hundred and eighty (180) days after the Closing Date (as defined in the Securities Purchase Agreement), to purchase from the Company up to the number of shares of Common Stock which such holder may at the time be entitled to purchase pursuant to this Warrant, upon surrender to the Company, at its address for receipt of notices pursuant to Section 9 hereof, of this Warrant, together with the Notice of Exercise form at the end hereof duly completed and signed, accompanied by payment to the Company of the Warrant Price for the number of shares with respect to which this Warrant is being exercised.

 

(b)           Payment of the aggregate Warrant Price shall be made by wire transfer to an account specified in writing (including by email) by the Company.

 

(c)           Upon such surrender of this Warrant and payment of such Warrant Price as aforesaid, the Company shall issue and cause to be delivered with all reasonable dispatch to or upon the written order of the holder of this Warrant and in such name or names as such holder may designate, a certificate or certificates for the number of full shares of Common Stock so purchased. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become a holder of such shares of Common Stock as of the close of business on the date of the surrender of this Warrant and, if applicable, payment of the Warrant Price as aforesaid, notwithstanding that the certificates representing such shares shall not actually have been delivered or that the stock transfer books of the Company shall then be closed. The Company hereby represents and warrants that any Common Stock issued upon the exercise of this Warrant will be duly and validly authorized and issued, fully paid and nonassessable and free from all taxes, liens and charges (other than liens or charges created by the holder of the Warrant or taxes in respect of any transfer occurring contemporaneously therewith). The Company will at all times reserve and keep available out of its authorized but unissued Common Stock, solely for the purpose of providing for the exercise of this Warrant, the aggregate number of shares of Common Stock, as the case may be, then issuable upon exercise of this Warrant. The Company will (i) procure, at its sole expense, the listing of the Common Stock and other securities issuable upon exercise of this Warrant, subject to issuance or notice of issuance on all stock exchanges on which the Common Stock are then listed or traded and (ii) maintain the listing of such Common Stock after issuance. The Company will ensure that the Common Stock may be issued without violation of any applicable law or regulation or of any requirement of any securities exchange on which the Common Stock are listed or traded.

 

(d)           This Warrant shall be exercisable, at the election of the holder of this Warrant, either in full or from time to time in part. In the event that this Warrant is exercised with respect to less than the aggregate number of shares of Common Stock this Warrant then entitles such holder to purchase, the Company shall deliver to or upon the order of such holder hereof a new Warrant evidencing the rights of such holder to purchase the unpurchased shares of Common Stock then called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. In the alternative, at the request of the holder upon any partial exercise of this Warrant, appropriate notation may be made on this Warrant and the same shall be returned to such holder.

 

Section 2. Payment of Taxes.  The Company shall pay all documentary stamp taxes, transfer tax or other incidental expenses if any, attributable to the initial issuance of the shares of Common Stock upon exercise of this Warrant, provided that the Company shall not be required to pay any tax or taxes which may be payable with respect to any secondary transfer of a Warrant or the shares of Common Stock issued upon exercise of any Warrant.

 

Section 3. Transferability.  The Warrants are not transferable without the Company’s written consent; provided, that the Warrants may be transferred in whole or in part without the Company’s 

 

E-2-3

 

written consent to any Affiliate (as defined in the Securities Purchase Agreement) of the holder of this Warrant.

 

Section 4. Exchange of Warrant Certificate.  Any Warrant certificate may be exchanged for another certificate or certificates entitling the holder thereof to purchase a like aggregate number of shares of Common Stock as this certificate then entitles such holder to purchase. Any holder of a Warrant desiring to exchange such Warrant certificate shall make such request in writing delivered to the Company, and shall surrender, properly endorsed, the certificate evidencing the Warrant to be so exchanged. Thereupon, the Company shall execute and deliver one or more new Warrant certificates as so requested.

 

Section 5. Mutilated or Missing Warrant.  In case any Warrant certificate shall be mutilated, lost, stolen or destroyed, the Company shall, at the request of the holder thereof, issue and deliver in exchange and substitution for and upon cancellation of the mutilated certificate or certificates, or in lieu of and substitution for the certificate or certificates lost, stolen or destroyed, a new Warrant certificate or certificates of like tenor and representing an equivalent right or interest, but only upon receipt of evidence satisfactory to the Company of such loss, theft or destruction of such Warrant and indemnity, if requested, satisfactory to the Company.

 

Section 6. Adjustment of Warrant Price and Number of Shares.  The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the happening of certain events, as follows:

 

(a)           (i) If and whenever on or after the date hereof the Company issues or sells, or in accordance with Section 13.4 of the Securities Purchase Agreement is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company) for a consideration per share (the “New Issuance Price”) less than a price equal to the Warrant Price in effect immediately prior to such issue or sale or deemed issuance or sale (such Warrant Price then in effect is referred to as the “Applicable Price”) (the foregoing a “Dilutive Issuance”), other than an issuance or sale or deemed issuance or sale covered by Section 13.5 of the Securities Purchase Agreement, then the Warrant Price then in effect shall be reduced to a price determined in accordance with the following formula:

 

	
 
    	
 
    	
OS + A
    	
 
    
	
 
    	
R1 = R ×
    	
 
    	
 
    
	
 
    	
 
    	
OS + B
    	
 
    

 

Where:

 

	
 
    	
R1 =
    	
the Warrant Price in effect immediately after such Dilutive Issuance;
    
	
 
    	
R =
    	
the Warrant Price in effect immediately prior to such Dilutive   Issuance;
    
	
 
    	
OS =
    	
the number of shares of Common Stock outstanding immediately prior to   such Dilutive Issuance (treating for this purpose as outstanding all shares   of Common Stock issuable upon exercise of Options outstanding immediately   prior to such issue (excluding the Apollo Warrants) or upon conversion or   exchange of Convertible Securities (excluding the Notes) outstanding   immediately prior to such issue (to the extent such Options or Convertible   Securities have an exercise or conversion price below R);
    

 

E-2-4

 

	
 
    	
A =
    	
the number of shares of Common Stock that would have been issued (or   be deemed to have been issued) if such Dilutive Issuance had been issued at a   price per share equal to R (determined by dividing the aggregate   consideration received by the Company in respect of such issue by R); and
    
	
 
    	
B =
    	
the number of shares of Common Stock issued (or deemed to have been   issued) in such Dilutive Issuance.
    

 

For purposes of this Section 6(a)(i), clauses (A) through (D) of Section 13.4 of the Securities Purchase Agreement shall apply to the adjustments contemplated in this Section 6(a)(i), mutandis mutatis.

 

(ii)           In the event of any such Dilutive Issuance, the number of shares of Common Stock issuable upon the exercise of this Warrant shall be increased to the number obtained by dividing (x) the product of (1) the number of shares of Common Stock issuable upon the exercise of this Warrant immediately prior to such Dilutive Issuance, and (2) the Warrant Price in effect immediately prior to such Dilutive Issuance, by (y) the new Warrant Price determined in accordance with Section 6(a)(i).

 

(b)           With respect to any event contemplated in Sections 13.5, 13.6, 13.7, 13.8, or 13.9 of the Securities Purchase Agreement, the adjustments contemplated by such sections shall be applied to the Warrant Price as if all references to Conversion Price in such sections were references to Warrant Price and all reference to conversion of Notes in such sections were references to exercise of the Warrant. The number of shares of Common Stock issuable upon the exercise of this Warrant shall be adjusted to the number obtained by dividing (x) the product of (1) the number of shares of Common Stock issuable upon the exercise of this Warrant immediately prior to the event giving rise to such adjustment, and (2) the Warrant Price in effect immediately prior to the event giving rise to such adjustment, by (y) the new Warrant Price determined in accordance with this Section 6(b).

 

(c)           With respect to any event contemplated in Section 13.14 of the Securities Purchase Agreement, the Warrant shall be exercisable for the same type and amount of shares of stock, other securities or other property or assets (including cash or any combination thereof) that the holder of this Warrant would have owned or been entitled to receive upon such Merger Event had such holder exercised this Warrant immediately prior to such Merger Event. In determining the kind and amount of shares of stock, other securities or other property or assets (including cash or any combination thereof) receivable upon consummation of such Merger Event, if the holders of Common Stock have the right to elect the kind or amount of consideration receivable upon consummation of such Merger Event, the holder of the Warrant shall have the right to make a similar election upon exercise of this Warrant with respect to the number of shares of stock, other securities or other property or assets (including cash or any combination thereof) which the holder of this Warrant will receive upon exercise of this Warrant.

 

(d)           Sections 13.10, 13.11, 13.12, 13.13, 13.15, 13.16 and 13.17 of the Securities Purchase Agreement shall apply to the adjustments contemplated in this Section 6, mutandis mutatis.

 

Section 7. Fractional Interests.  The Company shall not be required to issue fractional shares of Common Stock on the exercise of any Warrant. If any fraction of a share would, except for the provisions of this Section 7, be issuable on the exercise of this Warrant (or specified portions thereof), the Company shall issue a full share of Common Stock in lieu of such fractional share.

 

Section 8. No Rights as Stockholder; Notices.  Nothing contained in this Warrant shall be construed as conferring upon the holder or its transferees any rights as a stockholder of the Company, including the right to vote, receive dividends, consent or receive notices as a stockholder with respect to 

 

E-2-5

 

any meeting of stockholders for the election of directors of the Company or any other matter. The Company will at no time close its transfer books against transfer of this Warrant in any manner which interferes with the timely exercise of this Warrant.

 

Section 9. Notices.  All notices and communications provided for hereunder, unless otherwise specified, shall be in writing and shall be deemed delivered (a) on a Business Day if sent by telecopy during the Business Day or on the next Business Day if sent after a Business Day has ended or (b) the next Business Day after delivery to a recognized overnight delivery service (with charges prepaid). Any such notice must be sent:

 

(1)           if to any holder of Warrants, at the address specified for such communications in the Securities Purchase Agreement, or at such other address as holder of Warrants (or its transferee) shall have specified to the Company in writing, and

 

(2)           if to the Company, to the Company at the address set forth below or at such other address as the Company shall have specified to the holder of the Warrant in writing:

 

Prospect Global Resources Inc.

1450 17th Street

Suite 1550

Denver, CO 80439

Attention: Chief Executive Officer

 

with a copy (which shall not constitute notice) to:

 

Brownstein Hyatt Farber Schreck, LLP

410 17th Street

Suite 2200

Denver, CO 80439

Attention: Jeff Knetsch

 

Section 10. Successors.  This Warrant shall bind and inure to the benefit of the Company and its permitted successors and assigns hereunder and, in addition, shall inure to the benefit of and be enforceable by all holders from time to time of the Warrants.

 

Section 11. Applicable Law.  This Warrant shall be enforced in accordance with, and the rights of the Company and the holder of this Warrant shall be governed by, the laws of the State of New York (without regard to conflicts of laws principles thereof).

 

Section 12. Benefits of this Agreement.  Nothing in this Warrant shall be construed to give to any person or corporation other than the Company and the holder of this Warrant any legal or equitable right, remedy or claim under this Warrant and this Warrant shall be for the sole and exclusive benefit of the Company and the holder hereof.

 

Section 13. Amendment.  This Warrant may be amended by the Company in any respect at any time or from time to time upon the written consent of the holder of this Warrant.

 

E-2-6

 

IN WITNESS WHEREOF, the Company has executed this Warrant.

 

	
 
    	
PROSPECT   GLOBAL RESOURCES INC.
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Patrick   L. Avery,
    
	
 
    	
 
    	
Chief   Executive Officer
    
				

 

E-2-7

 

NOTICE OF EXERCISE

 

(1)           The undersigned hereby elects to purchase                      shares of Common Stock of PROSPECT GLOBAL RESOURCES INC., pursuant to the provisions of Section 1 of the attached Warrant, and tenders herewith payment of the purchase price for such shares in full.

 

(2)           Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below:

 

	
 
    	
 
    
	
 
    	
 (Name)
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 (Name)
    

 

(3)           Please issue a new Warrant for the unexercised portion of the attached Warrant in the name of the undersigned or in such other name as is specified below:

 

	
 
    	
 
    	
 
    
	
 
    	
 
    	
 (Name)
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
(Date)
    	
 
    	
(Signature)
    

 

E-2-8

 

NOVEMBER 29, 2012

DISCLOSURE SCHEDULES

OF

THE COMPANY

 

These Disclosure Schedules have been prepared in connection with the Securities Purchase Agreement (the “Agreement”), dated as of November 29, 2012, by and among Prospect Global Resources, Inc. (the “Company”), the Subsidiaries of the Company set forth on the signature pages thereto (each, individually, a “Guarantor,” and collectively, the “Guarantors”) and the Purchaser set forth on the signature pages thereto (“Purchasers”). These Disclosure Schedules are qualified in their entirety by reference to specific provisions of the Agreement. The inclusion of any information in these Disclosure Schedules will not be deemed an admission or acknowledgement that such information is required to be listed in the Disclosure Schedules or that any such information is material to the Company.

 

The schedule numbers referenced in these Disclosure Schedules refer to the corresponding sections of the Agreement to which these Disclosure Schedules relate; provided, however, to the extent that an item in the Disclosure Schedules is relevant and reasonably apparent on its face to apply to the disclosure required by any other section of the Agreement that references a different schedule contained in these Disclosure Schedules, such item shall be deemed to be disclosed in the section of the Disclosure Schedules corresponding to such other section of these Schedules, whether or not an explicit cross- reference appears.

 

The headings, if any, of the individual sections of these Disclosure Schedules are inserted for convenience only and will not be deemed to constitute a part thereof or a part of the Agreement. The annexes or exhibits to these Disclosure Schedules form an integral part of these Disclosure Schedules and are incorporated therein by reference as if set forth fully herein.

 

Defined terms not defined herein shall have the meanings given to such terms in the Agreement.

 

SCHEDULES

 

	
6.9
    	
 
    	
Permits
    
	
6.22
    	
 
    	
Amendment   Confirmation
    
	
7.2(a)
    	
 
    	
Capitalization
    
	
7.2(b)
    	
 
    	
Pre-emptive   Rights/Warrants/Options
    
	
7.5
    	
 
    	
Required   Consents
    
	
7.18
    	
 
    	
Undisclosed   Liabilities
    
	
7.23
    	
 
    	
Compliance   with ERISA
    
	
7.28
    	
 
    	
No   Registration Rights
    
	
9.1
    	
 
    	
Operation   of Business
    
	
9.13
    	
 
    	
Preemptive   Rights
    
	
9.16
    	
 
    	
Benefit
    
	
13.11
    	
 
    	
When   No Adjustment Required
    
	
15.15
    	
 
    	
Investments
    

 

S-1

 

Schedule 6.9

Permits

 

	
 
    	
 
    	
Necessary
   Permit
    	
 
    	
Applicable Date
    
	
1.
    	
 
    	
Air   Quality Control Permit (Arizona Department of Environmental Quality (“ADEQ”))
    	
 
    	
August 31, 2013
    
	
2.
    	
 
    	
Aquifer   Protection Permit (ADEQ)
    	
 
    	
December 31, 2013
    
	
3.
    	
 
    	
Arizona   Pollution Discharge Elimination System, 402 Permit for Stormwater Discharge   from Industrial Activities (ADEQ)
    	
 
    	
December 31, 2013
    
	
4.
    	
 
    	
Mineral   Lease (Arizona State Land Department)
    	
 
    	
December 31, 2013
    
	
5.
    	
 
    	
Mined   Land Reclamation Plan (Arizona State Mine Inspector)
    	
 
    	
December 31, 2013
    
	
6.
    	
 
    	
Major   Plan Amendment (Apache County)
    	
 
    	
December 31, 2013
    
	
7.
    	
 
    	
Water   and/or Wastewater Facilities—Approval to Construct (ADEQ)
    	
 
    	
December 31, 2014
    
	
8.
    	
 
    	
Operation   and production permits unrelated to initial construction and outside the PFNP   boundaries, of the type customarily obtained by mine developers after   construction, and not reasonably likely to pose a material impediment to   operation of the mine following construction.
    	
 
    	
December 31, 2015
    

 

S-2

 

Schedule 6.22

Amendment Confirmation

 

Potash Supply Agreement, dated October 18, 2012 (the “Sichuan Offtake Agreement”), among the Company, AWP and Sichuan Chemical Industry Holding (Group) Co., Ltd.—To be amended or modified to specify that the Transaction and any Securities acquired in connection with the Transaction will be excluded from any calculation of Change of Control for purposes of Section 7 of the Sichuan Offtake Agreement, and that any directors nominated or designated by the Purchasers shall be deemed to have been directors of the Company as of the date of the Sichuan Offtake Agreement.

 

COR Advisors Investor Relations Consulting Agreement, dated July 5, 2011, between the Company and COR Advisors LLC, as amended on May 9, 2012 and August 1, 2012—To be amended or modified to specify that the Transaction and any Securities acquired in connection with the Transaction will be excluded from any calculation of Change of Control under the agreement.

 

Items set forth in Schedule 9.16 shall be resolved as contemplated by Section 9.16 of the Agreement.

 

S-3

 

Schedule 7.2(a)

Capitalization

 

Capitalization Summary Report

 

	
 
    	
 
    	
Authorized
    	
 
    	
Shares
   Outstanding
    	
 
    	
Shares
   Outstanding
   Fully Diluted
    	
 
    	
% Owned on
   Fully Diluted
   Basis
    	
 
    
	
Stock
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Common 
    	
 
    	
300,000,000
    	
 
    	
70,864,468
    	
 
    	
70,864,468
    	
 
    	
70.50
    	
%
    
	
Preferred 
    	
 
    	
100,000,000
    	
 
    	
—
    	
 
    	
—
    	
 
    	
0.00
    	
%
    
	
Total Stock 
    	
 
    	
400,000,000
    	
 
    	
70,864,468
    	
 
    	
70,864,468
    	
 
    	
70.50
    	
%
    
	
Rights to Acquire Stock
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Options 
    	
 
    	
21,700,000
    	
 
    	
 
    	
 
    	
8,761,000
    	
 
    	
8.72
    	
%
    
	
Warrants to Purchase
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Common 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
20,889,534
    	
 
    	
20.78
    	
%
    
	
Total Diluted Shares  
    	
 
    	
 
    	
 
    	
 
    	
 
    	
100,515,002
    	
 
    	
100.00
    	
%
    

 

S-4

 

Schedule 7.2(b)

Pre-emptive Rights/Warrants/Options

 

Warrants

 

1.             As of the date hereof, the Company has issued warrants that are exercisable into an aggregate of 20,889,534 shares of common stock.

 

Options

 

1.             As of the date hereof, under the 2011 Employee Equity Incentive Plan, 13,500,000 shares are authorized and 3,786,000 options are issued and outstanding.

 

2.             As of the date hereof, under the 2011 Director & Consultant Equity Plan, 8,200,000 shares are authorized and 5,025,000 options are issued and outstanding.

 

Other Equity Commitments

 

1.             On August 1, 2012 the Company entered into a second amendment to its investor relations consulting agreement with COR Advisors, LLC pursuant to which COR has agreed to provide additional services to the Company following its recent public offering and the Company agreed to pay a monthly retainer of $20,000 to COR through July 4, 2015. The Company also agreed that the 75,000 shares payable quarterly to COR under the amended agreement would be paid quarterly in advance rather than in arrears (other than the shares earned during the quarter ended October 5, 2012, which were paid in arrears). Upon any change of control transaction, the remaining shares to be issued for the term of the amended agreement shall become immediately due to COR.

 

2.             Pursuant to the Potash Royalty Purchase and Sale Agreement and Option dated effective as of November 22, 2011 by and between the Company and Grandhaven Energy (“Grandhaven”), the Company committed to maintain, and currently maintains at all times, 25 million shares in reserve until the earlier of (a) Grandhaven exercises its option or (b) such royalty is assigned to American West Potash LLC (“AWP”).

 

3.             Pursuant to a Consulting Agreement by and between the Company and the Thornton Group LLC (“Thornton”) dated February 27, 2012 (the “Thornton Consulting Agreement”) upon the Company’s entry into the potash supply agreement with Sichuan Chemical on October 18, 2012 (the “Sichuan Offtake Agreement”), the Company owed the Thornton Group a one-time success fee, payable in 50% cash and 50% common stock, equal to 2.5% of the average annual potash committed by Sichuan multiplied by the world price of potash. Pursuant to the side letter dated November 15, 2012 by and between the Company and Thornton, the success fee payable to Thornton in connection with the Sichuan Offtake Agreement is (a) cash payment of $3,875,625 (to be paid in two equal installments) and (b) approximately 1,656,250 shares of the Company’s common stock. As of the date hereof, the Company paid the first installment of the cash payment on November 16, 2012 and instructed its transfer agent to issue the Thornton Group approximately 1,656,250 shares of common stock (for the avoidance of doubt such shares have been included in the capitalization table on Schedule 7.2(a)). The Company will pay the second (and final) installment of the cash payment no later than February 28, 2013. Pursuant to the Thornton Consulting Agreement, the Company pays Thornton a monthly retainer payment of $10,000 and such agreement automatically renews for 6 month periods unless the Company terminates the Agreement (which it may do so at any time) upon 30 days prior written notice. If the Company terminates the Thornton Consulting Agreement, it will be subject to the compensation 

 

S-5

 

described in Sections 3(c) and 3(e) therein. In addition to the success fee paid to Thornton by the Company described above, the Thornton Consulting Agreement provides for a success fee related to any other (i) offtake arrangements entered into by the Company and third parties that have been introduced to the Company by Thornton payable 50% in cash and 50% in shares of the Company’s common stock and (ii) 3% of the aggregate amount of investment (debt or equity) in the Company made by an investor introduced to the Company by Thornton payable in cash on the closing of such investment.

 

4.             In connection with its underwritten offering of 15,000,000 shares that closed on November 14, 2012 and pursuant to the Underwriting Agreement dated November 8, 2012 by and among the Company, Dahlman Rose & Company, LLC, Macquarie Capital (USA) Inc., Roth Capital Partners, LLC and Sterne, Agee & Leach, Inc. (collectively, the “Underwriters”), the Company granted the Underwriters a 30-day option to purchase up to an additional 2,250,000 shares of the Company’s common stock to cover over-allotments, if any.

 

5.             The Company entered into a consulting agreement with Silver Peaks, LLC dated November 12, 2012 under which Silver Peaks will receive warrants to purchase 50,000 shares of the Company’s common stock along with payment of $1,000 per day on a monthly basis.

 

6.             As disclosed in the Company’s SEC Documents, such liens and/or restrictions placed on the shares of the Company’s Subsidiaries in connection with the Karlsson Agreements.

 

7.             The Company entered into a letter agreement dated November 14, 2012 (the “MCNC Agreement”) with MC Namir Capital LLC (“MCNC”) for services related to offtake opportunities under which MCNC will receive warrants to purchase 60,000 shares of common stock (which such amount is reflected in the total number of warrants outstanding within these Disclosure Schedules). MCNC will also receive on a monthly basis (in advance) warrants to purchase 10,000 shares of common stock for an initial term of 12 months.

 

8.             Pursuant to the Letter of Agreement dated August 13, 2012 between Crystal Research Associates, LLC (“CRA”) and the Company, the Company agreed to issue CRA one hundred fifty thousand (150,000) four year warrants in the Company, at a purchase price equal to its current stock price as of August 13, 2012. The warrants will/have vest[ed] as follows: 25,000 shares on each of September 13, 2012, October 13, 2012, November 13, 2012, December 13, 2012, January 13, 2013, and February 13, 2013.

 

S-6

 

Schedule 7.5

Required Consents

 

1.             The office lease dated February 23, 2012 by and between the Company as “Tenant” and CSHV 9595 Wilshire, LLC as “Landlord” for the Company’s Los Angeles office located at 9595 Wilshire Blvd., Beverly Hills, CA 90212, provides that a transfer at any one time or from time to time of the lessor of a controlling interest or fifty percent (50%) or more of an interest in Tenant (whether stock, assets or other form of ownership or control) by any person(s) or entity(ties) having an interest in ownership or control of Tenant at the Lease Date shall be deemed to be a Transfer of the lease. Tenant shall not transfer the lease without the prior written consent of the Landlord and Tenant shall request such consent at least 30 days prior to the proposed commencement date of the Transfer.

 

S-7

 

Schedule 7.18

Undisclosed Liabilities

 

1.             Pursuant to the Thornton Consulting Agreement by and between the Company and Thornton, upon the Company’s entry into Sichuan Offtake Agreement, the Company owed the Thornton Group a one-time success fee, payable in 50% cash and 50% common stock, equal to 2.5% of the average annual potash committed by Sichuan multiplied by the world price of potash. Pursuant to the side letter dated November 15, 2012 by and between the Company and Thornton, the success fee payable to Thornton in connection with the Sichuan Offtake Agreement is (a) cash payment of $3,875,625 (to be paid in two equal installments) and (b) approximately 1,656,250 shares of the Company’s common stock. As of the date hereof, the Company paid the first installment of the cash payment on November 16, 2012 and instructed its Transfer Agent to issue the Thornton Group approximately 1,656,250 shares of common stock (for the avoidance of doubt such shares have been included in the capitalization table on Schedule 7.2(a)). The Company will pay the second (and final) installment of the cash payment no later than February 28, 2013. Pursuant to the Thornton Consulting Agreement, the Company pays Thornton a monthly retainer payment of $10,000 and such agreement automatically renews for 6 month periods unless the Company terminates the Agreement (which it may do so at any time) upon 30 days prior written notice. If the Company terminates the Thornton Consulting Agreement, it will be subject to the compensation described in Sections 3(c) and 3(e) therein. In addition to the success fee paid to Thornton by the Company described above, the Thornton Consulting Agreement provides for a success fee related to any other (i) offtake arrangements entered into by the Company and third parties that have been introduced to the Company by Thornton payable 50% in cash and 50% in shares of the Company’s common stock and (ii) 3% of the aggregate amount of investment (debt or equity) in the Company made by an investor introduced to the Company by Thornton payable in cash on the closing of such investment.

 

2.             The below consulting or service agreements provide for success fees based upon the occurrence of certain trigger events provided therein. As of the date hereof, no triggering events for any of the respective success fees listed below have occurred:

 

(a)           In addition to the success fee paid to Thornton by the Company described in Item 1 above, the Thornton Consulting Agreement by and between the Company and the Thornton, provides for a success fee related to any other (i) offtake arrangements entered into by the Company and third parties that have been introduced to the Company by Thornton and (ii) 3% of the aggregate amount of investment (debt or equity) in the Company made by an investor introduced to the Company by Thornton. Such amount shall be payable in cash at the time of the closing of such investment;

 

(b)           Section III “Fees” of the MCNC Agreement provides for certain trigger events for the success fees described therein;

 

(c)           Section 3 “Compensation” of the Consulting Agreement with Pulsar Capital Investimentos Ltda (“Pulsar”) dated August 31, 2012 (the “Pulsar Agreement”) as further amended by the Amendment to Consulting Agreement (undated) between the parties, provides for certain trigger events for the success fees described therein. The Company also pays Pulsar a monthly retainer fee of 15,000 pursuant to the Pulsar Agreement and after an initial one year term the Pulsar Agreement extends for additional six month periods upon the mutual consent of the parties;

 

S-8

 

(d)           The sections entitled “Compensation” and “Warrants” of the Relationship Agreement dated October 10, 2011 by and between the Company and Oxford Metrica Limited, provide for certain success fees due to Oxford Metrica by the Company upon the occurrence of certain trigger events described therein. This agreement expires October 10, 2016;

 

(e)           While the Letter Agreement dated January 3, 2012 (the “NCCP Letter Agreement”) by and between the Company and New Century Capital Partners, Inc. (“NCCP”), expired pursuant to its terms on July 3, 2012, Section 5 provides a 12 month tail period, commencing on July 3, 2012, for certain success fees described therein;

 

(f)            Agreement by and between the Company and Roscoe Martin in connection with executive search and placement services under which Roscoe Martin is paid 25% (the “placement fee”) of the base salary for any successful placement with the Company. Such placement fee is comprised of cash and options.

 

3.             As disclosed in the Company’s SEC Documents, the Company owes royalty payments to the following parties once certain levels of production or gross revenues are achieved:

 

(a)           Pursuant to Section 4 of the Termination of Management Services Agreement dated August 1, 2012 by and between the Company and Buffalo Management LLC (“Buffalo”), Buffalo receives a fee equal to 2% of the Company’s annual gross revenues provided in perpetuity.

 

(b)           On November 22, 2011, the Company completed two transactions with entities related to Grandhaven Energy, LLC. As part of the consideration given within those transactions, the Company must either (a) assign a 1% overriding royalty interest or (b) settle the obligation through issuance of the Company’s common shares to a Hexagon related entity based on the estimated fair value of a 1% royalty interest at the time of exercise “Grandhaven Option.”

 

(c)           AWP granted The Karlsson Group the right to receive payments equal to of 1% of the gross sales received by AWP from potash production from the real property over which AWP currently has leases, licenses and permits for mining purposes, capped at $75 million.

 

(d)           In connection with AWP’s exploration permits on state land in Arizona, upon the conversion of such exploration permits into mining permits, the State of Arizona will be entitled to receive customary future production royalties for any potash production on state owned lands.

 

(e)           Item 5 below is hereby incorporated by reference. The royalties on the Company’s gross sales are set forth in Article III of the Potash Sharing Agreement (as defined below).

 

4.             As disclosed in the Company’s SEC Documents, in the event of a sale of at least 50% of AWP or a merger of AWP with or into an unaffiliated entity within four years of the closing date, the Company has agreed to pay The Karlsson Group an additional payment equal to 15% of the net proceeds received from the transaction, capped at $75 million.

 

5.             In July 2011, AWP entered into a Potash Sharing Agreement dated July 27, 2011 (the “Potash Sharing Agreement”) with the mineral estate owners party thereto covering 101 private mineral estate sections and related mineral leases on approximately 63,000 acres adjacent to or in close proximity to AWP’s existing mineral rights. In May, 2012, AWP divested itself of four Arizona state 

 

S-9

 

exploration permits covering the mineral estate of approximately 2,500 gross acres, which were non-contiguous with our remaining sections. The Potash Sharing Agreement provides that AWP will pay such mineral estate owners specified dollar amounts during the development of AWP’s mining and processing facility. The related agreements with each counterparty to the Potash Sharing Agreement include an annual base rent and a royalty for potash extracted from these estates. Upon the Company’s completion of specified targets set forth in the Potash Sharing Agreement (which such targets have not yet been met as of the date hereof), the Company’s next payment to such mineral estate owners under the Potash Sharing Agreement will be in the amount of $1.5 million in accordance with Article III therein. The term of the Potash Sharing Agreement is perpetual or until the earliest of cessation of operations by AWP for 180 consecutive days or abandonment of the potash mining operation by AWP.

 

6.             The Investor Relations Consulting Agreement dated July 5, 2011 by and between the Company and COR Advisors LLC, as amended by Amendment #1 to Investor Relations Consulting Agreement dated May 9, 2012 and as further amended by Amendment #2 to Investor Relations Consulting Agreement dated August 1, 2012 provides that a ‘Change of Control’ transaction shall be any transaction or series of transactions that results in the sale of the Company or the issuance of common stock or securities convertible into common stock that in the aggregate would result in a majority of the Company’s shares being owned or controlled by new investors or the change in a majority of the Company’s Board of Directors as constituted on the date such agreement was signed. In the event that the Transaction triggers a “Change of Control” as defined above, the remaining shares to be issued for the term (750,000 shares as of the date hereof) shall become immediately due and payable.

 

7.             The Company and its Subsidiaries are party to certain operating leases for their office space and other ordinary course items that are not reflected on the Reference Balance Sheet and are not expected to exceed an aggregate amount of $750,000.

 

8.             Item 7 under “Other Equity Commitments” of Schedule 7.2(b) is hereby incorporated by reference.

 

9.             To the extent not already disclosed in Item 2 above, the Company is also obligated to pay monthly fees for services to certain third parties as further described below:

 

(a)           Independent Contractor Consulting Agreement by and between the Company and Granite Peak Advisors LLC, the Company pays Granite Peak $20,000 a month on or before the 15th business day of each month for advisory and consulting services and such agreement expires on October 10, 2013 unless the parties choose to extend such arrangement;

 

(b)           Independent Contractor Agreement by and between the Company and Mitsuru Kataoka, the Company pays Mr. Kataoka $5,000 per month paid by the 3rd of every month for consulting and advisory services. Such agreement is terminable at any time by either party, for any reason, upon 30 day prior written notice. In the event that the Company terminates, the Company shall pay Mr. Kataoka two months worth of payment;

 

(c)           Item 1 under “Other Equity Commitments” of Schedule 7.2(b) is hereby incorporated by reference.

 

(d)           Item 5 under “Other Equity Commitments” of Schedule 7.2(b) is hereby incorporated by reference.

 

S-10

 

Schedule 7.23

 

Compliance with ERISA

 

1.             COBRA payments are included as severance benefits pursuant to individual employment agreements, including those with Chad Brownstein, Brian W. Wallace, Wayne Rich, and Gregory Dangler.

 

S-11

 

Schedule 7.28

No Registration Rights

 

The following Persons have the right to require the Company to register securities for sale under the Securities Act pursuant to their respective Registration Rights Agreements with the Company:

 

	
Person
    	
 
    	
Shares
    	
 
    
	
The Karlsson Group 
    	
 
    	
5,605,834
    	
 
    
	
Delta Institutional LP 
    	
 
    	
209,900
    	
 
    
	
Delta Onshore LP 
    	
 
    	
98,800
    	
 
    
	
Delta Offshore Master Ltd. 
    	
 
    	
867,771
    	
 
    
	
Very Hungry LLC 
    	
 
    	
4,841,608
    	
 
    
	
Avalon Portfolio, LLC 
    	
 
    	
1,900,000
    	
 
    
	
Buffalo Management LLC 
    	
 
    	
3,983,993
    	
 
    
	
Certain other purchasers in private placements   representing aggregate shares of: 
    	
 
    	
3,331,628
    	
 
    

 

S-12

 

Schedule 9.1

Operation of Business

 

The Persons listed below, including their affiliates:

 

	
40 North Industries
    	
 
    	
LSB   Industries
    
	
Austin   Powder Company / Jack Davis 
    	
 
    	
Trafalet
    
	
Blackrock
    	
 
    	
Very   Hungry LLC
    
	
Koch   Fertilizers
    	
 
    	
Emerald
    
	
Lion   Gate Capital
    	
 
    	
SunAmerica
    

 

S-13

 

Schedule 9.13

Contracts Obligating the Company to Issue Shares

 

Consulting Agreement by and between Thornton Group LLC and the Company effective as of February 27, 2012.

 

Consulting Agreement by and between Pulsar Capital Investimentos Ltda and the Company effective as of August 31, 2012.

 

Amendment to Consulting Agreement by and between Pulsar Capital Investimentos Ltda and the Company.

 

Letter of Agreement by and between Crystal Research Associates, LLC and the Company effective as of August 13, 2012.

 

Agreement by and between New Century Capital Partners, Inc. and the Company effective as of January 3, 2012.

 

Relationship Agreement by and between Oxford Metrica Limited and the Company dated as of October 10, 2011.

 

Proposal and Fee Agreement for Representation by and between Brownstein Hyatt Farber Schreck, LLP and the Company dated as of July 5, 2011.

 

Agreement by and between Dahlman Rose & Co., LLC and the Company dated as of June 30, 2011.

 

Independent Contractor Agreement by and between Milton MacGregor and the Company dated as of September 1, 2012.

 

Agreement by and between MC Namir Capital LLC and the Company dated as of November 14, 2012.

 

Termination of the Management Services Agreement by and between Buffalo Management LLC and Prospect Global Resources Inc., a Delaware corporation, dated as of August 1, 2012.

 

Independent Contractor Agreement by and between Silver Peaks, LLC and the Company dated as of November 12, 2012.

 

Letter dated as of November 15, 2012, confirming the success fee in the Consulting Agreement by and between Thornton Group LLC and the Company dated February 27, 2012, in connection with the Potash Supply Agreement entered into on October 18, 2012, between Prospect Global Resources Inc. and Sichuan Chemical Industry Holding (Group), Ltd.

 

Investor Relations Consulting Agreement by and between COR Advisors LLC and the Company effective as of July 5, 2011.

 

Amendment #1 to Investor Relations Consulting Agreement by and between COR Advisors LLC and the Company dated as of May 9, 2012.

 

S-14

 

Amendment #2 to Investor Relations Consulting Agreement by and between COR Advisors LLC and the Company dated as of August 1, 2012.

 

Potash Royalty Purchase and Sale Agreement and Option by and between Grandhaven Energy, LLC and the Company, effective as of November 22, 2011.

 

In connection with its underwritten offering of 15,000,000 shares that closed on November 14, 2012 and pursuant to the Underwriting Agreement dated November 8, 2012 by and among the Company, Dahlman Rose & Company, LLC, Macquarie Capital (USA) Inc., Roth Capital Partners, LLC and Sterne, Agee & Leach, Inc. (collectively, the “Underwriters”), the Company granted the Underwriters a 30-day option to purchase up to an additional 2,250,000 shares of the Company’s common stock to cover over-allotments, if any.

 

Item 1 to Schedule 13.11(e) is hereby incorporated by reference.

 

Agreement by and between the Company and Roscoe Martin in connection with executive search and placement services under which Roscoe Martin is paid 25% (the “placement fee”) of the base salary for any successful placement with the Company. Such placement fee is comprised of cash and options.

 

S-15

 

Schedule 9.16

Employee Waivers to be Provided by Closing

 

1.                                      Brian W. Wallace

 

·                  Employment Agreement dated as of June 13, 2012

 

·                  2011 Employee Equity Incentive Plan Option Agreement effective as of July 2, 2012, and executed on July 10, 2012

 

2.                                      Chad Brownstein

 

·                  Employment Agreement dated as of August 1, 2012

 

3.                                      Wayne E. Rich

 

·                  Amended and Restated Employment Agreement dated as of June 13, 2012

 

4.                                      Patrick L. Avery

 

·                  Second Amended and Restated Employment Agreement dated as of June 13, 2012

 

5.                                      Jonathan Bloomfield

 

·                  Second Amended and Restated Employment Agreement dated as of September 6, 2011, with an effective date of September 1, 2010

 

6.                                      Anita Marks

 

·                  Offer Letter dated as of August 20, 2012

 

7.                                      Gregory Dangler

 

·                  Employment Agreement dated as of October 19, 2012

 

8.                                      Hugh Eisler

 

·                  Offer Letter dated as of August 20, 2012

 

S-16

 

Schedule 13.11(e)

When No Adjustment Required

 

1.                                      Pursuant to warrant agreements to purchase common stock with the holders below:

 

	
Name of
   Warrant holder 
    	
 
    	
Convertible into Number
   of
   Shares Listed Below
    	
 
    
	
Very Hungry LLC(1)
    	
 
    	
4,841,608
    	
 
    
	
Scott Reiman Trust(1) 
    	
 
    	
1,893,687
    	
 
    
	
Abas Holdings LLC 
    	
 
    	
11,765
    	
 
    
	
Adriana Milana 
    	
 
    	
11,765
    	
 
    
	
JPFP Family LLC 
    	
 
    	
25,000
    	
 
    
	
Rising Sun Ventures (AZ), LLC 
    	
 
    	
47,059
    	
 
    
	
Anthony Johnson 
    	
 
    	
11,765
    	
 
    
	
Junction Energy Partners, LLC 
    	
 
    	
117,648
    	
 
    
	
Mark Attanasio 
    	
 
    	
111,764
    	
 
    
	
Melissa Weiler 
    	
 
    	
29,412
    	
 
    
	
Jean-Marc Chapus 
    	
 
    	
23,529
    	
 
    
	
Michael Parks 
    	
 
    	
23,529
    	
 
    
	
Jonathan Insull 
    	
 
    	
11,765
    	
 
    
	
Daniel Attanasio 
    	
 
    	
5,882
    	
 
    
	
Michael Attanasio 
    	
 
    	
5,882
    	
 
    
	
Matthew Miller 
    	
 
    	
5,882
    	
 
    
	
Jason Breaux 
    	
 
    	
5,882
    	
 
    
	
Richard Stevenson 
    	
 
    	
5,882
    	
 
    
	
Christopher Wright 
    	
 
    	
5,882
    	
 
    
	
Delta Offshore Master LTD. 
    	
 
    	
867,771
    	
 
    
	
Delta Institutional LP 
    	
 
    	
209,900
    	
 
    
	
Delta Onshore LP 
    	
 
    	
98,800
    	
 
    
	
Gary Jamell 
    	
 
    	
11,765
    	
 
    
	
John Grier 
    	
 
    	
235,295
    	
 
    
	
Dahlman Rose & Company, LLC 
    	
 
    	
70,588
    	
 
    
	
Avalon Portfolio, LLC 
    	
 
    	
1,900,000
    	
 
    
	
Crystal Research Associates, LLC 
    	
 
    	
150,000
    	
 
    
	
Buffalo Management LLC (and its assignees)(2)   
    	
 
    	
4,433,993
    	
 
    
	
The Karlsson Group, Inc. 
    	
 
    	
5,605,834
    	
 
    
	
MC Namir Capital LLC 
    	
 
    	
60,000
    	
 
    
	
Silver Peaks LLC 
    	
 
    	
50,000
    	
 
    
	
 
    	
 
    	
20,889,534
    	
 
    

 

(1)                                 Hexagon Investments LLC assigned its warrants to purchase common stock of the Company to Very Hungry LLC.

 

(2)                                 Buffalo Management LLC assigned an aggregate of 450,000 warrants to the following parties: The Schnel Family Trust, Granite Peak Advisors LLC, Zasis LLC and Santa Fe National Insurance Company.

 

2.                                      Options granted to the parties set forth below:

 

S-17

 

	
Participant
   Name
    	
 
    	
Plan
    	
 
    	
Shares
   Granted
    	
 
    
	
Wayne Rich 
    	
 
    	
2011   Employee Equity Incentive Plan
    	
 
    	
1,000,000
    	
 
    
	
Brian Wallace 
    	
 
    	
2011   Employee Equity Incentive Plan
    	
 
    	
1,000,000
    	
 
    
	
Pat Avery 
    	
 
    	
2011   Employee Equity Incentive Plan
    	
 
    	
600,000
    	
 
    
	
Barry Munitz 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
400,000
    	
 
    
	
Barry Munitz 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
300,000
    	
 
    
	
Devon Archer 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
2,000,000
    	
 
    
	
Pat Avery 
    	
 
    	
2011   Employee Equity Incentive Plan
    	
 
    	
300,000
    	
 
    
	
Marc Holtzman 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
300,000
    	
 
    
	
Zhi Zhong Qui 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
200,000
    	
 
    
	
Jon Bloomfield 
    	
 
    	
2011   Employee Equity Incentive Plan
    	
 
    	
200,000
    	
 
    
	
Scott Reiman 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
200,000
    	
 
    
	
Gray Davis 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
200,000
    	
 
    
	
Chad Brownstein 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
200,000
    	
 
    
	
Conway Schatz 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
140,000
    	
 
    
	
Zhi Zhong Qui 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
140,000
    	
 
    
	
Marc Holtzman 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
140,000
    	
 
    
	
Ari Swiller 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
140,000
    	
 
    
	
Greg Dangler 
    	
 
    	
2011   Employee Equity Incentive Plan
    	
 
    	
140,000
    	
 
    
	
Greg Dangler 
    	
 
    	
2011   Employee Equity Incentive Plan
    	
 
    	
300,000
    	
 
    
	
Erich Kirsch 
    	
 
    	
2011   Employee Equity Incentive Plan
    	
 
    	
125,000
    	
 
    
	
Milton MacGregor 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
50,000
    	
 
    
	
Brownstein Hyatt Farber Schreck LLP 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
120,000
    	
 
    
	
Chad Brownstein 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
100,000
    	
 
    
	
Ari Swiller 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
100,000
    	
 
    
	
Jon Bloomfield 
    	
 
    	
2011   Employee Equity Incentive Plan
    	
 
    	
75,000
    	
 
    
	
Isaac Morgan 
    	
 
    	
2011   Employee Equity Incentive Plan
    	
 
    	
40,000
    	
 
    

 

S-18

 

	
Hugh Eisler 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
25,000
    	
 
    
	
Anita Marks 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
25,000
    	
 
    
	
Rick Chastain 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
25,000
    	
 
    
	
Tom Neuman 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
25,000
    	
 
    
	
Hugh Eisler 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
25,000
    	
 
    
	
Anita Marks 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
25,000
    	
 
    
	
Rick Chastain 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
25,000
    	
 
    
	
Tom Neuman 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
25,000
    	
 
    
	
Ron Justman 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
10,000
    	
 
    
	
Rick Marlowe 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
10,000
    	
 
    
	
Joe Hardin 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
10,000
    	
 
    
	
Nesrin Arafa 
    	
 
    	
2011   Employee Equity Incentive Plan
    	
 
    	
6,000
    	
 
    
	
Ron Justman 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
5,000
    	
 
    
	
Rick Marlowe 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
5,000
    	
 
    
	
Joe Hardin 
    	
 
    	
2011   Director and Consultant Equity Incentive Plan
    	
 
    	
5,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
8,761,000
    	
 
    

 

3.                                      Pursuant to the Potash Royalty Purchase and Sale Agreement and Option dated effective as of November 22, 2011 by and between the Company and Grandhaven Energy (“Grandhaven”) as further amended by the First Amendment to Potash Royalty Purchase and Sale Agreement and Option, dated March 21, 2012, between the parties, the Company committed to maintain, and currently maintains at all times, 25 million shares in reserve until the earlier of (a) Grandhaven exercises its option or (b) such royalty is assigned to American West Potash LLC (“AWP”).

 

S-19

 

4.                                      The Investor Relations Consulting Agreement dated July 5, 2011 by and between the Company and COR Advisors LLC, as amended by Amendment #1 to Investor Relations Consulting Agreement dated May 9, 2012 and as further amended by Amendment #2 to Investor Relations Consulting Agreement dated August 1, 2012 provides that a ‘Change of Control’ transaction shall be any transaction or series of transactions that results in the sale of the Company or the issuance of common stock or securities convertible into common stock that in the aggregate would result in a majority of the Company’s shares being owned or controlled by new investors or the change in a majority of the Company’s Board of Directors as constituted on the date such agreement was signed. In the event that the Transaction triggers a “Change of Control” as defined above, the remaining shares to be issued for the term (750,000 shares as of the date hereof) shall become immediately due and payable.

 

S-20

 

Schedule 15.15

Investments

 

Money market account in the Company’s name at KeyBank.

 

S-21Exhibit 10.1

 

 

AMENDED AND RESTATED WAREHOUSING

CREDIT AND SECURITY AGREEMENT

 

BY AND AMONG

 

WALKER & DUNLOP, LLC

a Delaware limited liability company

AS BORROWER,

 

WALKER & DUNLOP, INC.

A Maryland corporation

AS PARENT

 

and

 

LENDERS PARTY HERETO

 

and

 

PNC BANK, NATIONAL ASSOCIATION

AS ADMINISTRATIVE AGENT

 

DATED AS OF JUNE 25, 2013

 

 

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    	
 
    
	
1.
    	
THE CREDIT
    	
2
    
	
 
    	
 
    	
 
    
	
 
    	
1.1
    	
The Warehousing Commitment
    	
2
    
	
 
    	
1.2
    	
Expiration of Warehousing Commitment
    	
2
    
	
 
    	
1.3
    	
Warehousing Note
    	
2
    
	
 
    	
1.4
    	
Replacement of Warehousing Note
    	
3
    
	
 
    	
1.5
    	
Nature of Obligations
    	
3
    
	
 
    	
1.6
    	
Amended and Restated Guaranty
    	
3
    
	
 
    	
 
    	
 
    	
 
    
	
2.
    	
PROCEDURES FOR OBTAINING ADVANCES
    	
3
    
	
 
    	
 
    	
 
    
	
 
    	
2.1
    	
Warehousing Advances
    	
3
    
	
 
    	
2.2
    	
Funding Advances
    	
4
    
	
 
    	
2.3
    	
Pro Rata Treatment of Lenders
    	
5
    
	
 
    	
2.4
    	
Defaulting Lenders
    	
5
    
	
 
    	
2.5
    	
Replacement of a Lender
    	
5
    
	
 
    	
 
    	
 
    	
 
    
	
3.
    	
INTEREST, PRINCIPAL AND FEES
    	
6
    
	
 
    	
 
    	
 
    
	
 
    	
3.1
    	
Interest
    	
6
    
	
 
    	
3.2
    	
Interest Limitation
    	
7
    
	
 
    	
3.3
    	
Principal Payments
    	
7
    
	
 
    	
3.4
    	
Facility Fee
    	
9
    
	
 
    	
3.5
    	
Administrative Fee
    	
10
    
	
 
    	
3.6
    	
Miscellaneous Fees and Charges
    	
10
    
	
 
    	
3.7
    	
Overdraft Advances
    	
10
    
	
 
    	
3.8
    	
Method of Making Payments
    	
10
    
	
 
    	
3.9
    	
Billings
    	
11
    
	
 
    	
3.10
    	
Late Charges
    	
11
    
	
 
    	
3.11
    	
Additional Provisions Relating to Interest Rate
    	
11
    
	
 
    	
3.12
    	
Continuing Authority of Authorized Representatives
    	
13
    
	
 
    	
 
    	
 
    	
 
    
	
4.
    	
COLLATERAL
    	
14
    
	
 
    	
 
    	
 
    
	
 
    	
4.1
    	
Grant of Security Interest
    	
14
    
	
 
    	
4.2
    	
Maintenance of Collateral Records
    	
15
    
	
 
    	
4.3
    	
Release of Security Interest in Pledged Loans and Pledged   Securities
    	
16
    
	
 
    	
4.4
    	
Collection and Servicing Rights
    	
17
    
	
 
    	
4.5
    	
Return of Collateral at End of Warehousing Commitment
    	
18
    
	
 
    	
4.6
    	
Delivery of Collateral Documents
    	
18
    
	
 
    	
4.7
    	
Borrower Remains Liable
    	
18
    
	
 
    	
 
    	
 
    	
 
    
	
5.
    	
CONDITIONS PRECEDENT
    	
19
    
	
 
    	
 
    	
 
    
	
 
    	
5.1
    	
Initial Advance
    	
19
    
	
 
    	
5.2
    	
Each Advance
    	
20
    

 

i

 

	
 
    	
5.3
    	
Force Majeure
    	
21
    
	
 
    	
 
    	
 
    	
 
    
	
6.
    	
GENERAL REPRESENTATIONS AND WARRANTIES
    	
21
    
	
 
    	
 
    	
 
    
	
 
    	
6.1
    	
Place of Business
    	
22
    
	
 
    	
6.2
    	
Organization; Good Standing
    	
22
    
	
 
    	
6.3
    	
Authorization and Enforceability
    	
22
    
	
 
    	
6.4
    	
Approvals
    	
22
    
	
 
    	
6.5
    	
Financial Condition
    	
23
    
	
 
    	
6.6
    	
Litigation
    	
23
    
	
 
    	
6.7
    	
Compliance with Laws
    	
23
    
	
 
    	
6.8
    	
Regulation U
    	
23
    
	
 
    	
6.9
    	
Investment Company Act
    	
23
    
	
 
    	
6.10
    	
Payment of Taxes
    	
24
    
	
 
    	
6.11
    	
Agreements
    	
24
    
	
 
    	
6.12
    	
Title to Properties
    	
24
    
	
 
    	
6.13
    	
ERISA
    	
24
    
	
 
    	
6.14
    	
No Retiree Benefits
    	
25
    
	
 
    	
6.15
    	
Assumed Names
    	
25
    
	
 
    	
6.16
    	
Servicing
    	
25
    
	
 
    	
6.17
    	
Foreign Asset Control Regulations
    	
25
    
	
 
    	
 
    	
 
    	
 
    
	
7.
    	
AFFIRMATIVE COVENANTS
    	
26
    
	
 
    	
 
    	
 
    
	
 
    	
7.1
    	
Payment of Obligations
    	
26
    
	
 
    	
7.2
    	
Financial Statements
    	
26
    
	
 
    	
7.3
    	
Other Borrower Reports
    	
26
    
	
 
    	
7.4
    	
Maintenance of Existence; Conduct of Business
    	
28
    
	
 
    	
7.5
    	
Compliance with Applicable Laws
    	
28
    
	
 
    	
7.6
    	
Inspection of Properties and Books; Operational Reviews
    	
28
    
	
 
    	
7.7
    	
Notice
    	
28
    
	
 
    	
7.8
    	
Payment of Taxes and Other Obligations
    	
29
    
	
 
    	
7.9
    	
Insurance
    	
29
    
	
 
    	
7.10
    	
Closing Instructions
    	
30
    
	
 
    	
7.11
    	
Subordination of Certain Indebtedness
    	
30
    
	
 
    	
7.12
    	
Other Loan Obligations
    	
30
    
	
 
    	
7.13
    	
ERISA
    	
30
    
	
 
    	
7.14
    	
Use of Proceeds of Warehousing Advances
    	
31
    
	
 
    	
7.15
    	
Investor Instructions
    	
31
    
	
 
    	
7.16
    	
Sale of Mortgage Loan to Investor
    	
31
    
	
 
    	
 
    	
 
    	
 
    
	
8.
    	
NEGATIVE COVENANTS
    	
31
    
	
 
    	
 
    	
 
    
	
 
    	
8.1
    	
[Intentionally Deleted]
    	
31
    
	
 
    	
8.2
    	
Contingent Liabilities
    	
31
    
	
 
    	
8.3
    	
Restrictions on Fundamental Changes
    	
32
    
	
 
    	
8.4
    	
Subsidiaries
    	
32
    
	
 
    	
8.5
    	
Loss of Eligibility, Licenses or Approvals
    	
32
    
	
 
    	
8.6
    	
Accounting Changes
    	
32
    

 

ii

 

	
 
    	
8.7
    	
Minimum Adjusted Tangible Net Worth
    	
33
    
	
 
    	
8.8
    	
[Intentionally Deleted]
    	
33
    
	
 
    	
8.9
    	
[Intentionally Deleted]
    	
33
    
	
 
    	
8.10
    	
[Intentionally Deleted]
    	
33
    
	
 
    	
8.11
    	
Minimum Cash and Cash Equivalents
    	
33
    
	
 
    	
8.12
    	
Servicing Delinquencies
    	
33
    
	
 
    	
8.13
    	
Dividends and Distributions
    	
33
    
	
 
    	
8.14
    	
Transactions with Affiliates
    	
34
    
	
 
    	
8.15
    	
Recourse Servicing Contracts
    	
34
    
	
 
    	
8.16
    	
Total Servicing Portfolio and Fannie Mae Servicing   Portfolio
    	
34
    
	
 
    	
 
    	
 
    	
 
    
	
9.
    	
SPECIAL REPRESENTATIONS, WARRANTIES AND COVENANTS   CONCERNING COLLATERAL
    	
34
    
	
 
    	
 
    	
 
    
	
 
    	
9.1
    	
Special Representations and Warranties Concerning   Warehousing Collateral
    	
34
    
	
 
    	
9.2
    	
Special Affirmative Covenants Concerning Warehousing   Collateral
    	
37
    
	
 
    	
9.3
    	
Special Negative Covenants Concerning Warehousing   Collateral
    	
38
    
	
 
    	
9.4
    	
Special Representations and Warranties Concerning   Eligibility as Fannie Mae Approved Seller/Servicer of Mortgage Loans
    	
39
    
	
 
    	
9.5
    	
Special Representation and Warranty Concerning Fannie Mae   DUS Program Reserve Requirements
    	
39
    
	
 
    	
9.6
    	
Special Representations and Warranties Concerning FHA   Mortgage Loans
    	
39
    
	
 
    	
9.7
    	
Special Representations and Warranties Concerning   Eligibility as Freddie Mac Program Plus Seller/Servicer of Mortgage Loans
    	
39
    
	
 
    	
 
    	
 
    	
 
    
	
10.
    	
DEFAULTS; REMEDIES
    	
40
    
	
 
    	
 
    	
 
    
	
 
    	
10.1
    	
Events of Default
    	
40
    
	
 
    	
10.2
    	
Remedies
    	
42
    
	
 
    	
10.3
    	
Insufficiency of Proceeds
    	
45
    
	
 
    	
10.4
    	
Administrative Agent Appointed Attorney-in-Fact
    	
45
    
	
 
    	
10.5
    	
Right of Set-Off
    	
46
    
	
 
    	
10.6
    	
Application of Funds
    	
46
    
	
 
    	
 
    	
 
    	
 
    
	
11.
    	
THE ADMINISTRATIVE AGENT
    	
47
    
	
 
    	
 
    	
 
    
	
 
    	
11.1
    	
Appointment and Authority
    	
47
    
	
 
    	
11.2
    	
Rights as a Lender
    	
47
    
	
 
    	
11.3
    	
Exculpatory Provisions
    	
47
    
	
 
    	
11.4
    	
Reliance by Administrative Agent
    	
48
    
	
 
    	
11.5
    	
Delegation of Duties
    	
49
    
	
 
    	
11.6
    	
Resignation of Administrative Agent
    	
49
    
	
 
    	
11.7
    	
Non-Reliance on Administrative Agent and Other Lenders
    	
49
    
	
 
    	
11.8
    	
Authorization to Release Collateral
    	
50
    
	
 
    	
11.9
    	
No Reliance on Administrative Agent’s Customer   Identification Program
    	
50
    

 

iii

 

	
12.
    	
MISCELLANEOUS
    	
50
    
	
 
    	
 
    	
 
    
	
 
    	
12.1
    	
Modifications, Amendments or Waivers
    	
50
    
	
 
    	
12.2
    	
No Implied Waivers, Cumulative Remedies
    	
51
    
	
 
    	
12.3
    	
Notices
    	
51
    
	
 
    	
12.4
    	
Reimbursement Of Expenses; Indemnity
    	
53
    
	
 
    	
12.5
    	
Financial Information
    	
54
    
	
 
    	
12.6
    	
Terms Binding Upon Successors; Survival of Representations
    	
55
    
	
 
    	
12.7
    	
Pledge to Federal Reserve Banks
    	
55
    
	
 
    	
12.8
    	
Governing Law
    	
55
    
	
 
    	
12.9
    	
Amendments
    	
55
    
	
 
    	
12.10
    	
Relationship of the Parties
    	
55
    
	
 
    	
12.11
    	
Severability
    	
56
    
	
 
    	
12.12
    	
Consent to Credit References
    	
56
    
	
 
    	
12.13
    	
Counterparts
    	
56
    
	
 
    	
12.14
    	
Headings/Captions
    	
56
    
	
 
    	
12.15
    	
Entire Agreement
    	
56
    
	
 
    	
12.16
    	
Consent to Jurisdiction
    	
56
    
	
 
    	
12.17
    	
Waiver of Jury Trial
    	
57
    
	
 
    	
12.18
    	
Waiver of Punitive, Consequential, Special or Indirect   Damages
    	
57
    
	
 
    	
12.19
    	
U.S. Patriot Act
    	
57
    
	
 
    	
12.20
    	
Assignments and Participations
    	
58
    
	
 
    	
12.21
    	
Confidentiality
    	
60
    
	
 
    	
12.22
    	
No Novation
    	
61
    
	
 
    	
12.23
    	
Amendment and Restatement
    	
61
    
	
 
    	
 
    	
 
    	
 
    
	
13.
    	
DEFINITIONS
    	
61
    
	
 
    	
 
    	
 
    
	
 
    	
13.1
    	
Defined Terms
    	
61
    
	
 
    	
13.2
    	
Other Definitional Provisions; Terms of Construction
    	
76
    

 

iv

 

EXHIBITS

 

	
Exhibit A
    	
Form of   Warehousing Note
    
	
Exhibit B-1   FNMA/DUS
    	
Procedures   and Documentation for Fannie Mae DUS Loans and Other Fannie Mae Mortgage   Loans
    
	
Exhibit B-2   FHA/GNMA
    	
Procedures   and Documentation for FHA Mortgage Loans and Ginnie Mae Mortgage Backed   Securities
    
	
Exhibit B-3   Freddie Mac
    	
 
    
	
Program Plus
    	
Loans   Procedures and Documentation for Program Plus Loans
    
	
Exhibit C
    	
Form of   Warehousing Advance Request
    
	
Exhibit D
    	
Eligible   Loans and Other Assets
    
	
Exhibit E
    	
Authorized   Representatives
    
	
Exhibit F
    	
[Intentionally   Omitted]
    
	
Exhibit G
    	
Assumed   Names
    
	
Exhibit H
    	
Servicing   Portfolio
    
	
Exhibit I
    	
Form of   Compliance Certificate
    
	
Exhibit J
    	
Lines   of Credit
    
	
Exhibit K
    	
Foreign   Qualifications and Licenses
    
	
Exhibit L
    	
Miscellaneous   Fees and Charges
    
	
Exhibit M
    	
Form of   Assignment and Assumption Agreement
    
	
Exhibit N-1
    	
Form of   Joint Escrow and Bailee Letter
    
	
Exhibit N-2
    	
Form of   Escrow Letter
    
	
Exhibit N-2
    	
Form of   Bailee Letter
    
	
Exhibit O
    	
Form of   Disbursement Request
    
	
Exhibit P
    	
Form of   Assignment of Mortgage Note and Mortgage
    
	
Exhibit Q
    	
[Intentionally   Omitted]
    
	
Exhibit R
    	
Form of   Amended and Restated Guaranty
    

 

SCHEDULES

 

	
Schedule   I
    	
List   of Lenders and Lender Warehouse Commitments
    

 

v

 

AMENDED AND RESTATED WAREHOUSING

CREDIT AND SECURITY AGREEMENT

 

THIS AMENDED AND RESTATED WAREHOUSING CREDIT AND SECURITY AGREEMENT, dated as of June 25, 2013, is made by and among WALKER & DUNLOP, LLC, a Delaware limited liability company (“Borrower”), WALKER & DUNLOP, INC., a Maryland corporation (“Parent”), the Lenders (as defined herein) and PNC BANK, NATIONAL ASSOCIATION, in its capacity as administrative agent for Lenders under this Agreement (hereinafter referred to in such capacity as the “Administrative Agent”).

 

Preliminary Statement

 

A.            Borrower and PNC Bank, National Association, in its capacity as a Lender (the “Original Lender”), are parties to that certain Warehousing Credit and Security Agreement, dated as of June 30, 2010 (the “Original Credit Facility Agreement”), as amended by that certain First Amendment to Warehousing Credit and Security Agreement, dated as of May 12, 2011 (the “First Amendment”), that certain Second Amendment to Warehousing Credit and Security Agreement, dated as of June 30, 2011 (the “Second Amendment”), that certain Third Amendment to Warehousing Credit and Security Agreement, dated as of March 8, 2012 (the “Third Amendment”), that certain Fourth Amendment to Warehousing Credit and Security Agreement, dated September 4, 2012 (the “Fourth Amendment”), that certain Fifth Amendment to Warehousing Credit and Security Agreement, dated January 25, 2013 (the “Fifth Amendment”) and that certain Sixth Amendment to Warehousing Credit and Security Agreement, dated April 2, 2013 (the “Sixth Amendment”) (the Original Credit Facility Agreement, as amended by the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment and the Sixth Amendment, is herein the “Original Credit Facility Agreement”), whereby upon the satisfaction of certain terms and conditions set forth therein, the Original Lender agreed to make Warehousing Advances from time to time, up to the Warehousing Credit Limit (as defined in the Original Credit Facility Agreement).

 

B.            Parent has guaranteed Borrower’s obligations under the Original Credit Facility Agreement pursuant to that certain Guaranty and Suretyship Agreement dated as of June 30, 2011 (the “Original Guaranty”).

 

C.            Borrower and Parent have requested, and Original Lender has agreed, to amend and restate the Original Credit Facility Agreement in order to, among other things, increase the Warehouse Credit Limit to Six Hundred Fifty Million Dollars ($650,000,000), to extend the Stated Maturity Date to June 24, 2014, and to permit the participation of the Warehouse Advances with other lenders, pursuant to the terms and conditions set forth herein.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree to amend and restate the Original Credit Agreement in its entirety as follows:

 

 

1.                                      THE CREDIT

 

1.1                               The Warehousing Commitment

 

1.1(a)                          On the terms and subject to the conditions and limitations of this Agreement, each Lender severally agrees to make Warehousing Advances to Borrower from the Closing Date to the fifth (5th) Business Day immediately preceding the Warehousing Maturity Date, during which applicable period Borrower may borrow, repay and reborrow in accordance with the provisions of this Agreement, provided that after giving effect to each such Warehousing Advance, the aggregate amount of the Warehousing Advances from such Lender shall not exceed such Lender’s Commitment.  Lenders have no obligation to make or maintain Warehousing Advances if, after giving effect to each requested Warehousing Advance, the aggregate outstanding principal amount of all Warehousing Advances would exceed the Warehousing Credit Limit.  While a Default or Event of Default exists, each Lender may refuse to make any additional Warehousing Advances to Borrower.  All Warehousing Advances under this Agreement constitute a single indebtedness, and all of the Collateral is security for the Warehousing Note and for the performance of all of the Obligations.

 

1.1(b)                          Each Lender shall be obligated to participate in each request for Warehousing Advances pursuant to Section 2.1(a) in accordance with its Ratable Share.  The aggregate of each Lender’s Warehousing Advances outstanding hereunder to Borrower at any time shall never exceed its Commitment.  The obligations of each Lender hereunder are several.  The failure of any Lender to perform its obligations hereunder shall not affect the Obligations of Borrower to any other party nor shall any other party be liable for the failure of such Lender to perform its obligations hereunder.  Lenders shall have no obligation to make Warehousing Advances hereunder on or after the Warehousing Maturity Date

 

1.2                               Expiration of Warehousing Commitment

 

Subject to the extension right set forth below in this Section 1.2, the Warehousing Commitment expires on the earlier of (“Warehousing Maturity Date”): (a) June 24, 2014 (the “Stated Maturity Date”), on which date the Warehousing Commitment will expire of its own term and the Warehousing Advances together with all accrued and unpaid interest and costs and expenses will become due and payable without the necessity of Notice or action by Lenders; and (b) the date the Warehousing Commitment is terminated and the Warehousing Advances become due and payable under Section 10.2(a) or 10.2(b).

 

1.3                               Warehousing Note

 

Warehousing Advances are evidenced by certain Warehousing Notes, payable to each Lender in the form attached hereto as Exhibit A (each, a “Warehousing Note”) (it being understood that the Warehousing Note payable to PNC shall be an amendment and restatement of the original Warehousing Note held prior to the date of this Agreement).  Borrower shall deliver to each Lender a Warehousing Note in a maximum principal amount of such Lender’s Warehousing Commitment Amount.  The term “Warehousing Note” as used in this Agreement includes all

 

2

 

amendments, restatements, renewals or replacements of an original Warehousing Note and all substitutions for it.  All terms and provisions of the Warehousing Note are incorporated into this Agreement.

 

1.4                               Replacement of Warehousing Note

 

Upon receipt of an affidavit of an officer of Administrative Agent as to the loss, theft, destruction or mutilation of the Warehousing Note or any other security document which is not of public record, and, in the case of any such loss, theft, destruction or mutilation, upon cancellation of such Warehousing Note or other security document and receipt by Borrower of customary indemnification from Administrative Agent, Borrower will issue, in lieu thereof, a replacement note or other security document in the same principal amount thereof and otherwise of like tenor.

 

1.5                               Nature of Obligations

 

The aggregate amount of all Warehousing Advances outstanding from time to time under this Agreement may hereinafter collectively be referred to as the “Loan.”

 

1.6                               Amended and Restated Guaranty

 

Parent shall continue to guaranty to Lenders Borrower’s payment and performance under this Agreement and the other Loan Documents, and in consideration for Lenders’ agreement to enter into this Agreement, Parent covenants and agrees to amend and restate the Original Guaranty by contemporaneously herewith executing and delivering to Lenders an amended and restated guaranty in the form attached hereto as Exhibit R (the “Amended and Restated Guaranty”).

 

2.                                      PROCEDURES FOR OBTAINING ADVANCES

 

2.1                               Warehousing Advances

 

Borrower may obtain a Warehousing Advance under this Agreement by delivering to Administrative Agent a completed and signed request for a Warehousing Advance on Administrative Agent’s then current form (“Warehousing Advance Request”), not later than Three O’Clock (3:00) p.m. on the Business Day that is one (1) Business Day before the Business Day on which Borrower desires the Warehousing Advance.  Warehousing Advance Requests received by Administrative Agent after Three O’Clock (3:00) p.m. on a Business Day will be deemed received on the following Business Day, provided, however, on a case-by-case basis at the request of Borrower, the Administrative Agent may, in its sole discretion (and without thereby establishing any course of dealing), extend such Three O’Clock (3:00) p.m. cut-off time to a later time on the subject Business Day.  Subject to the delivery of a Warehousing Advance Request and the satisfaction of the conditions set forth in Sections 5.1 and 5.2, Borrower may obtain a Warehousing Advance under this Agreement upon compliance with the procedures set forth in this Section and in the applicable Exhibit B, including delivery to the Administrative Agent of all Collateral Documents required to be delivered on the applicable dates specified in this Agreement for such delivery.  Administrative Agent’s current form of Warehousing Advance Request is set forth in Exhibit C.  Upon not less than five (5) Business Days’ prior Notice to Borrower, Administrative Agent may modify its form of Warehousing Advance Request and any other Exhibit or document referred to in this Section to conform to current legal

 

3

 

requirements or Administrative Agent’s practices and, as so modified, those Exhibits and documents will become part of this Agreement.

 

2.2                               Funding Advances

 

2.2(a)                          Administrative Agent shall notify each Lender no later than Twelve O’Clock (12:00) noon on the date of the of Administrative Agent’s receipt (or by Nine O’Clock (9:00) a.m. of the immediately following Business day if such receipt is after Eleven O’Clock (11:00) a.m. of a Warehousing Advance Request and of such Lender’s Ratable Share of such Warehousing Advance.  Each such notice is herein a “Funding Notice”.  To make a Warehousing Advance, each Lender shall wire transfer to the account specified by Administrative Agent in such notice (i) prior to Ten O’Clock (10:00) a.m. on the date of such Warehousing Advance (provided that Administrative Agent has delivered a Funding Notice to such Lender no later than Twelve O’Clock (12:00) noon of the immediately preceding Business Day of the Warehousing Advance Request) or (ii) prior to Two O’Clock (2:00) p.m. on the date of such Warehousing Advance (provided that Administrative Agent has notified such Lender after Twelve O’Clock (12:00) noon of the immediately preceding Business day and no later than Nine O’Clock (9:00) a.m. on the date of the Warehousing Advance), and Administrative Agent shall make such Warehousing Advance available to Borrower only upon receipt of each Lender’s Ratable Share thereof.  Neither Administrative Agent nor any Lender shall have any obligation to fund a non-funding Lender’s Ratable Share of any Warehousing Advance.

 

2.2(b)                          Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Warehousing Advance that such Lender will not make available to the Administrative Agent such Lender’s Ratable Share of such Warehousing Advance, the Administrative Agent may assume that such Lender will make such Ratable Share available on such date in accordance with Section 2.2(a) and may (but is not obligated to), in reliance upon such assumption, make available to Borrower a corresponding amount.  In such event, if a Lender has not in fact made its Ratable Share of the applicable Warehousing Advance available to the Administrative Agent, then the applicable Lender and Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of a payment to be made by such Lender, the greater of the Federal Funds Open Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation and (ii) in the case of a payment to be made by Borrower, the interest rate applicable to Loans under the Applicable Base Rate.  If such Lender pays its Ratable Share of the applicable Warehousing Advance to the Administrative Agent, then the amount so paid shall constitute such Lender’s Warehousing Advance.  Any payment by Borrower shall be without prejudice to any claim Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.

 

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2.3                               Pro Rata Treatment of Lenders.

 

Each borrowing of a Warehousing Advance shall be allocated to each Lender according to its Ratable Share, and each payment or prepayment by Borrower with respect to principal, interest, facility fee and Miscellaneous Fees and Charges (but specifically excluding the administrative fee which shall remain payable to Administrative Agent) shall (except as otherwise may be provided with respect to a Defaulting Lender) be payable ratably among Lenders entitled to such payment in accordance with the amount of principal, interest, facility fees and Miscellaneous Fees and Charges as set forth in this Agreement.

 

2.4                               Defaulting Lenders.

 

Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a Defaulting Lender, then the following provisions shall apply for so long as such Lender is a Defaulting Lender:

 

2.4(a)                          The Commitment and outstanding Loans of such Defaulting Lender shall not be included in determining whether the Required Lenders have taken or may take any action hereunder (including any consent to any amendment, waiver or other modification pursuant to Section 12.1); provided, that this Section 2.4(a) shall not apply to the vote of a Defaulting Lender in the case of an amendment, waiver or other modification requiring the consent of such Lender or each Lender directly affected thereby.

 

2.4(b)                          In the event that Administrative Agent, Borrower, and the non-defaulting Lenders agree in writing that a Defaulting Lender has adequately remedied all matters that caused such Lender to be a Defaulting Lender, then the Administrative Agent will so notify the parties hereto, and the Ratable Share of Lenders shall be readjusted to reflect the inclusion of such Lender’s Commitment, and on such date such Lender shall purchase at par such of the Loans of the other Lenders as the Administrative Agent shall determine may be necessary in order for such Lender to hold such Loans in accordance with its Ratable Share.

 

2.5                               Replacement of a Lender.

 

2.5(a)                          In the event any Lender (i) is a Defaulting Lender, or (ii) becomes subject to the control of a Governmental Authority (other than normal and customary supervision), then in any such event Borrower may, at its sole expense, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the conditions set forth in Section 12.21(a)), all of its interests, rights (other than existing rights to payments pursuant Section 12.4) and obligations under this Agreement and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that:

 

(i)                           such Lender shall have received payment of an amount equal to the outstanding principal, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under

 

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Section 12.2) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or Borrower (in the case of all other amounts); and

 

(ii)                        such assignment does not conflict with applicable Law.

 

A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling Borrower to require such assignment and delegation cease to apply.

 

3.                                      INTEREST, PRINCIPAL AND FEES

 

3.1                               Interest

 

3.1(a)                          Except as otherwise provided in this Section, Borrower must pay interest on the unpaid amount of each Warehousing Advance from the date the Warehousing Advance is made until it is paid in full at the Applicable Rate as in effect from time to time.  For the avoidance of doubt, a Warehousing Advance is deemed to be made as of the date the title company or escrow agent handling the closing of the subject Mortgage Loan receives such Warehousing Advance.  Borrower must pay Administrative Agent on behalf of Lenders and for the benefit of Lenders, accrued interest on each Warehousing Advance on the Warehousing Advance Due Date or upon prepayment of such Warehousing Advance.

 

3.1(b)                          Administrative Agent computes interest on the basis of the actual number of days in each month and a year of Three Hundred Sixty (360) days.  Borrower must pay interest on outstanding Warehouse Advances in arrears on the Warehousing Advance Due Date and on the Warehousing Maturity Date.

 

3.1(c)                           If, for any reason, (i) Borrower repays a Warehousing Advance on the same day that it was made, or (ii) Borrower instructs the Administrative Agent not to make a previously requested Warehousing Advance after Lenders have reserved funds or made other arrangements necessary to enable Lenders to fund that Warehousing Advance, Borrower agrees to pay to the Administrative Agent, without limiting the provisions of Section 3.11, for the account of Lenders, interest thereon at the Applicable Rate for one day notwithstanding repayment prior to the cut-off time specified in Section 3.8(a) (unless the reason for such repayment is due to the failure of the underlying transaction to close).  Borrower must pay all such interest within five (5) Business Days after the date of the Administrative Agent’s notice thereof.

 

3.1(d)                          After an Event of Default occurs, the unpaid amount of each Warehousing Advance will bear interest at the Default Rate until paid in full.

 

3.1(e)                           The Administrative Agent will adjust the rates of interest provided for in this Agreement as of the effective date of each change in the applicable Reference Rate.  The Administrative Agent’s determination of such rates of interest as of any date of determination is conclusive and binding, absent manifest error.

 

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3.2                               Interest Limitation

 

If, at any time, the rate of interest, together with all amounts which constitute or are deemed under any applicable law to constitute interest and which are reserved, charged or taken by the Administrative Agent as compensation for fees, services or expenses incidental to the making, negotiating or collecting of Warehousing Advances, shall be deemed by any competent court of law, governmental agency or tribunal to exceed the maximum rate of interest permitted to be charged by the Administrative Agent to Borrower under applicable law, then, during such time as such rate of interest would be deemed excessive, that portion of each sum paid attributable to that portion of such interest rate that exceeds the maximum rate of interest so permitted shall be deemed a voluntary prepayment of principal (or, if no Obligations are then outstanding, shall be repaid to Borrower).  As used herein, the term “applicable law” shall mean the law in effect as of the date hereof; provided, however, that in the event there is a change in the law which results in a higher permissible rate of interest, then this Agreement shall be governed by such new law as of its effective date.

 

3.3                               Principal Payments

 

3.3(a)                          Borrower must pay Administrative Agent on behalf of Lenders, the outstanding principal amount of each Warehousing Advance, together with all accrued and unpaid interest thereon, on the applicable Warehousing Advance Due Date.  Notwithstanding the foregoing, Borrower must pay Administrative Agent on behalf of Lenders the outstanding principal amount of all Warehousing Advances together with all accrued and unpaid interest thereon, and any unpaid costs and expenses, on the Warehousing Maturity Date.

 

3.3(b)                          Except as otherwise provided in Section 3.1, Borrower may prepay any portion of the Warehousing Advances, together with all accrued and unpaid interest on the portion so prepaid, without premium or penalty at any time.

 

3.3(c)                           Borrower must pay to Administrative Agent on behalf of Lenders, and Borrower authorizes Administrative Agent to charge its Operating Accounts for, the amount of any outstanding Warehousing Advance, together with all accrued and unpaid interest thereon, against a specific Pledged Loan or Pledged Security upon the earliest occurrence of any of the following events:

 

(i)                           On the date a Warehousing Advance was made if the Pledged Loan to be funded by that Warehousing Advance has not closed and funded.

 

(ii)                        Three (3) Business Days elapse from the date a Warehousing Advance was made against a Pledged Loan, without receipt of the Collateral Documents relating to that Pledged Loan required to be delivered on that date, or if such Collateral Documents, upon examination by the Administrative Agent, are found not to be in compliance with the requirements of this Agreement or the related Purchase Commitment and Borrower has not delivered Collateral Documents in compliance with the requirements of this Agreement or the related Purchase

 

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Commitment within three (3) Business Days of receipt by Borrower of Notice from the Administrative Agent specifying the non-compliant items.

 

(iii)                     Ten (10) Business Days elapse without the return of a Collateral Document delivered by the Administrative Agent to Borrower under a Trust Receipt for correction or completion.

 

(iv)                    On the date on which a Pledged Loan is determined to have been originated based on untrue, incomplete or inaccurate information or to be subject to fraud, whether or not Borrower had knowledge of the misrepresentation, incomplete or inaccurate information or fraud.

 

(v)                       On the date on which Borrower knows, has reason to know, or receives Notice from Administrative Agent, that (A) one or more of the representations and warranties set forth in Article 9 were inaccurate or incomplete in any material respect on any date when made or deemed made or became inaccurate or incomplete in any material respect after any such date, or (B) Borrower has failed to perform or comply with any covenant, term or condition applicable to it set forth in Article 9.

 

(vi)                    On the date on which a Pledged Loan or an obligation secured by a Lien senior to the Mortgage securing repayment of the Pledged Loan has been in default for a period of sixty (60) days or more (it being understood that, as provided in Section 9.1(q), no Warehousing Advance will be made against any Mortgage Loan which is in default).

 

(vii)                 On the mandatory delivery date of the related Purchase Commitment if the specific Pledged Loan has not been delivered under the Purchase Commitment on or prior to such mandatory delivery date, or on the date the related Purchase Commitment expires or is terminated.

 

(viii)              Three (3) Business Days after the date a Pledged Loan is rejected for purchase by an Investor unless another Purchase Commitment is provided within that three (3) Business Day period.

 

(ix)                    Upon the sale, other disposition or prepayment of any Pledged Loan or Pledged Security or, with respect to a Pledged Loan included in an Eligible Mortgage Pool, upon the sale or other disposition of the related Agency Security.

 

(x)                       With respect to any Pledged Loan, any of the Collateral Documents, upon examination by Administrative Agent, are found not to be in compliance with the requirements of this Agreement or the related Purchase Commitment.

 

(xi)                    If, after giving effect to a new Warehousing Advance against a Pledged Loan or to the payment of existing Warehousing Advances against Pledged Loans, any of the limitations set forth in Exhibit D have been exceeded.

 

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3.3(d)                          In addition to the payments required by Sections 3.3(a) and 3.3(c), if the principal amount of any Pledged Loan is prepaid in whole or in part while a Warehousing Advance is outstanding against the Pledged Loan, Borrower must pay to Administrative Agent, without the necessity of prior demand or Notice from the Administrative Agent, and Borrower authorizes the Administrative Agent to charge its Operating Accounts for, the amount of the prepayment, to be applied against the Warehousing Advance.

 

3.3(e)                           The proceeds of the sale or other disposition of any Pledged Loan or Pledged Security must be paid directly by the Investor to Borrower’s Cash Collateral Account.  Borrower must give Notice to the Administrative Agent in writing of the Pledged Loan or Pledged Security for which proceeds have been received (including Notice to the Administrative Agent in writing of any prepayment).  Upon receipt of such Notice, the Administrative Agent will apply any proceeds deposited into the applicable Cash Collateral Account to the payment of the Warehousing Advances related to the Pledged Loan or Pledged Security identified by Borrower in its Notice, and such Pledged Loan or Pledged Security will be considered to have been redeemed from pledge to the extent the related Warehousing Advance has been paid in full.  The Administrative Agent is entitled to rely upon a Borrower’s affirmation that deposits in the applicable Cash Collateral Account represent payments from Investors for the purchase of the Pledged Loan or Pledged Security specified by Borrower in its Notice.  If the payment from an Investor for the purchase of a Pledged Loan or Pledged Security is less than the outstanding Warehousing Advances against such Pledged Loan or Pledged Security identified by Borrower in its Notice, Borrower must pay to the Administrative Agent, and Borrower authorizes the Administrative Agent to charge Borrower’s Operating Accounts for, an amount equal to that deficiency.  As long as no Default or Event of Default exists, the Administrative Agent will return to Borrower any excess payment from an Investor for such Pledged Loan or Pledged Security.

 

3.3(f)                            The Administrative Agent reserves the right at any time to revalue any Pledged Loan or Pledged Security.  Borrower must pay to the Administrative Agent, without the necessity of prior demand or Notice from the Administrative Agent, and Borrower authorizes the Administrative Agent to charge Borrower’s Operating Accounts for, any amount required after any such revaluation to reduce the principal amount of the Warehousing Advance outstanding against the revalued Pledged Loan or Pledged Security to an amount equal to the Advance Rate for the applicable type of Pledged Loan or Pledged Security multiplied by the Fair Market Value of the Pledged Loan or Pledged Security.

 

3.4                               Facility Fee

 

Borrower shall pay to the Administrative Agent, on behalf of the Lenders, an annual facility fee in an amount equal to two-tenths of one percent (.2%) of the Warehousing Credit Limit (the “Facility Fee”), to be paid quarterly in arrears, commencing on the first Business Day of each Calendar Quarter following the Closing Date during the term of the Loan.  The Facility Fee shall be paid by the Administrative Agent to the Lenders in proportion to each Lender’s Ratable Share; provided, however, that the Facility Fee shall not be payable to a Defaulting Lender.

 

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3.5                               Administrative Fee

 

In connection with each Warehousing Advance, Borrower shall pay to the Administrative Agent, an administrative fee in an amount to be agreed upon between Borrower and Administrative Agent.

 

3.6                               Miscellaneous Fees and Charges

 

Borrower must pay or reimburse the Administrative Agent, as applicable, for all Miscellaneous Fees and Charges.  Borrower must pay all Miscellaneous Fees and Charges within five (5) Business Days after the date of the Administrative Agent’s notice thereof.

 

3.7                               Overdraft Advances

 

If, under the authorization given by Borrower pursuant to this Agreement, the Administrative Agent debits Borrower’s Operating Account to honor an item presented against an Operating Account and that debit or direction results in an overdraft, the Administrative Agent may make an additional advance to fund that overdraft (without seeking a Ratable Share of such advance from each Lender) (“Overdraft Advance”).  Borrower must pay (a) the outstanding amount of any Overdraft Advance, within three (3) Business Days after the date of the Overdraft Advance, and (b) interest on the amount of the Overdraft Advance, at a rate per annum equal to the Applicable Rate plus Two percent (2%), within three (3) Business Days after the date of the Administrative Agent’s notice thereof.

 

3.8                               Method of Making Payments

 

3.8(a)                          (i)                           All payments of interest, principal and fees shall be made in lawful money of the United States in immediately available funds, without counterclaim or setoff and free and clear of, and without any deduction or withholding for, any taxes or other payments by wire transfer to Administrative Agent, or as otherwise provided in this Agreement.  Payments shall be credited on the Business Day on which immediately available funds are received prior to Three O’clock (3:00) p.m.; payments received after Three O’Clock (3:00) p.m. shall be credited on the next Business Day.  All payments (regardless of whether such payment is sufficient to pay fully all Obligations then due and payable) shall be applied (A) first to the payment of all fees, expenses, and other amounts due to Administrative Agent (excluding principal and interest), then (B) second to the payment of all fees, expenses and other amounts due to Lenders (excluding principal and interest), distributed ratably on the basis of each Lender’s Ratable Share, then (C) third to accrued interest, distributed ratably among the Lenders entitled thereto based on their Ratable Share, and then (D) fourth to outstanding principal, distributed ratably among the Lenders entitled thereto based on their Ratable Share.  If the due date is not a Business Day, payment is due on, and interest will accrue to, the next Business Day.

 

(ii)                        All distributions from Administrative Agent to each Lender shall be made by the Administrative Agent’s initiating a federal funds wire by 4:00 p.m. on the Business Day when such funds were received as provided in Section 3.8(a)(i) above, in immediately available funds, directly to such account designated by each Lender in writing.  If Administrative Agent shall fail or refuse to initiate such wire by 5:00 p.m. or provide

 

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Lender(s) with a federal wire reference number on the same Business Day as the payment was received, then, as agreed full and adequate compensation therefor, Administrative Agent shall pay the affected Lender(s) interest on the undistributed funds at the Federal Funds Open Rate.

 

3.8(b)                          Subject to Section 3.8(c) below, Borrower authorizes the Administrative Agent to charge Borrower’s Operating Accounts for any interest or fees due and payable to Administrative Agent after giving at least two (2) Business Days’ Notice to Borrower.

 

3.8(c)                           While a Default or Event of Default exists, Borrower authorizes the Administrative Agent to charge Borrower’s Operating Accounts for any Obligations due and payable to the Administrative Agent, without the necessity of prior demand or Notice from the Administrative Agent.

 

3.8(d)                          All payments made on account of the Obligations shall be made by Borrower to the Administrative Agent.  No principal payments resulting from the refinancing, sale or other disposition of Pledged Loans or Pledged Securities shall be deemed to have been received by the Administrative Agent until the Administrative Agent has also received the Notice required under Section 3.3(e).

 

3.9                               Billings

 

Any changes in the interest rate and in the outstanding amount of the Obligations which occur between the date of any billing and the due date of any payment may be reflected in adjustments in the billing for a subsequent month.  Neither the failure of the Administrative Agent to submit a bill, nor any error in any such bill shall excuse Borrower from the obligation to make full payment of all Borrower’s payment obligations when due.

 

3.10                        Late Charges

 

Borrower shall pay, upon billing therefor, a “Late Charge” equal to three percent (3%) of the amount of any payment of principal (other than principal due at the Warehousing Maturity Date or the date on which the Administrative Agent accelerates the time for payment of the Loan after the occurrence of an Event of Default), interest, or fees, which fees are not paid within ten (10) days of the due date thereof.  Late Charges are: (a) payable in addition to, and not in limitation of, the Default Rate; (b) intended to compensate the Administrative Agent for administrative and processing costs incident to late payments; (c) not interest; and (d) not subject to refund or rebate or credit against any other amount due.

 

3.11                        Additional Provisions Relating to Interest Rate

 

3.11(a)                   If any Recipient has determined, after the date hereof, that the adoption or the becoming effective of, or any change in, or any change by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof in the interpretation or administration of, any applicable law, rule or regulation regarding capital adequacy, or compliance by such Recipient with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing

 

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the rate of return such Recipient’s capital or assets as a consequence of its commitments or obligations hereunder to a level below that which such Recipient could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration such Recipient’s policies with respect to capital adequacy), then, upon notice from such Recipient to Borrower and delivery by such Recipient of a statement setting forth the reduction in the rate of return experienced by such Recipient and the amount necessary to compensate such Recipient under this Section 3.11(a), Borrower shall be obligated to pay to such Recipient such additional amount or amounts as will compensate such Recipient for such reduction.  Each determination by such Recipient of amounts owing under this Section shall, absent manifest error, be conclusive and binding on the parties hereto.

 

3.11(b)                   If Administrative Agent determines (which determination shall be conclusive) that (i) by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Applicable Daily Floating LIBO Rate for any day; or (ii) the Daily LIBO Rate will not adequately and fairly reflect the cost to Lenders of funding (including maintaining) Warehousing Advances, then Administrative Agent shall give Borrower prompt notice thereof, and, so long as such condition remains in effect, the Loan (and all outstanding and future Warehousing Advances under the Loan) shall bear interest at the Applicable Base Rate.

 

3.11(c)                    Any and all payments by Borrower to or for the account of Lenders hereunder shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding taxes imposed on each Lender’s income, and franchise taxes imposed on it, by the jurisdiction under the laws of which each Lender is organized or any political subdivision thereof (all such non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings, and liabilities being hereinafter referred to as “Taxes”).  If Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable under this Agreement to Administrative Agent or any Lender, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.11(c)) Administrative Agent or such Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrower shall make such deductions, (iii) Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law, and (iv) Borrower shall furnish to the Administrative Agent the original or a certified copy of a receipt evidencing payment thereof.

 

3.11(d)                   Borrower also agrees to pay any and all present or future stamp or documentary taxes and any other excise or property taxes or charges or similar levies which arise from any payment made under this Agreement or from the execution or delivery of, or otherwise with respect to, this Agreement (hereinafter referred to as “Other Taxes”).  Further, if Borrower shall be required to deduct or pay any Taxes or Other Taxes from or in respect of any sum payable under this Agreement to Administrative Agent or Lenders, Borrower shall also pay to Administrative Agent, at the time interest is paid, such additional amount that Administrative Agent specifies is necessary to preserve the after-

 

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tax yield (after factoring in all taxes, including taxes imposed on or measured by net income) that Administrative Agent or Lenders would have received if such Taxes or Other Taxes had not been imposed.

 

3.11(e)                    Borrower agrees to indemnify the Administrative Agent and Lenders for (i) the full amount of Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 3.11) paid by any of them and any liability (including penalties, interest, and expenses) arising therefrom or with respect thereto; (ii) any other amounts payable under Section 3.11; and (iii) any liability (including additions to tax, penalties, interest and expenses) arising therefrom or with respect thereto, in each case whether or not such Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority.  Payment under this Section 3.11(e) shall be made within 30 days after the date that the Administrative Agent makes a demand therefor.

 

3.11(f)                     In the event that Borrower is required to pay or withhold any amount pursuant to Sections 3.11(c), 3.11(d), or 3.11(e), which results in Borrower paying more than would have been the case without regard to such Sections (an “Excess Payment”), Borrower shall have the option to terminate the Warehousing Commitment in its entirety (but not in part) and this Agreement (other than as to those provisions which by their terms survive the termination of this Agreement), by giving Notice to the Administrative Agent specifying the effective date of such termination, which Notice may be given no earlier than three (3) Business Days after making an Excess Payment and no later than thirty (30) days after making an Excess Payment.  Upon the effective date of the termination of this Agreement by Borrower pursuant to this Section, Borrower shall pay all of the Obligations in full.

 

3.11(g)                    Notwithstanding anything to the contrary contained elsewhere in this Agreement, if (x) any change in law shall make it unlawful for Lenders to make Warehousing Advances as LIBOR Loans, or to maintain outstanding Warehousing Advances as LIBOR Loans or to give effect to its obligations as contemplated hereby with respect to the Loan or any particular Warehousing Advance as a LIBOR Loan or (y) at any time Administrative Agent reasonably determines that the making or continuance of LIBOR Loans has become impracticable as a result of a contingency occurring after the date hereof which adversely affects the London interbank market, the Administrative Agent may, by written notice to Borrower (i) declare that LIBOR Loans will not thereafter be made by any Lender hereunder, whereupon all subsequent Warehousing Advances will be made as Base Rate Loans unless such declaration shall be subsequently withdrawn; and/or (ii) require that any then outstanding Warehousing Advances be converted to Base Rate Loans (and thereby bear interest at the Applicable Base Rate), as of the effective date of such notice.

 

3.12                        Continuing Authority of Authorized Representatives

 

The Administrative Agent and Lenders are authorized to rely upon the continuing authority of the Persons hereafter designated by Borrower (“Authorized Representatives”) to bind Borrower with respect to all matters pertaining to the Loan and the Loan Documents, including, but not

 

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limited to, the submission of requests for Warehousing Advances, and certificates with regard thereto, instructions with regard to the Operating Accounts and, to the extent permitted under this Agreement, the Collateral, and matters pertaining to the procedures and documentation for Warehousing Advances.  Such authorization may be changed only upon written notice to Administrative Agent accompanied by evidence, reasonably satisfactory to Administrative Agent, of the authority of the person giving such notice and such notice shall be effective not sooner than five (5) Business Days following receipt thereof by Administrative Agent.  The Authorized Representatives as of the Closing Date are listed on Exhibit E.  Administrative Agent shall have a right of approval, not to be unreasonably withheld or delayed, over the identity of the Authorized Representatives so as to assure Administrative Agent that each Authorized Representative is a responsible and senior official of Borrower.

 

4.                                      COLLATERAL

 

4.1                               Grant of Security Interest

 

As security for the payment of its obligations under the Warehousing Note and for the payment and performance of all of the Obligations, Borrower grants a security interest to Administrative Agent, as agent for of each Lender, in all of Borrower’s right, title and interest in and to the following described property, whether now owned or whether acquired or arising after the date of this Agreement (“Collateral”):

 

4.1(a)                          All amounts advanced by Administrative Agent or any Lender to or for the account of Borrower under this Agreement to fund a Mortgage Loan until that Mortgage Loan is closed and those funds disbursed.

 

4.1(b)                          All Mortgage Loans, including all Mortgage Notes, Mortgages and Security Agreements evidencing or securing those Mortgage Loans, that are delivered or caused to be delivered to Administrative Agent (including delivery to a third party on behalf of Administrative Agent), or that otherwise come into the possession, custody or control of Administrative Agent (including the possession, custody or control of a third party on behalf of Administrative Agent), in each case in respect of which Administrative Agent or any Lender has made a Warehousing Advance under this Agreement (collectively, “Pledged Loans”).

 

4.1(c)                           All Mortgage-backed Securities that are created in whole or in part on the basis of Pledged Loans or that are delivered or caused to be delivered to Administrative Agent or that otherwise come into the possession, custody or control of Administrative Agent, or its agent, bailee or custodian as assignee, or that are pledged to Administrative Agent or, for such purpose are registered by book-entry in the name of Administrative Agent (including registration in the name of a third party on behalf of Administrative Agent), in each case in respect of which a Warehousing Advance has been made by Administrative Agent or any Lender under this Agreement (collectively, “Pledged Securities”).

 

4.1(d)                          All private mortgage insurance and all commitments issued by the FHA to insure or guarantee any Pledged Loan; all Purchase Commitments held by Borrower covering

 

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Pledged Loans or Pledged Securities, and all proceeds from the sale of Pledged Loans or Pledged Securities to Investors pursuant to those Purchase Commitments; and all personal property, contract rights, servicing rights or contracts and servicing fees and income or other proceeds, amounts and payments payable to Borrower as compensation or reimbursement, accounts, payments, intangibles and general intangibles of every kind relating to Pledged Loans, Pledged Securities, Purchase Commitments, FHA commitments and private mortgage insurance and commitments relating to Pledged Loans and Pledged Securities, and all other documents or instruments relating to Pledged Loans and Pledged Securities, including any interest of Borrower in any fire, casualty or hazard insurance policies and any awards made by any public body or decreed by any court of competent jurisdiction for a taking or for degradation of value in any eminent domain proceeding as the same relate to Pledged Loans.

 

4.1(e)                           All escrow accounts, documents, instruments, files, surveys, certificates, correspondence, appraisals, computer programs, tapes, discs, cards, accounting records (including all information, records, tapes, data, programs, discs and cards) necessary or helpful in the administration or servicing of the Collateral) and other information and data of Borrower relating to the Collateral.

 

4.1(f)                            The Operating Accounts, the Cash Collateral Accounts, and all cash, whether now existing or acquired after the date of this Agreement, delivered to or otherwise in the possession of Administrative Agent, or Administrative Agent’s agent, bailee or custodian or designated on the books and records of Borrower as assigned and pledged to Administrative Agent, including all cash deposited in the Cash Collateral Account.

 

4.1(g)                           All Hedging Arrangements related to the Collateral (“Pledged Hedging Arrangements”) and Borrower’s accounts in which those Hedging Arrangements are held (“Pledged Hedging Accounts”), including all rights to payment arising under the Pledged Hedging Arrangements and the Pledged Hedging Accounts, except that Administrative Agent’s security interest in the Pledged Hedging Arrangements and Pledged Hedging Accounts applies only to benefits, including rights to payment, related to the Collateral.

 

4.1(h)                          All cash and non-cash proceeds of the Collateral, including all dividends, distributions and other rights in connection with, and all additions to, modifications of and replacements for, the Collateral, and all products and proceeds of the Collateral, together with whatever is receivable or received when the Collateral or proceeds of Collateral are sold, collected, exchanged or otherwise disposed of, whether such disposition is voluntary or involuntary, including all rights to payment with respect to any cause of action affecting or relating to the Collateral or proceeds of Collateral.

 

4.2                               Maintenance of Collateral Records

 

As long as the Warehousing Commitment is outstanding or there remain any Obligations to be paid or performed under this Agreement or under any other Loan Document, Borrower must preserve and maintain, at its chief executive office and principal place of business or in a regional office approved by Administrative Agent, and, promptly upon request, make available to Administrative Agent the originals, or copies in any case where the originals have been

 

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delivered to Administrative Agent or to an Investor, of the Mortgage Notes, Mortgages and Security Agreements included in Pledged Loans, Mortgage-backed Securities delivered to Administrative Agent as Pledged Securities, Purchase Commitments, and all related Mortgage Loan documents and instruments, and all files, surveys, certificates, correspondence, appraisals, computer programs, tapes, discs, cards, accounting records and other information and data relating to the Collateral.

 

4.3                               Release of Security Interest in Pledged Loans and Pledged Securities

 

4.3(a)                          Except as provided in Section 4.3(b), Administrative Agent will release its security interest in a Pledged Loan and all of the Collateral related to such Pledged Loan, as such Collateral is described in Section 4.1, only against payment to Administrative Agent of the Release Amount in connection with such Pledged Loan.  If a Pledged Loan is transferred to a pool custodian or an Investor for inclusion in a Mortgage Pool and Administrative Agent’s security interest in such Pledged Loan and all of the Collateral related to the Pledged Loan, as such Collateral is described in Section 4.1 is not released before the issuance of the related Mortgage-backed Security, then that Mortgage-backed Security, when issued, is a Pledged Security, Administrative Agent’s security interest continues in such Pledged Loan and all of the Collateral related to such Pledged Loan, as such Collateral is described in Section 4.1, backing that Pledged Security and Administrative Agent is entitled to possession of the Pledged Security in the manner provided in this Agreement.

 

4.3(b)                          If a Pledged Loan is transferred to an Approved Custodian and included in an Eligible Mortgage Pool, Administrative Agent’s security interest in such Pledged Loan and all of the Collateral related to such Pledged Loan, as such Collateral is described in Section 4.1, included in the Eligible Mortgage Pool will be released upon the delivery of the Agency Security to Administrative Agent (including delivery to or registration in the name of a third party on behalf of Administrative Agent) and that Agency Security is a Pledged Security.  Administrative Agent’s security interest in that Pledged Security will be released only against payment to Administrative Agent of the Release Amount in connection with the Mortgage Loans backing that Pledged Security.

 

4.3(c)                           Administrative Agent has the exclusive right to possession of all Pledged Securities or, if Pledged Securities are issued in book-entry form or issued in certificated form and delivered to a clearing corporation (as that term is defined in the Uniform Commercial Code of Pennsylvania) or its nominee, Administrative Agent has the right to have the Pledged Securities registered in the name of a securities intermediary (as that term is defined in the Uniform Commercial Code of Pennsylvania) in an account containing only customer securities and credited to an account of Administrative Agent.  Administrative Agent has no duty or obligation to deliver Pledged Securities to an Investor or to credit Pledged Securities to the account of an Investor or an Investor’s designee except against payment for those Pledged Securities.  Borrower acknowledges that Administrative Agent may enter into one or more standing arrangements with securities intermediaries with respect to Pledged Securities issued in book entry form or issued in certificated form and delivered to a clearing corporation or its designee, under which the Pledged Securities are registered in the name of the securities intermediary,

 

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and Borrower agrees, upon request of Administrative Agent, to execute and deliver to those securities intermediaries their respective written concurrence in any such standing arrangements.

 

4.3(d)                          If no Default or Event of Default occurs (or, if a Default or Event of Default has occurred, such Default or Event of Default has been cured or waived), Borrower may redeem a Pledged Loan and all of the Collateral related to a Pledged Loan, as such Collateral is described in Section 4.1, or Pledged Security from Administrative Agent’s security interest by notifying Administrative Agent of its intention to redeem the Pledged Loan or Pledged Security from pledge and paying, or causing an Investor to pay, to Administrative Agent, for application as a prepayment on the principal balance of the Warehousing Note, the Release Amount in connection with such Pledged Loan or the Pledged Loans backing that Pledged Security.

 

4.3(e)                           After a Default or Event of Default occurs, Administrative Agent may, with no liability to Borrower or any other Person, continue to release its security interest in any Pledged Loan and all of the Collateral related to such Pledged Loan, as such Collateral is described in Section 4.1, or Pledged Security against payment of the Release Amount for such Pledged Loan or for the Pledged Loans backing that Pledged Security.

 

4.3(f)                            The amount to be paid by Borrower to obtain the release of Administrative Agent’s security interest in a Pledged Loan and all of the Collateral related to such Pledged Loan, as such Collateral is described in Section 4.1 (“Release Amount”) will be (1) in connection with the sale of a Pledged Loan by Administrative Agent while an Event of Default exists, the amount paid to Administrative Agent in a commercially reasonable disposition of that Pledged Loan and (2) otherwise, the principal amount of the Warehousing Advance outstanding against the Pledged Loan together with all accrued and unpaid interest thereon.

 

4.4                               Collection and Servicing Rights

 

4.4(a)                          If no Event of Default exists, Borrower may service and receive and collect directly all sums payable to Borrower in respect of the Collateral other than proceeds of any Purchase Commitment or proceeds of the sale of any Collateral.  All proceeds of any Purchase Commitment or any other sale of Collateral must be paid directly to the Cash Collateral Account for application as provided in this Agreement.

 

4.4(b)                          After an Event of Default occurs and remains continuing, Administrative Agent or its designee is entitled to service and receive and collect all sums payable to Borrower in respect of the Collateral, and in such case, subject to any applicable requirements of the relevant Federal Agency, (1) Administrative Agent or its designee in its discretion may, in its own name, in the name of Borrower or otherwise, demand, sue for, collect or receive any money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but Administrative Agent has no obligation to do so, (2) Borrower must, if Administrative Agent requests it to do so, hold in trust for the benefit of Administrative Agent and immediately pay to Administrative Agent at its office designated by Notice, all amounts received by Borrower upon or in respect of any

 

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of the Collateral, advising Administrative Agent as to the source of those funds, and (3) all amounts so received and collected by Administrative Agent will be held by it as part of the Collateral and applied by Administrative Agent as provided in this Agreement.

 

4.5                               Return of Collateral at End of Warehousing Commitment

 

If (a) the Warehousing Commitment has expired or has been terminated, and (b) no Warehousing Advances, interest or other Obligations are outstanding and unpaid, Administrative Agent will release its security interest and will deliver all Collateral in its possession to Borrower at Borrower’s expense.  Borrower’s acknowledgement or receipt for any Collateral released or delivered to Borrower under any provision of this Agreement is a complete and full acquittance for the Collateral so returned, and the Administrative Agent is discharged from any liability or responsibility for that Collateral.

 

4.6                               Delivery of Collateral Documents

 

4.6(a)                          The Administrative Agent may deliver documents relating to the Collateral to Borrower for correction or completion under a Trust Receipt.

 

4.6(b)                          If no Default or Event of Default exists, upon delivery by Borrower to Administrative Agent of shipping instructions pursuant to the applicable Exhibit B, Administrative Agent will deliver the Mortgage Notes evidencing Pledged Loans or Pledged Securities together with all related loan documents and pool documents previously received by Administrative Agent under the requirements of the applicable Exhibit B to the designated Investor or Approved Custodian or to another party designated by Borrower and acceptable to Administrative Agent in its sole discretion.

 

4.6(c)                           If a Default or Event of Default exists, Administrative Agent may, without liability to Borrower or any other Person, continue to deliver Pledged Loans or Pledged Securities, together with all related loan documents and pool documents in Administrative Agent’s possession, to the applicable Investor or Approved Custodian or to another party acceptable to Administrative Agent in its sole discretion.

 

4.7                               Borrower Remains Liable

 

Anything herein to the contrary notwithstanding, Borrower shall remain liable under each item of the Collateral granted by it to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms thereof and any other agreement giving rise thereto, and in accordance with and pursuant to the terms and provisions thereof.  Whether or not the Administrative Agent has exercised any rights in any of the Collateral, the Administrative Agent shall not have any obligation or liability (other than for gross negligence or willful misconduct) under any of the Collateral (or any agreement giving rise thereto) by reason of or arising out of this Agreement or the receipt by the Administrative Agent of any payment relating thereto, nor shall the Administrative Agent be obligated in any manner to perform any of the obligations of Borrower under or pursuant to any of the Collateral (or any agreement giving rise thereto) to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any of the Collateral (or any agreement giving rise thereto), to present or file any

 

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claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times.

 

5.                                      CONDITIONS PRECEDENT

 

5.1                               Initial Advance

 

The effectiveness of this Agreement is subject to the satisfaction, in the sole discretion of Administrative Agent, of the following conditions precedent:

 

5.1(a)                          Administrative Agent must receive the following, all of which must be satisfactory in form and content to Administrative Agent, in its sole discretion:

 

(i)                           The Warehousing Notes, this Agreement and any other Loan Document, duly executed by Borrower and/or Parent, as applicable.

 

(ii)                        Each Loan Party’s organizational documents, certified as true and complete by an appropriate officer or other Person.

 

(iii)                     Certificates of legal existence and good standing from the Secretary of State of Delaware for each Loan Party, dated within thirty (30) days of the date of this Agreement.

 

(iv)                    Such certificates of resolutions or other action, incumbency certificates and/or other certificates of responsible officers of each Loan Party as Administrative Agent may require evidencing (A) the authority of each Loan Party to enter into this Agreement and the other Loan Documents and (B) the identity, authority and capacity of each Authorized Representative thereof authorized to act as an Authorized Representative in connection with this Agreement and the other Loan Documents.

 

(v)                       Uniform Commercial Code, tax lien and judgment searches of the appropriate public records for Borrower that do not disclose the existence of any Lien on the Collateral other than in favor of Administrative Agent.

 

(vi)                    Copies of Borrower’s errors and omissions insurance policy or mortgage impairment insurance policy, and blanket bond coverage policy, or certificates in lieu of policies, showing compliance by Borrower as of the date of this Agreement with the related provisions of Section 7.9.

 

(vii)                 An opinion from counsel for the Loan Parties in form and substance satisfactory to Administrative Agent concerning, among other matters (i) the legal existence, good standing and qualification to do business of each Loan Party, (ii) the power and authority of each Loan Party to enter into and perform the Loan Documents, (iv) the authorization of the individuals executing and delivering Loan Documents on behalf of each Loan Party to do so, (v) the enforceability of each Loan Party’s obligations under the Loan Documents, (vi) the absence of any pending or threatened material litigation against Borrower, (vii) the validity and perfection of

 

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the Administrative Agent’s security interest in the Collateral, (viii) the non-contravention of each Loan Party’s obligations under the Loan Documents, under each Loan Party’s charter documents or under any material agreements or legal proceedings to which it is a party or by which it is bound, and (ix) such other matters as Administrative Agent reasonably shall request consistent with loan facilities similar to the loan facility established by this Agreement.  Such opinion shall be addressed to Administrative Agent and the Lenders and their permitted successors and assigns.

 

(viii)              Such financial statements and other information as Administrative Agent shall have reasonably requested.

 

(ix)                    Such other documents as Administrative Agent reasonably may require, duly executed and delivered, and evidence satisfactory to Administrative Agent of the occurrence of any further conditions precedent to the closing of the credit facility established hereby.

 

5.1(b)                          Administrative Agent shall have filed Uniform Commercial Code financing statements in such jurisdictions as Administrative Agent shall have determined to be appropriate in order to perfect the security interest in the Collateral granted by Borrower pursuant to this Agreement or any other Loan Document.

 

5.1(c)                           Borrower shall have (i) paid to the Administrative Agent and the Lenders, as applicable, all amounts due as of the Closing Date, and (ii) paid or reimbursed the Administrative Agent and each Lender, as applicable, for all its attorneys’ fees and expenses incurred in connection with this Agreement and the other Loan Documents.

 

5.2                               Each Advance

 

The effectiveness of this Agreement, including each Lender’s obligation to make Warehousing Advances is subject to the satisfaction, in the sole discretion of Administrative Agent, as of the date of each Warehousing Advance, of the following additional conditions precedent:

 

5.2(a)                          Borrower must have delivered to Administrative Agent the Warehousing Advance Request and the Collateral Documents required by, and must have satisfied the procedures and substantive requirements set forth in, Article 2 and the Exhibits described in that Article.  All items delivered to Administrative Agent must be satisfactory to Administrative Agent in form and content, and Administrative Agent may reject any item that does not satisfy the requirements of this Agreement or the applicable Purchase Commitment.  Confirmation of the date of the requested Warehousing Advance will constitute a representation by Borrower that all necessary actions have been taken to qualify the Mortgage Loan for purchase by the Investor and that the borrowing hereunder is permitted by Investor regulations.

 

5.2(b)                          Administrative Agent must have received evidence satisfactory to it as to the making or continuation of any book entry or the due filing and recording in all appropriate offices of all financing statements and other instruments necessary to perfect the security

 

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interest of Administrative Agent in the Collateral under the Uniform Commercial Code or other applicable law.

 

5.2(c)                           The representations and warranties of Borrower contained in Article 6 and Article 9 must be accurate and complete in all material respects as if made on and as of the date of each Warehousing Advance.

 

5.2(d)                          Borrower must have performed all agreements to be performed by them under this Agreement, and after giving effect to the requested Warehousing Advance, no Default or Event of Default will exist under this Agreement.

 

5.2(e)                           There shall not have been any material adverse change in the financial condition, business, or affairs of Borrower since the date of this Agreement which in Administrative Agent’s good faith judgment may jeopardize in a material manner the ability of Borrower to perform fully its obligations under each applicable Loan Document.

 

5.2(f)                            Administrative Agent shall have received and approved such other documents, and certificates as Administrative Agent reasonably may request (including without limitation the documents to be executed by the Mortgagor and Borrower), in form and substance reasonably satisfactory to Administrative Agent.

 

5.2(g)                           Prior to any Warehousing Advance being made against any otherwise Eligible Loan, Borrower shall have provided to Administrative Agent copies of all documents, agreements and other materials and information concerning Borrower’s status as an originator and seller of such type of Mortgage Loan for the applicable Federal Agency as Administrative Agent may require.

 

Delivery of a Warehousing Advance Request by Borrower will be deemed a representation by Borrower that all conditions set forth in this Section have been satisfied as of the date of the Warehousing Advance.

 

5.3                               Force Majeure

 

Notwithstanding Borrower’s satisfaction of the conditions set forth in this Agreement, no Lender has any obligation to make a Warehousing Advance if Administrative Agent or any Lender is prevented from obtaining the funds necessary to make a Warehousing Advance, or is otherwise prevented from making a Warehousing Advance as a result of any fire, flood or other casualty, failure of power, strike, lockout or other labor trouble, banking moratorium, embargo, sabotage, confiscation, condemnation, riot, civil disturbance, insurrection, act of terrorism, war or other activity of armed forces, act of God or other similar reason beyond the control of Administrative Agent or any Lender.  Lenders will make the requested Warehousing Advance as soon as reasonably possible following the occurrence of such an event (provided that all applicable terms and conditions relating to such Warehousing Advance continue to be satisfied).

 

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6.                                      GENERAL REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants to the Administrative Agent and the Lenders, as of the date of this Agreement and as of the date of each Warehousing Advance Request and the making of each Warehousing Advance, that:

 

6.1                               Place of Business

 

Borrower’s chief executive office and principal place of business is 7501 Wisconsin Avenue, Suite 1200, Bethesda, Maryland 20814.

 

6.2                               Organization; Good Standing

 

Borrower is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, and has the full legal power and authority to own its property and to carry on its business as currently conducted.  Borrower is duly qualified as a limited liability company to do business and is in good standing in each jurisdiction in which the transaction of its business makes qualification necessary, except in jurisdictions, if any, where a failure to be in good standing has no material adverse effect on Borrower’s business, operations, assets or financial condition as a whole.  For the purposes of this Agreement, good standing includes qualification for all licenses and payment of all taxes required in the jurisdiction of its formation and in each jurisdiction in which Borrower transacts business.  Exhibit K hereto sets forth all foreign qualifications and mortgage lender and mortgage servicer licenses held by Borrower as of the date of this Agreement.

 

6.3                               Authorization and Enforceability

 

Borrower has the power and authority to execute, deliver and perform this Agreement, the Warehousing Note and the other Loan Documents and Borrower has the power and authority to obtain the Warehousing Advances under this Agreement.  The execution, delivery and performance by Borrower of this Agreement, the Warehousing Note and the other Loan Documents and the Warehousing Advances requested and made under this Agreement and the Warehousing Note have been duly and validly authorized by all necessary limited liability company action on the part of Borrower (which action has been modified or rescinded, and is in full force and effect) and does not and will not conflict with or violate any applicable provision of law, of any judgments binding upon Borrower, or the certificate of formation and limited liability company operating agreement of Borrower, conflict with or result in a breach of, constitute a default or require any consent under, or result in or require or allow the acceleration of any indebtedness of Borrower under any agreement, instrument or indenture to which it is a party or by which it or its property may be bound or affected, or result in the creation of any Lien upon any property or assets of Borrower (other than the Lien on the Collateral granted under this Agreement).  This Agreement, the Warehousing Note and the other Loan Documents constitutes the legal, valid and binding obligations of Borrower, enforceable in accordance with their respective terms, except that enforceability may be limited by bankruptcy, insolvency or other such laws affecting the enforcement of creditors’ rights and general principles of equity.

 

6.4                               Approvals

 

The execution and delivery of this Agreement, the Warehousing Note and the other Loan Documents and the performance of Borrower’s obligations under this Agreement, the

 

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Warehousing Note and the other Loan Documents and the validity and enforceability of this Agreement, the Warehousing Note and the other Loan Documents do not require any license, consent, approval or other action of any agency, commission, instrumentality or other regulatory body or authority (in each case, whether federal, state or local, domestic or foreign) other than those that have been obtained and remain in full force and effect or those with respect to which the failure to obtain may reasonably be expected to result in a material adverse change in Borrower’s business, operations, assets or financial conditions as a whole.

 

6.5                               Financial Condition

 

The balance sheet of Borrower as of December 31, 2012 for the twelve (12) month period then ended, and the related statements of income and cash flows furnished to Administrative Agent, fairly present the financial condition of Borrower as of such date and the results of its operations for the month and twelve (12) month period then ended.

 

6.6                               Litigation

 

Except as listed on Schedule 6.6, as of the date hereof, there are no actions, claims, suits or proceedings pending or, to Borrower’s knowledge, threatened or reasonably anticipated against or affecting Borrower in any court or before any arbitrator or before any agency, board, bureau, commission, instrumentality or other administrative or regulatory body (in each case, whether federal, state or local, domestic or foreign) that, if adversely determined, may reasonably be expected to result in a material adverse change in Borrower’s business, operations, assets or financial condition as a whole, or that would affect the validity or enforceability of this Agreement, the Warehousing Note or any other Loan Document.

 

6.7                               Compliance with Laws

 

Borrower is not in violation of any provision of any law, or of any judgment, award, rule, regulation, order, decree, writ or injunction of any court or public regulatory body or authority that could result in a material adverse change in Borrower’s business, operations, assets or financial condition as a whole or that would affect the validity or enforceability of this Agreement, the Warehousing Note or any other Loan Document.

 

6.8                               Regulation U

 

Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no part of the proceeds of any Warehousing Advance made under this Agreement will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock.

 

6.9                               Investment Company Act

 

Borrower is not an “investment company” or controlled by an “investment company” within the meaning of the Investment Company Act.

 

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6.10                        Payment of Taxes

 

Borrower has filed or caused to be filed all federal, state and local income, excise, property and other tax returns that are required to be filed with respect to the operations of Borrower, all such returns are true and correct and Borrower has paid or caused to be paid all taxes shown on those returns or on any assessment, to the extent that those taxes have become due, including all FICA payments and withholding taxes, if appropriate.  The amounts reserved as a liability for income and other taxes payable in the financial statements described in Section 6.5 are sufficient for payment of all unpaid federal, state and local income, excise, property and other taxes, whether or not disputed, of Borrower accrued for or applicable to the period and on the dates of those financial statements and all years and periods prior to those financial statements and for which Borrower may be liable in its own right or as transferee of the assets of, or as successor to, any other Person.  No tax Liens have been filed and no material claims are being asserted against Borrower or any property of Borrower with respect to any taxes, fees or charges.

 

6.11                        Agreements

 

Borrower is not a party to any agreement, instrument or indenture or subject to any restriction materially and adversely affecting its business, operations, assets or financial condition.  Borrower is not in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement, instrument, or indenture which default could result in a material adverse change in Borrower’s business, operations, assets or financial condition as a whole.  No holder of any indebtedness of Borrower has given notice of any asserted default under that indebtedness, and no liquidation or dissolution of Borrower and no receivership, insolvency, bankruptcy, reorganization or other similar proceedings relative to Borrower or any of its properties is pending or to the knowledge of Borrower threatened.

 

6.12                        Title to Properties

 

Borrower has good, valid, insurable and (in the case of real property) marketable title to all of its properties and assets (whether real or personal, tangible or intangible) reflected on the financial statements described in Section 6.5, except for those properties and assets that Borrower has disposed of since the date of those financial statements either in the ordinary course of business or because they were no longer used or useful in the conduct of Borrower’s business.  All of Borrower’s properties and assets are free and clear of all Liens except as disclosed in Borrower’s financial statements.

 

6.13                        ERISA

 

Each Plan is in compliance with all applicable requirements of ERISA and the Internal Revenue Code and with all material applicable rulings and regulations issued under the provisions of ERISA and the Internal Revenue Code setting forth those requirements, except where any failure to comply would not result in a material loss to Borrower or any ERISA Affiliate.  All of the minimum funding standards or other contribution obligations applicable to each Plan have been satisfied.  No Plan is a Multiemployer Plan or a defined-benefit pension plan subject to Title IV of ERISA.

 

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6.14                        No Retiree Benefits

 

Except as required under Section 4980B of the Internal Revenue Code, Section 601 of ERISA or applicable state law, Borrower is not obligated to provide post-retirement medical or insurance benefits with respect to employees or former employees.

 

6.15                        Assumed Names

 

Borrower does not originate Mortgage Loans or otherwise conduct business under any names other than its legal name and the assumed names set forth on Exhibit G.  Borrower has made all filings and taken all other action as may be required under the laws of any jurisdiction in which it originates Mortgage Loans or otherwise conducts business under any assumed name.  Borrower’s use of the assumed names set forth on Exhibit G does not conflict with any other Person’s legal rights to any such name, nor otherwise give rise to any liability by Borrower to any other Person.  Borrower may amend Exhibit G to add or delete any assumed names used by Borrower to conduct business.  An amendment to Exhibit G to add an assumed name is not effective until a Borrower has delivered to Administrative Agent an assumed name certificate in the jurisdictions in which the assumed name is to be used, which must be satisfactory in form and content to Administrative Agent in its sole discretion.  In connection with any amendment to delete a name from Exhibit G, Borrower represents and warrants that it has ceased using that assumed name in all jurisdictions.

 

6.16                        Servicing

 

Exhibit H is a true and complete list of Borrower’s Servicing Portfolio as of March 31, 2013.  All of the Servicing Contracts of Parent and all of its Affiliates, including, without limitation, Borrower, involving aggregate consideration paid to Borrower in an amount greater than or equal to Five Hundred Thousand Dollars ($500,000.00) for each of the two most recent fiscal years of Borrower are in full force and effect, and are unencumbered by Liens.  No event of default or event that, with notice or lapse of time or both, would become an event of default, exists under any of Borrower’s Servicing Contracts involving aggregate consideration paid to Borrower in an amount greater than or equal to Five Hundred Thousand Dollars ($500,000.00) for each of the two most recent fiscal years of Borrower.

 

6.17                        Foreign Asset Control Regulations.

 

Neither the making of the Warehousing Advances nor the use of the proceeds of any thereof (or any other Loan) will violate the Trading With the Enemy Act (50 U.S.C. § 1 et seq., as amended) (the “Trading With the Enemy Act”) or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) (the “Foreign Assets Control Regulations”) or any enabling legislation or executive order relating thereto (which for the avoidance of doubt shall include, but shall not be limited to (a) Executive Order 13224 of September 21, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)) (the “Executive Order”) and (b) the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56).  Furthermore, neither Borrower nor any of its affiliates (a) is or will become a “blocked person”

 

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as described in the Executive Order, the Trading With the Enemy Act or the Foreign Assets Control Regulations or (b) engages or will engage in any dealings or transactions, or be otherwise associated, with any such “blocked person.”

 

7.                                      AFFIRMATIVE COVENANTS

 

As long as the Warehousing Commitment is outstanding or there remain any Obligations to be paid or performed under this Agreement or under any other Loan Document, Borrower must, unless the Administrative Agent consents in writing:

 

7.1                               Payment of Obligations

 

Punctually pay or cause to be paid all Obligations, including the Obligations payable under this Agreement and the Warehousing Note in accordance with their terms.

 

7.2                               Financial Statements

 

Deliver to Administrative Agent, in form and detail reasonably satisfactory to Administrative Agent:

 

7.2(a)                          As soon as available and in any event within one hundred twenty (120) days after the end of each Fiscal Year of the Parent, audited consolidated, and consolidating with respect to Borrower, Fiscal Year-end statements of income and cash flows of the Parent for that year, and the related consolidated, and consolidating with respect to Borrower, audited balance sheet as of the end of that year (setting forth in comparative form the corresponding figures for the preceding Fiscal Year), all in reasonable detail and accompanied by (1) an opinion as to those financial statements in form and substance reasonably satisfactory to Administrative Agent and prepared by an independent  certified public accounting firm reasonably acceptable to Administrative Agent (it being acknowledged that KPMG LLP currently is an acceptable independent certified public accounting firm),  and (2) if then available or otherwise within fifteen (15) days of receipt by the Parent, any management letters, management reports or other supplementary comments or reports delivered by those accountants to the Parent;

 

7.2(b)                          As soon as available and in any event within sixty (60) days after the end of each Calendar Quarter of the Parent, including its last Calendar Quarter, consolidated, and consolidating with respect to Borrower, interim statements of income for that fiscal quarter and the period from the beginning of the Fiscal Year to end of that Calendar Quarter, and the related consolidated and consolidating balance sheet (including contingent liabilities) as at the end of that Calendar Quarter, all in reasonable detail, subject, however, to year-end audit adjustments; and

 

7.2(c)                           Together with each delivery of financial statements required by this Section, a Compliance Certificate substantially in the form of Exhibit I.

 

7.3                              Other Borrower Reports

 

Deliver to Administrative Agent:

 

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7.3(a)                          As soon as available and in any event within sixty (60) days after the end of each Calendar Quarter, a consolidated report (“Servicing Report”) as of the end of the Calendar Quarter, as to all Mortgage Loans the servicing rights to which are owned by the Parent or its Affiliates, and separately for Borrower (in each case, specified by investor type, recourse and non-recourse) regardless of whether the Mortgage Loans are Pledged Loans. The Servicing Report must be in similar summary form as previously presented to the Administrative Agent (or as the Administrative Agent otherwise may agree), and must, at a minimum, indicate which Mortgage Loans (1) are current and in good standing, (2) are more than thirty (30), sixty (60) or ninety (90) days past due, (3) are the subject of pending bankruptcy or foreclosure proceedings, or (4) have been converted (through foreclosure or other proceedings in lieu of foreclosure) into real estate owned by a member of the Parent’s consolidated group, and include, by Mortgage Loan type (x) weighted average coupon, (y) weighted average maturity, and (z) weighted average servicing fee.

 

7.3(b)                          As soon as available and in any event within sixty (60) days after the end of each calendar quarter, a loan production report as of the end of that quarter, presenting (i) the total dollar volume and the number of Mortgage Loans originated and closed or purchased during that quarter and for the fiscal year-to-date, specified by property type, loan type and (ii) as to any Mortgage Loans sold in such quarter, the Investor to whom each Mortgage Loan was sold.

 

7.3(c)                           As soon as available, but in any event at least sixty (60) days before the end of each Fiscal Year, preliminary forecasts prepared by management of Borrower, in form satisfactory to the Administrative Agent, of the balance sheets and statements of income or operations and cash flows of Borrower on a calendar quarterly basis for the immediately following Fiscal Year (including the fiscal year in which the Maturity Date occurs).

 

7.3(d)                          Other reports in respect of Pledged Loans or Pledged Securities, including, without limitation, copies of purchase confirmations issued by Investors purchasing Pledged Loans from Borrower, in such detail and at such times as Administrative Agent in its discretion may reasonably request.

 

7.3(e)                           With reasonable promptness, all further information regarding the business, operations, assets or financial condition of Borrower as Administrative Agent may reasonably request, including copies of any audits completed by Fannie Mae, FHA or Ginnie Mae.

 

7.3(f)                            As soon as available and in any event within thirty (30) days after the end of each Calendar Quarter, a report as of the end of such Calendar Quarter detailing all requests that Borrower repurchase Mortgage Loans and the status of each such request and any indemnification or similar agreement to which Borrower is a party in connection with any such request.

 

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7.4                               Maintenance of Existence; Conduct of Business

 

Preserve and maintain its existence as a limited liability company in good standing and all of its rights, privileges, licenses and franchises necessary or desirable in the normal conduct of its business, including its eligibility as lender, seller/servicer or issuer as described under Section 9.4; conduct its business in an orderly and efficient manner; maintain a net worth of acceptable assets as required for maintaining Borrower’s eligibility as lender, seller/servicer or issuer as described under Section 9.4; and make no material change in the nature or character of its business or engage in any business in which it was not engaged on the date of this Agreement.

 

7.5                               Compliance with Applicable Laws

 

Comply with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority, a breach of which could result in a material adverse change in Borrower’s business, operations, assets, or financial condition as a whole or on the enforceability of this Agreement, the Warehousing Note, any other Loan Document or any Collateral, except where contested in good faith and by appropriate proceedings.

 

7.6                               Inspection of Properties and Books; Operational Reviews

 

Permit Administrative Agent, any Lender, any Assignee or Participant (and their authorized representatives) to discuss the business, operations, assets and financial condition of Borrower with Borrower’s senior officers, and other management officials, agents and employees, and to examine and make copies or extracts of Borrower’s books of account, all at such reasonable times as Administrative Agent, any Lender, any Assignee or any Participant may request.  Provide their accountants with a copy of this Agreement promptly after its execution and authorize and instruct them to answer candidly all questions that the officers of Administrative Agent, any Lender, any Assignee or Participant or any authorized representatives thereof may address to them in reference to the financial condition or affairs of Borrower.  Borrower may have representatives in attendance at any meetings held between the officers or other representatives of Administrative Agent, any Lender, any Assignee or Participant and Borrower’s accountants under this authorization.  Permit Administrative Agent, any Lender, any Assignee or Participant (and their authorized representatives) access upon reasonable Notice and during normal business hours to Borrower’s premises and records for the purpose of conducting a review of Borrower’s general mortgage business methods, policies and procedures, auditing its loan files and reviewing the financial and operational aspects of Borrower’s business.

 

7.7                               Notice

 

Give prompt Notice to Administrative Agent of (a) any action, suit or proceeding instituted by or against Borrower in any federal or state court or before any agency, board, bureau, commission, instrumentality or other administrative or regulatory body (in each case, whether federal, state or local, domestic or foreign), which action, suit or proceeding has at issue in excess of One Million Dollars ($1,000,000.00) or any such proceedings threatened against Borrower in a writing containing the details of that action, suit or proceeding; (b) the filing, recording or assessment of any Lien for any federal, state or local taxes, assessments or other governmental charges against Borrower, any of its assets, other than a Lien for taxes, assessments or other governmental

 

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charges on real property securing or that previously secured an individual Mortgage Loan that is not a Pledged Loan; (c) the occurrence of a Default or an Event of Default; (d) the suspension, revocation or termination of Borrower’s eligibility, in any respect, as lender, seller/servicer or issuer as described under Section 9.4 or the suspension, revocation or termination of any other license or approval required for Borrower to engage in the business of originating, acquiring and, if applicable, servicing Mortgage Loans; (e) the imposition of any other adverse regulatory or administrative action or sanction on or against Borrower by any agency, board, bureau, commission, instrumentality or other administrative or regulatory body (in each case, whether federal, state or local, domestic or foreign) that could result in a material adverse change in Borrower’s business, operations, assets or financial condition as a whole or that could affect the validity or enforceability of any Pledged Loan or Pledged Security; (f) the transfer, loss, nonrenewal or termination of any Servicing Contracts to which Borrower is a party, or which is held for the benefit of Borrower, involving aggregate consideration paid to Borrower in an amount greater than or equal to Five Hundred Thousand Dollars ($500,000.00) for each of the two most recent fiscal years of Borrower, and the reason for that transfer, loss, nonrenewal or termination; (g) any Prohibited Transaction with respect to any Plan, specifying the nature of the Prohibited Transaction and what action Borrower or such Guarantor’s proposes to take with respect to it; and (h) any other action, event or condition of any nature that could lead to or result in a material adverse change in the business, operations, assets or financial condition of Borrower.

 

7.8                               Payment of Taxes and Other Obligations

 

Pay, perform and discharge, or cause to be paid, performed and discharged, all taxes, assessments and governmental charges or levies imposed upon Borrower or upon its income, receipts or properties before those taxes, assessments and governmental charges or levies become past due, and all lawful claims for labor, materials and supplies or otherwise that, if unpaid, could become a Lien or charge upon any of their respective properties or assets.  Borrower is not required to pay, however, any taxes, assessments and governmental charges or levies or claims for labor, materials or supplies for which Borrower has obtained an adequate bond or insurance or that are being contested in good faith and by proper proceedings that are being reasonably and diligently pursued and for which proper reserves have been created.

 

7.9                               Insurance

 

(a)                                 Maintain blanket bond coverage and errors and omissions insurance with such companies and in such amounts as satisfy prevailing requirements applicable to a lender, seller/servicer or issuer as described under Section 9.4, including all applicable Federal Agency insurance requirements, and liability, fire and other hazard insurance on its properties, in each case with responsible insurance companies acceptable to Administrative Agent, in such amounts and against such risks as is customarily carried by similar businesses operating in the same location.  Within thirty (30) days after Notice from Administrative Agent, obtain such additional insurance as Administrative Agent may reasonably require, all at the sole expense of Borrower.  Copies of such policies must be furnished to Administrative Agent without charge upon request of Administrative Agent.  Borrower agrees to use its best efforts to obtain and deliver to Administrative

 

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Agent a certificate issued by said insurers to the effect that they will use their best efforts to give Administrative Agent at least thirty (30) days prior written notification prior to cancellation of coverage under any such policy.

 

(b)                                 Maintain a fidelity bond of an incorporated surety company in an amount acceptable to the Administrative Agent and consistent with Borrower’s past practice securing protection and indemnity to Borrower against loss of any money or other property entrusted to Borrower or Borrower’s officers, employees or agents or coming into their control, caused by any dishonest, fraudulent or criminal act, direct or indirect, of Borrower or of its officers, employees or agents.  Borrower shall furnish a certificate evidencing such fidelity bond to Administrative Agent, upon request, and shall notify Administrative Agent if such fidelity bond coverage is decreased or exhausted.

 

7.10                        Closing Instructions

 

Indemnify and hold Administrative Agent and each Lender harmless from and against any loss, including reasonable attorneys’ fees and costs, attributable to the failure of any title insurance company, agent or attorney to comply with Borrower’s disbursement or instruction letter relating to any Mortgage Loan.  The Administrative Agent has the right to pre-approve Borrower’s choice of title insurance company, agent or attorney, unless already approved by a relevant Federal Agency, as applicable, and Borrower’s disbursement or instruction letter to them in any case in which Borrower intends to obtain a Warehousing Advance against the Mortgage Loan to be created at settlement or to pledge that Mortgage Loan as Collateral under this Agreement.

 

7.11                        Subordination of Certain Indebtedness

 

Cause any indebtedness of Borrower for borrowed money to any Affiliate or any member, shareholder, director or officer of any Affiliate of Borrower, to be subordinated to the Obligations by the execution and delivery to Administrative Agent of a Subordination of Debt Agreement, on the form prescribed by the Administrative Agent, certified by the corporate secretary of Borrower to be true and complete and in full force and effect.

 

7.12                        Other Loan Obligations

 

Perform all material obligations under the terms of each loan agreement, note, mortgage, security agreement or debt instrument by which Borrower is bound or to which any of its property is subject, and promptly notify the Administrative Agent in writing of a declared default under or the termination, cancellation, reduction or nonrenewal of any of its other lines of credit or agreements with any other lender.  Exhibit J is a true and complete list of all such revolving lines of credit or revolving credit agreements as of the date of this Agreement.

 

7.13                        ERISA

 

Maintain and cause each ERISA Affiliate to maintain each Plan in compliance with all material applicable requirements of ERISA and of the Internal Revenue Code and with all applicable rulings and regulations issued under the provisions of ERISA and of the Internal Revenue Code, and not, and not permit any ERISA Affiliate to, (a) engage in any transaction in connection with

 

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which Borrower or any ERISA Affiliate would be subject to either a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Internal Revenue Code, in either case in an amount exceeding Five Hundred Thousand Dollars ($500,000.00) or (b) fail to make full payment when due of all amounts that, under the provisions of any Plan, Borrower or any ERISA Affiliate is required to pay as contributions to that Plan, or permit to exist any accumulated funding deficiency (as such term is defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code), whether or not waived, with respect to any Plan in an aggregate amount exceeding Five Hundred Thousand Dollars ($500,000.00).

 

7.14                        Use of Proceeds of Warehousing Advances

 

Use the proceeds of each Warehousing Advance solely for the purpose of funding Eligible Loans and against the pledge of those Eligible Loans as Collateral.

 

7.15                        Investor Instructions.

 

Upon any Event of Default prior to purchase of a Mortgage Loan by the Investor, and upon direction by the Administrative Agent, Borrower shall immediately direct the Investor to provide any documents in its possession related to such Mortgage Loan to the Administrative Agent.

 

7.16                        Sale of Mortgage Loan to Investor.

 

Provide status reports of its efforts to sell each Mortgage Loan to the applicable Investor on the earlier of: (a) within five (5) days after Borrower becomes aware of any fact or circumstance that causes Borrower to believe that the Investor may not purchase the Mortgage Loan within sixty (60) days after the date of the related Warehousing Advance, in which case such status report shall include Borrower’s plan for repaying the Administrative Agent the amount of the Mortgage Loan, or (b) fifty-five (55) days after the date of the applicable Warehousing Advance.  In addition, if the Investor has not purchased, and Borrower has not repaid, the Mortgage Loan within fifty-five (55) days after the date of the related Warehousing Advance, Borrower shall immediately cause the Administrative Agent to be named as an additional insured under the property insurance policy covering the property which is collateral for the Mortgage Loan.

 

8.                                      NEGATIVE COVENANTS

 

As long as any Lender shall have any Warehousing Commitment or there remain any Obligations to be paid or performed, Borrower must not, either directly or indirectly, without the prior written consent of Administrative Agent and each Lender:

 

8.1                               [Intentionally Deleted]

 

8.2                               Contingent Liabilities

 

Assume, guarantee, endorse or otherwise become contingently liable for the obligation of any Person except (a) for the Acquisition Term Loan and obligations arising in connection therewith, (b) by endorsement of negotiable instruments for deposit or collection in the ordinary course of business and (c) for obligations arising in connection with the sale of Mortgage Loans in the ordinary course of a Borrower’s business.

 

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8.3                               Restrictions on Fundamental Changes

 

8.3(a)                          Reorganize, spin-off, consolidate with, merge with or into, or enter into any analogous reorganization or transaction with any Person except that WD Capital and ARA Finance each may merge with and into the Borrower.

 

8.3(b)                          Amend or otherwise modify Borrower’s certificate of formation or operating agreement in any manner which is materially adverse to Administrative Agent or any Lender.

 

8.3(c)                           Liquidate, wind up or dissolve (or suffer any liquidation or dissolution).

 

8.3(d)                          Make any material change in the nature or scope of the business in which Borrower engages as of the date of this Agreement and cease actively to engage in the business of originating or acquiring Mortgage Loans, or if applicable, servicing Mortgage Loans.

 

8.3(e)                           Sell, assign, lease, convey, transfer or otherwise dispose of (whether in one transaction or a series of transactions) all or any substantial part of Borrower’s business or assets, whether now owned or acquired after the Closing Date, other than, in the ordinary course of business and to the extent not otherwise prohibited by this Agreement, sales by Borrower of (1) Mortgage Loans, (2) Mortgage-backed Securities and (3) Servicing Contracts.

 

8.3(f)                            Acquire by purchase or in any other transaction all or substantially all of the business or property, or stock or other ownership interests of any Person.

 

8.3(g)                           Permit any Subsidiary of the Borrower or a Guarantor (other than WD Capital or ARA Finance) to do or take any of the foregoing actions.

 

8.4                               Subsidiaries

 

Form or acquire any Subsidiary of Borrower.

 

8.5                               Loss of Eligibility, Licenses or Approvals

 

Take any action, or fail or omit to take any action, that would (a) cause Borrower to lose all or any part of its status as an eligible lender, seller/servicer or issuer as described under Sections  9.4,  9.5,  9.6 or 9.7, or all or any part of any other license or approval required for Borrower to engage in the business of originating, acquiring and servicing Mortgage Loans or (b) result in the imposition of any other adverse regulatory or administrative action or sanction on or against Borrower by any agency board, bureau, commission, instrumentality or other administrative or regulatory body (in each case, whether federal, state or local, domestic or foreign) that could result in a material adverse change in Borrower’s business, operations, assets or financial condition as a whole or that could affect the validity or enforceability of any Pledged Loan.

 

8.6                               Accounting Changes

 

Make any significant change in accounting treatment or reporting practices, except as required by GAAP, or change its fiscal year.  If any changes in GAAP would result in any material

 

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deviation in the method of calculating and results of testing compliance with any financial covenant hereunder, such financial covenant shall continue to be calculated and tested as if such change in GAAP had not occurred, unless otherwise specifically agreed in writing by Administrative Agent after full disclosure by Borrower.

 

8.7                               Minimum Adjusted Tangible Net Worth

 

(a) Permit the Parent’s Tangible Net Worth shall at any time to be less than the sum of: (A) Two Hundred Million Dollars ($200,000,000.00), plus (B) an amount equal to seventy-five percent (75%) of the Net Proceeds of any Equity Issuances by the Parent or any Subsidiary occurring after the Closing Date, to be tested on the last day of each Calendar Quarter, or (ii) permit the Parent or any applicable Subsidiary to otherwise not be in compliance with applicable net worth requirements of HUD, Fannie Mae and Freddie Mac.

 

8.8                               [Intentionally Deleted]

 

8.9                               [Intentionally Deleted]

 

8.10                        [Intentionally Deleted]

 

8.11                        Minimum Cash and Cash Equivalents

 

Permit the Parent’s Liquid Assets, determined on a consolidated basis, at any time to be less than $15,000,000, or permit the Parent or any applicable Subsidiary otherwise not to be in compliance with applicable liquidity requirements of HUD, Fannie Mae and Freddie Mac.

 

8.12                        Servicing Delinquencies

 

Permit the aggregate unpaid principal amount of Fannie Mae DUS Mortgage Loans within the Parent’s consolidated Servicing Portfolio which are sixty (60) or more days past due or otherwise in default at any time to exceed three and one-half percent (3 1/2%) of the aggregate unpaid principal balance of all Fannie Mae DUS Mortgage Loans within the Parent’s consolidated Servicing Portfolio at such time, calculated as of the last day of each Calendar Quarter; provided, however, that solely for purposes of determining compliance with this Section 8.12 Fannie Mae DUS Mortgage Loans shall be adjusted to exclude: (1) any No Risk Mortgage Loans under the Fannie Mae DUS Program and (2)  with respect to any At Risk Mortgage Loans under a modified risk sharing arrangement under the Fannie Mae DUS Program, any loan balances which are not subject to any loss sharing or recourse thereunder.

 

8.13                        Dividends and Distributions

 

So long as any Default or Event of Default is then outstanding or would be outstanding after taking into effect a dividend, redemption or setting aside of funds, cause or permit, directly or indirectly: declare, pay, authorize or make any form of dividend (except for stock dividends or stock splits) or return any capital, in cash or property, to its shareholders, their successors or assigns or repurchase, redeem or retire any of the capital stock of such Person.

 

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8.14                        Transactions with Affiliates

 

Directly or indirectly (a) make any loan, advance, extension of credit or capital contribution to any of the Borrower’s Affiliates, (b) sell, transfer, pledge or assign any of its assets to or on behalf of those Affiliates except for pledges made in connection with the Acquisition Term Loan, (c) merge or consolidate with or purchase or acquire assets from those Affiliates except for a merger by the Borrower with, or the purchase or acquisition by the Borrower of assets of WD Capital or of ARA Finance, or (d) pay management fees to or on behalf of those Affiliates, other than (i) payments attributable to reasonable overhead and administrative charges allocated to the Borrower by the Affiliates, (ii) reasonable subservicing fees payable to Affiliates for their servicing of the Servicing Portfolio and (iii) other transactions in the ordinary course of business (but still in compliance with the terms of this Section 8.14) and on terms not less favorable to the Borrower than could be obtained from an unaffiliated third party on an arm’s length basis.

 

8.15                        Recourse Servicing Contracts

 

Except for Servicing Contracts involving Fannie Mae DUS Mortgage Loans, and conduit originations for which Borrower notifies Administrative Agent pursuant hereto, acquire or enter into Servicing Contracts under which Borrower must repurchase or indemnify the holder of the Mortgage Loans as a result of defaults on the Mortgage Loans at any time during the term of those Mortgage Loans.

 

8.16                        Total Servicing Portfolio and Fannie Mae Servicing Portfolio

 

Permit the aggregate unpaid principal amount of (i) all Mortgage Loans comprising the Parent’s consolidated Servicing Portfolio (exclusive of such Mortgage Loans which (A) are sixty (60) or more days past due or are otherwise in default, or (B) have been transferred to Fannie Mae for resolution) to be less than Twenty billion ($20,000,000,000.00) at any time, or (ii) all Fannie Mae DUS Mortgage Loans comprising the Parent’s consolidated Servicing Portfolio (exclusive of such Mortgage Loans which (A) are sixty (60) or more days past due or are otherwise in default, or (B) have been transferred to Fannie Mae for resolution) to be less than ten  billion ($10,000,000,000.00) at any time, calculated as of the last day of each Calendar Quarter.

 

9.                                      SPECIAL REPRESENTATIONS, WARRANTIES AND COVENANTS CONCERNING COLLATERAL

 

9.1                               Special Representations and Warranties Concerning Warehousing Collateral

 

Borrower represents and warrants to Administrative Agent and each Lender, as of the date of this Agreement and as of the date of each Warehousing Advance Request and the making of each Warehousing Advance, that:

 

9.1(a)                          Borrower has selected the Collateral in a manner so as to not affect adversely Administrative Agent’s or any Lender’s interests.

 

9.1(b)                         Borrower is the legal and equitable owner and holder, free and clear of all Liens (other than Liens granted under this Agreement), of the Pledged Loans and the Pledged Securities.  All Pledged Loans, Pledged Securities and related Purchase Commitments

 

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have been duly authorized and validly issued to Borrower, and all of the foregoing items of Collateral comply with all of the requirements of this Agreement, and have been and will continue to be validly pledged or assigned to Administrative Agent, subject to no other Liens.

 

9.1(c)                           Borrower has, and will continue to have, the full right, power and authority to pledge the Collateral pledged and to be pledged by it under this Agreement.

 

9.1(d)                          Each Mortgage Loan and each related document included in the Pledged Loans (1) has been duly executed and delivered by the parties to that Mortgage Loan and that related document, (2) has been made in compliance with all applicable laws, rules and regulations (including all laws, rules and regulations relating to usury), (3) is and will continue to be a legal, valid and binding obligation, enforceable in accordance with its terms, without setoff, counterclaim or defense in favor of the mortgagor under the Mortgage Loan or any other obligor on the Mortgage Note, (4) has not been modified, amended or any requirements of which waived, except in a writing that is part of the Collateral Documents, and (5) complies and will continue to comply with the terms of this Agreement, the related Purchase Commitment, and the standard practices of the applicable Investor.

 

9.1(e)                           Each Pledged Loan is secured by a Mortgage on real property and improvements located in one of the states of the United States or the District of Columbia.

 

9.1(f)                            Each Pledged Loan has been closed or will be closed and funded with the Warehousing Advance made against it.

 

9.1(g)                           Each Pledged Loan against which a Warehousing Advance has been or will be made on the basis of a Purchase Commitment, meets all of the requirements of that Purchase Commitment, and each Pledged Security against which a Warehousing Advance is outstanding meets all of the requirements of the related Purchase Commitment.

 

9.1(h)                          Pledged Loans that are intended to be exchanged for Agency Securities comply or, prior to the issuance of the Agency Securities will comply, with the requirements of any governmental instrumentality, department or agency issuing or guaranteeing the Agency Securities.

 

9.1(i)                              Except for FHA Construction Mortgage Loans, each Mortgage Loan has been fully advanced in the face amount of its Mortgage Note.

 

9.1(j)                             Each Pledged Loan is a First Mortgage Loan, unless permitted to be a Subordinate Mortgage Loan under Exhibit D (in which case such Pledged Loan may only be a Second Mortgage Loan or a Third Mortgage Loan).

 

9.1(k)                          Each First Mortgage Loan is secured by a First Mortgage on the real property and improvements described in or covered by that Mortgage.

 

9.1(l)                             Each First Mortgage Loan has or will have a title insurance policy, in ALTA form or equivalent, from a recognized title insurance company, insuring the priority of the Lien

 

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of the Mortgage and meeting the usual requirements of Investors purchasing those Mortgage Loans.

 

9.1(m)                      The real property securing each Pledged Loan has been evaluated or appraised in accordance with Title XI of FIRREA, USPAP, and the requirements of the applicable Investor.

 

9.1(n)                          Each Subordinate Mortgage Loan (to the extent Subordinate Mortgage Loans are permitted by Exhibit D) is a Second Mortgage Loan or a Third Mortgage Loan on the premises described in that Mortgage.  With respect to each Second Mortgage Loan and Third Mortgage Loan, Borrower shall be the servicer, and Lender with respect to such Second Mortgage Loan and Third Mortgage Loan shall also be Lender with respect to the senior Mortgage Loan on such Property.

 

9.1(o)                          To the extent required by the related Purchase Commitment or by Investors generally for similar Mortgage Loans, each Subordinate Mortgage Loan has or will have a title insurance policy, in ALTA form or equivalent, from a recognized title insurance company, insuring the appropriate priority of the Lien of the Mortgage and meeting the usual requirements of Investors purchasing those Mortgage Loans.

 

9.1(p)                          The Mortgage Note for each Pledged Loan is (1) payable or endorsed to the order of Borrower, (2) an “instrument” within the meaning of Article 9 of the Uniform Commercial Code of all applicable jurisdictions and (3) is denominated and payable in United States dollars.

 

9.1(q)                          No default exists under any Mortgage Loan when such Mortgage Loan first is included as a Pledged Loan, and no default has existed for sixty (60) days or more under any such Mortgage Loan at any time thereafter.

 

9.1(r)                             No party to a Mortgage Loan or any related document is in violation of any applicable law, rule or regulation that would impair the collectability of the Mortgage Loan or the performance by the mortgagor or any other obligor of his or her obligations under the Mortgage Note or any related document.

 

9.1(s)                            All fire and casualty policies covering the real property and improvements encumbered by each Mortgage included in the Pledged Loans (1) name and will continue to name Borrower and its successors and assigns as the insured under a standard mortgagee clause, (2) are and will continue to be in full force and effect and (3) afford and will continue to afford insurance against fire and such other risks as are usually insured against in the broad form of extended coverage insurance generally available.

 

9.1(t)                             Pledged Loans secured by real property and improvements located in a special flood hazard area designated as such by the Director of the Federal Emergency Management Agency are and will continue to be covered by special flood insurance under the National Flood Insurance Program.

 

9.1(u)                          The real property and improvements securing each Pledged Loan are free of damage or waste and are in good repair, and no improvement located on or being a part of such

 

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real property violates any applicable zoning law or regulation (unless constituting a legal non-conforming use or improvement).

 

9.1(v)                          No notice of any partial or total condemnation has been given with respect to the real property and improvements securing any Pledged Loan.

 

9.1(w)                        None of the Pledged Loans is a graduated payment Mortgage Loan or has a shared appreciation or other contingent interest feature, and each Pledged Loan provides for periodic payments of all accrued interest on the Mortgage Loan on at least a monthly basis.

 

9.1(x)                          Neither Borrower nor any of Borrower’s Affiliates has any ownership interest, right to acquire any ownership interest or equivalent economic interest in any property securing a Pledged Loan or the mortgagor under the Pledged Loan or any other obligor on the Mortgage Note for such Pledged Loan.

 

9.1(y)                          The original assignments of Mortgage delivered to Administrative Agent for each Pledged Loan are in recordable form and comply with all applicable laws and regulations governing the filing and recording of such documents.

 

9.1(z)                           None of the mortgagors, guarantors or other obligors of any Pledged Loan is a Person named in any Restriction List and to whom the provision of financial services is prohibited or otherwise restricted by applicable law.

 

9.2                               Special Affirmative Covenants Concerning Warehousing Collateral

 

As long as the Warehousing Commitment is outstanding or there remain any Obligations to be paid or performed under this Agreement or under any other Loan Document, Borrower must, unless the Administrative Agent consents in writing:

 

9.2(a)                          Warrant and defend the right, title and interest of Administrative Agent in and to the Collateral against the claims and demands of all Persons.

 

9.2(b)                          Service or cause to be serviced all Pledged Loans in accordance with the standard requirements of the issuers of Purchase Commitments covering them and all applicable Federal Agency requirements, including taking all actions necessary to enforce the obligations of the obligors under such Mortgage Loans; service or cause to be serviced all Mortgage Loans backing Pledged Securities in accordance with applicable governmental requirements and requirements of issuers of Purchase Commitments covering them; hold all escrow funds collected in respect of Pledged Loans and Mortgage Loans backing Pledged Securities in trust, without commingling the same with non-custodial funds, and apply them for the purposes for which those funds were collected.

 

9.2(c)                           Execute and deliver to Administrative Agent, with respect to the Collateral, those further instruments of sale, pledge, assignment or transfer, and those powers of attorney, as reasonably required by Administrative Agent, and do and perform all matters and things necessary or reasonably desirable to be done or observed, for the purpose of

 

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effectively creating, maintaining and preserving the security and benefits intended to be afforded Administrative Agent and Lenders under this Agreement.

 

9.2(d)                          Notify Administrative Agent within three (3) Business Days of any default under, or of the termination of, any Purchase Commitment relating to any Pledged Loan, Eligible Mortgage Pool or Pledged Security.

 

9.2(e)                           Promptly comply in all respects with the terms and conditions of all Purchase Commitments, and all extensions, renewals and modifications or substitutions of or to all Purchase Commitments; deliver or cause to be delivered to the Investor the Pledged Loans and Pledged Securities to be sold under each Purchase Commitment not later than the mandatory delivery date of the Pledged Loans or Pledged Securities under the Purchase Commitment.

 

9.2(f)                            Compare the names of every mortgagor, guarantor and other obligor of every Mortgage Loan, together with appropriate identifying information concerning those Persons obtained by Borrower, against every Restriction List, and make certain that none of the mortgagors, guarantors or other obligors of any Mortgage Loan is a Person named in any Restriction List and to whom the provision of financial services is prohibited or otherwise restricted by applicable law.

 

9.2(g)                           Other than with respect to Fannie Mae DUS Mortgage Loans, prior to the origination by Borrower of any Mortgage Loans for sale to a Federal Agency, Borrower shall have entered into an agreement among Administrative Agent, the Investor under the applicable Purchase Commitment, and Borrower, pursuant to which such Investor agrees to send all cash proceeds of Mortgage Loans sold by Borrower to such Investor to the applicable Cash Collateral Account.

 

9.3                               Special Negative Covenants Concerning Warehousing Collateral

 

As long as the Warehousing Commitment is outstanding or there remain any Obligations to be paid or performed, Borrower must not, either directly or indirectly, without the prior written consent of Administrative Agent:

 

9.3(a)                          Amend, modify, or waive any of the terms and conditions of, or settle or compromise any claim in respect of, any Pledged Loans or Pledged Securities.

 

9.3(b)                          Sell, transfer or assign, or grant any option with respect to, or pledge (except under this Agreement and, with respect to each Pledged Loan or Pledged Security, the related Purchase Commitment) any of the Collateral or any interest in any of the Collateral.

 

9.3(c)                           Make any compromise, adjustment or settlement in respect of any of the Collateral or accept any consideration other than cash in payment or liquidation of the Collateral.

 

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9.4                               Special Representations and Warranties Concerning Eligibility as Fannie Mae Approved Seller/Servicer of Mortgage Loans

 

Borrower represents and warrants to Administrative Agent and each Lender, as of the date of this Agreement and as of the date of each Warehousing Advance Request and the making of each Warehousing Advance, that Borrower is approved, qualified and in good standing as a Fannie Mae-approved seller/servicer of Mortgage Loans, eligible to originate, purchase, hold, sell and service Mortgage Loans to be sold to Fannie Mae under the Fannie Mae DUS Program.

 

9.5                               Special Representation and Warranty Concerning Fannie Mae DUS Program Reserve Requirements

 

Borrower represents and warrants to Administrative Agent and each Lender that Borrower will have met the Fannie Mae DUS Program requirements for lender reserves for each Fannie Mae DUS Mortgage Loan to be funded by a Warehousing Advance, at such time as required by Fannie Mae under the Fannie Mae DUS Program.

 

9.6                               Special Representations and Warranties Concerning FHA Mortgage Loans

 

Borrower represents and warrants to Administrative Agent and each Lender, as of the date of each Advance Request and the making of each Warehousing Advance, that:

 

9.6(a)                          Each FHA-insured Mortgage Loan included in the Pledged Loans meets all applicable governmental requirements for such insurance.  Borrower has complied and will continue to comply with all laws, rules and regulations with respect to the FHA insurance of each Pledged Loan designated by Borrower as an FHA-insured Mortgage Loan, and such insurance is and will continue to be in full force and effect.

 

9.6(b)                          For FHA-insured Pledged Loans that will be used to back Ginnie Mae Mortgage-backed Securities, Borrower has received from Ginnie Mae the Confirmation Notice for Request of Additional Commitment Authority and Confirmation Notice for Request of Pool Numbers, and there remains available under those agreements a commitment on the part of Ginnie Mae sufficient to permit the issuance of Ginnie Mae Mortgage-backed Securities in an amount at least equal to the amount of the Pledged Loans designated by Borrower as the Mortgage Loans to be used to back those Ginnie Mae Mortgage-backed Securities; each of those Confirmation Notices is in full force and effect; each of those Pledged Loans has been assigned by Borrower to one of those Pool Numbers and a portion of the available Ginnie Mae Commitment has been allocated to this Agreement by Borrower, in an amount at least equal to those Pledged Loans; and each of those assignments and allocations has been reflected in the books and records of Borrower.

 

9.7                               Special Representations and Warranties Concerning Eligibility as Freddie Mac Program Plus Seller/Servicer of Mortgage Loans

 

9.7(a)                         Borrower represents and warrants to Administrative Agent and each Lender, as of the date of this Agreement and as of the date of each Warehousing Advance Request and

 

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the making of each Warehousing Advance, that Borrower is approved, qualified and in good standing as a Freddie Mac Program Plus seller/servicer of Mortgage Loans

 

10.                               DEFAULTS; REMEDIES

 

10.1                        Events of Default

 

The occurrence of any of the following is an event of default (“Event of Default”):

 

10.1(a)                   Borrower fails to pay the principal of any Warehousing Advance when due, whether at stated maturity, by acceleration, or otherwise; or fails to pay interest on any Warehousing Advance when due hereunder; or fails to pay, within any applicable grace period, any other amount due under this Agreement or any other Obligation of Borrower to Administrative Agent or any Lender.

 

10.1(b)                   Borrower fails to perform or comply with any term or condition applicable to it contained in any Section of Article 7 or Article 8.

 

10.1(c)                    The suspension, revocation or termination of Borrower’s eligibility, in any respect, as lender, seller/servicer or issuer as described under Sections 9.4, 9.5, 9.6 or 9.7, or of any other license or approval required for Borrower to engage in the business of originating, acquiring and, if applicable, servicing Mortgage Loans; or the imposition of any other adverse regulatory or administrative action or sanction on or against Borrower by any agency, board, bureau, commission, instrumentality or other administrative or regulatory body (in each case, whether federal, state or local, domestic or foreign), that in each such case could result in a material adverse change in Borrower’s business, operations, assets or financial condition as a whole or that could affect the validity or enforceability of any Pledged Loan.

 

10.1(d)                   Any representation or warranty made or deemed made by Borrower under this Agreement, in any other Loan Document or in any written statement or certificate at any time given by Borrower is inaccurate or incomplete in any material respect on the date as of which it is made or deemed made.

 

10.1(e)                    Borrower defaults in the performance of or compliance with any term contained in this Agreement or any other Loan Document other than those referred to in Sections 10.1(a), 10.1(b), 10.1(c) or 10.1(d) and such default has not been remedied or waived in writing within thirty (30) days after the earliest of (1) receipt by Borrower of Notice from Administrative Agent of that default, (2) receipt by Administrative Agent of Notice from Borrower of that default or (3) the date Borrower should have notified Administrative Agent of that default under the applicable clause of Section 7.7.

 

10.1(f)                     Borrower defaults under any other Indebtedness in excess of Five Hundred Thousand Dollars ($500,000.00) (individually or in the aggregate) and such default continues beyond any applicable grace period provided in the relevant agreement with respect thereto.

 

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10.1(g)                    An “event of default” (however defined) occurs under any agreement between Borrower, Administrative Agent or any Lender or its affiliates other than this Agreement and the other Loan Documents.

 

10.1(h)                   A case (whether voluntary or involuntary) is filed by or against Borrower under any applicable bankruptcy, insolvency or other similar federal or state law; or a court of competent jurisdiction appoints a receiver (interim or permanent), liquidator, sequestrator, trustee, custodian or other officer having similar powers over Borrower, or over all or a substantial part of its properties or assets, and, if filed against Borrower, such action is not dismissed within sixty (60) days; or Borrower (1) consents to the appointment of or possession by a receiver (interim or permanent), liquidator, sequestrator, trustee, custodian or other officer having similar powers over Borrower or over all or a substantial part of its properties or assets, (2) makes an assignment for the benefit of creditors, or (3) fails, or admits in writing its inability, to pay its debts as those debts become due.

 

10.1(i)                       Borrower fails to perform any contractual obligation to repurchase Mortgage Loans.

 

10.1(j)                      Any money judgment, writ or warrant of attachment or similar process involving an amount in excess of Five Hundred Thousand Dollars ($500,000.00) is entered or filed against Borrower or any of its properties or assets and remains undischarged, unvacated, unbonded or unstayed for a period of thirty (30) days or five (5) days before the date of any proposed sale under that money judgment, writ or warrant of attachment or similar process.

 

10.1(k)                   Any order, judgment or decree decreeing the dissolution of Borrower is entered and remains undischarged or unstayed for a period of twenty (20) days.

 

10.1(l)                       Borrower purports to disavow any of its Obligations or contests the validity or enforceability of any Loan Document.

 

10.1(m)               The Administrative Agent’s security interest on any portion of the Collateral becomes unenforceable or otherwise impaired.

 

10.1(n)                   A material adverse change occurs in Borrower’s financial condition, business, properties or assets, operations or prospects, or in Borrower’s ability to repay the Obligations.

 

10.1(o)                   Any Lien for any tax, assessment or other governmental charge (i) is filed or is otherwise enforced against Borrower or any of its property, including any of the Collateral, other than a Lien for taxes, assessments or other governmental charges on real property securing or that previously secured an individual Mortgage Loan that is not a Pledged Loan, or (ii) obtains priority that is equal to or greater than the priority of Administrative Agent’s security interest in any of the Collateral.

 

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10.2                        Remedies

 

10.2(a)                   If an Event of Default described in Section 10.1(h) occurs with respect to Borrower, the Warehousing Commitment will automatically terminate and the unpaid principal amount of and accrued interest on the Warehousing Note and all other Obligations will automatically become due and payable, without presentment, demand or other Notice or requirements of any kind, all of which Borrower expressly waives.

 

10.2(b)                   If an Event of Default described in Section 10.1(a) occurs with respect to Borrower, Administrative Agent may, and at the direction of Required Lenders, shall terminate the Warehousing Commitment and declare the Obligations to be immediately due and payable.

 

10.2(c)                    If any other Event of Default occurs, Administrative Agent may, and at the direction of Required Lenders, shall by Notice to Borrower, terminate the Warehousing Commitment and declare the Obligations to be immediately due and payable.

 

10.2(d)                   If any Event of Default occurs, Administrative Agent may, and at the direction of Required Lenders, shall also take any of the following actions:

 

(i)                           Foreclose upon or otherwise enforce its security interest in and Lien on the Collateral to secure all payments and performance of the Obligations in any manner permitted by law or provided for in the Loan Documents.

 

(ii)                        Notify all obligors under any of the Collateral that the Collateral has been assigned to Administrative Agent (or to another Person designated by Administrative Agent) and that all payments on that Collateral are to be made directly to Administrative Agent (or such other Person); settle, compromise or release, in whole or in part, any amounts any obligor or Investor owes on any of the Collateral on terms acceptable to Administrative Agent (with the Required Lenders’ consent in the case of the release of any Pledged Loan or Pledged Security of an amount less than the outstanding Warehouse Advance against such Pledged Loan or Pledged Security); enforce payment and prosecute any action or proceeding involving any of the Collateral; and where any Collateral is in default, foreclose on and enforce any Liens securing that Collateral in any manner permitted by law and sell any property acquired as a result of those enforcement actions.

 

(iii)                     Prepare and submit for filing Uniform Commercial Code amendment statements evidencing the assignment to Administrative Agent or its designee of any Uniform Commercial Code financing statement filed in connection with any item of Collateral.

 

(iv)                    Act, or contract with a third party to act at Borrower’s expense, as servicer or subservicer of Collateral requiring servicing and perform all obligations required under any Collateral, including Servicing Contracts and Purchase Commitments.

 

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(v)                       Require Borrower to assemble and make available to the Administrative Agent the Collateral and all related books and records at a place designated by the Administrative Agent.

 

(vi)                    Enter onto property where any Collateral or related books and records are located and take possession of those items with or without judicial process; and obtain access to Borrower’s respective data processing equipment, computer hardware and software relating to the Collateral and use all of the foregoing and the information contained in the foregoing in any manner the Administrative Agent deems necessary for the purpose of effectuating its rights under this Agreement and any other Loan Document.

 

(vii)                 Before the disposition of the Collateral, prepare it for disposition in any manner and to the extent the Administrative Agent deems appropriate.

 

(viii)              Exercise all rights and remedies of a secured creditor under the Commercial Code of Pennsylvania or other applicable law, including selling or otherwise disposing of all or any portion of the Collateral at one or more public or private sales, whether or not the Collateral is present at the place of sale, for cash or credit or future delivery, on terms and conditions and in the manner as the Administrative Agent may determine, including sale under any applicable Purchase Commitment.  Borrower waives any right it may have to prior notice of the sale of all or any portion of the Collateral to the extent allowed by applicable law.  If notice is required under applicable law, the Administrative Agent will give Borrower not less than ten (10) days’ notice of any public sale or of the date after which any private sale may be held.  Borrower agrees that ten (10) days’ notice is reasonable notice.  Administrative Agent may, without notice or publication, adjourn any public or private sale one or more times by announcement at the time and place fixed for the sale, and the sale may be held at any time or place announced at the adjournment.  In the case of a sale of all or any portion of the Collateral on credit or for future delivery, the Collateral sold on those terms may be retained by the Administrative Agent until the purchaser pays the selling price or takes possession of the Collateral.  Administrative Agent has no liability to Borrower if a purchaser fails to pay for or take possession of Collateral sold on those terms, and in the case of any such failure, Administrative Agent may sell the Collateral again upon notice complying with this Section.

 

(ix)                    Administrative Agent may proceed by suit at law or in equity to collect all amounts due on the Collateral, or to foreclose the Administrative Agent’s Lien on and sell all or any portion of the Collateral pursuant to a judgment or decree of a court of competent jurisdiction.

 

(x)                       Proceed against Borrower on the Warehousing Note.

 

10.2(e)                    Neither the Administrative Agent nor any Lender will incur any liability as a result of the commercially reasonable sale or other disposition of all or any portion of the Collateral at any public or private sale or other disposition.  Borrower waives (to the

 

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extent permitted by law) any claims it may have against Administrative Agent or any Lender arising by reason of the fact that the price at which the Collateral may have been sold at a private sale was less than the price that might have been obtained at a public sale, or was less than the aggregate amount of the outstanding Warehousing Advances, accrued and unpaid interest on those Warehousing Advances, and unpaid fees, even if the Administrative Agent accepts the first offer received and does not offer the Collateral to more than one offeree.  Borrower agrees that any sale of Collateral under the terms of a Purchase Commitment, or any other disposition of Collateral arranged by Borrower, whether before or after the occurrence of an Event of Default, will be deemed to have been made in a commercially reasonable manner.

 

10.2(f)                     Borrower acknowledges that the Mortgage Loans are collateral of a type that are the subject of widely distributed standard price quotations and that Mortgage-backed Securities are collateral of a type that are customarily sold on a recognized market.  Borrower waives any right it may have to prior notice of the sale of Pledged Securities, and agrees that Administrative Agent or any Lender may purchase Pledged Loans and Pledged Securities at a private sale of such Collateral.

 

10.2(g)                    Borrower specifically waives and releases (to the extent permitted by law) any equity or right of redemption, stay or appraisal that Borrower has or may have under any rule of law or statute now existing or adopted after the date of this Agreement, and any right to require Administrative Agent or any Lender to (1) proceed against any Person, (2) proceed against or exhaust any of the Collateral or pursue its rights and remedies against the Collateral in any particular order or (3) pursue any other remedy within its power.  Administrative Agent is not required to take any action to preserve any rights of Borrower against holders of mortgages having priority to the Lien of any Mortgage or Security Agreement included in the Collateral or to preserve Borrower’s rights against other prior parties.

 

10.2(h)                   Administrative Agent or any Lender may, but is not obligated to, advance any sums or do any act or thing necessary to uphold or enforce the Lien and priority of, or the security intended to be afforded by, any Mortgage or Security Agreement included in the Collateral, including payment of delinquent taxes or assessments and insurance premiums.  All advances, charges, costs and expenses, including reasonable attorneys’ fees and disbursements, incurred or paid by Administrative Agent or any Lender in exercising any right, power or remedy conferred by this Agreement, or in the enforcement of this Agreement, together with interest on those amounts at the Default Rate, from the time paid by Administrative Agent or any Lender until repaid by Borrower, are deemed to be principal outstanding under this Agreement and the Warehousing Note.

 

10.2(i)                       No failure or delay on the part of Administrative Agent or any Lender to exercise any right, power or remedy provided in this Agreement or under any other Loan Document, at law or in equity, will operate as a waiver of that right, power or remedy.  No single or partial exercise by the Administrative Agent or any Lender of any right, power or remedy provided under this Agreement or any other Loan Document, at law or in equity, precludes any other or further exercise of that right, power or remedy by

 

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Administrative Agent or any Lender, or the Administrative Agent’s or any Lender’s exercise of any other right, power or remedy.  Without limiting the foregoing, Borrower waives all defenses based on the statute of limitations to the extent permitted by law.  The remedies provided in this Agreement and the other Loan Documents are cumulative and are not exclusive of any remedies provided at law or in equity.

 

10.2(j)                      Borrower grants the Administrative Agent on behalf of the Lenders, a license or other right to use, without charge, Borrower’s computer programs, other programs, labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in advertising for sale and selling any of the Collateral and Borrower’s rights under all licenses and all other agreements related to the foregoing inure to the Administrative Agent’s and each Lender’s benefit until the Obligations are paid in full.

 

10.3                        Insufficiency of Proceeds

 

If the proceeds realized from any sale, disposition or other enforcement rights with respect to the Collateral are insufficient to cover the costs and expenses of such sale, disposition or other enforcement rights with respect to the Collateral and payment in full of all Obligations, then Borrower shall be liable for the deficiency.  Nothing herein shall require Administrative Agent or any Lender to look to all or any portion of the Collateral prior to, or in lieu of, pursuing any other right or remedy, any or all of which may be pursued in any order and at any time, including at the same time.

 

10.4                        Administrative Agent Appointed Attorney-in-Fact

 

Borrower appoints the Administrative Agent its attorney-in-fact, with full power of substitution, for the purpose of carrying out the provisions of this Agreement, the Warehousing Note and the other Loan Documents and taking any action and executing any instruments that the Administrative Agent deems necessary or advisable on behalf of the Lenders, to accomplish that purpose.  Borrower’s appointment of the Administrative Agent as attorney-in-fact is irrevocable and coupled with an interest.  Without limiting the generality of the foregoing, the Administrative Agent may give notice, on behalf of the Lenders, of the security interest in and Lien on the Collateral to any Person, either in Borrower’s name or in its own name, endorse all Pledged Loans or Pledged Securities payable to the order of Borrower, change or cause to be changed the book-entry registration or name of subscriber or Investor on any Pledged Security, prepare and submit for filing Uniform Commercial Code amendment statements with respect to any Uniform Commercial Code financing statements filed in connection with any item of Collateral or receive, endorse and collect all checks made payable to the order of Borrower representing payment on account of the principal of or interest on, or the proceeds of sale of, any of the Pledged Loans or Pledged Securities and give full discharge for those transactions.  The foregoing appointment shall be effective immediately with respect to ministerial matters, and upon the occurrence of an Event of Default with respect to all other matters.

 

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10.5                        Right of Set-Off

 

Borrower hereby grants to Administrative Agent and each Lender, a continuing lien, security interest and right of setoff as security for all liabilities and obligations to Administrative Agent and each Lender, whether now existing or hereafter arising, upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody safekeeping or control of Administrative Agent or any Lender or any entity under the control of Administrative Agent or any Lender, and their respective successors and assigns or in transit to any of them, other than third-party custodial accounts maintained by Borrower at Administrative Agent or any each Lender.  Upon occurrence of an  Event of Default with respect to the payment of any Obligation or in the performance of any of its duties under the Loan Documents, Administrative Agent or any Lender may, as determined in such party’s sole discretion, without Notice to or demand on Borrower (which Notice or demand Borrower expressly waives), set-off, appropriate or apply any property of Borrower held at any time by Administrative Agent or such Lender, or any indebtedness at any time owed by Administrative Agent or such Lender to or for the account of a Borrower, against the Obligations, whether or not those Obligations have matured and irrespective of whether or not such Administrative Agent or such Lender shall have made any demand under this Agreement or any other Loan Document; provided that in the event that any Defaulting Lender shall exercise any such right of setoff, (a) all amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with this Agreement and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent and the Lenders, and (b) the Defaulting Lender shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of setoff.  The rights of each Lender and the Administrative Agent under this Section 10.5 are in addition to other rights and remedies (including other rights of setoff) that such Lender or Administrative Agent may have.  Each Lender and the Administrative Agent agrees to notify the Borrower and the Administrative Agent promptly after any such setoff and application; provided that the failure to give such notice shall not affect the validity of such setoff and application.  ANY AND ALL RIGHTS TO REQUIRE ADMINISTRATIVE AGENT OR ANY LENDER TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE LOANS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH NON-CUSTODIAL DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

 

10.6                        Application of Funds.

 

After the exercise of remedies provided for in this Section 10 (or after the Loans have automatically become immediately due and payable as set forth in this Section 10), any amounts received on account of the Obligations shall be applied by Administrative Agent in the following order:

 

First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to Administrative Agent) payable to Administrative Agent in its capacity as such;

 

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Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal and interest) payable to the Lenders (including fees, charges and disbursements of counsel to the respective Lenders) arising under the Loan Documents, ratably among them in proportion to the Ratable Share of each Lender.

 

Third, to payment of that portion of the Obligations constituting accrued and unpaid interest on the Loans and the other Obligations arising under the Loan Documents, ratably among them in proportion to the Ratable Share of each Lender;

 

Fourth, to payment of that portion of the Obligations constituting unpaid principal of the Loans, ratably among them in proportion to the Ratable Share of each Lender; and

 

Last, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to Borrower or as otherwise required by law.

 

11.                               THE ADMINISTRATIVE AGENT

 

11.1        Appointment and Authority.  Each of the Lenders hereby irrevocably appoints PNC Bank, National Association to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto.  The provisions of this Section 11 (other than as permitted in Section 11.6) are solely for the benefit of Administrative Agent and Lenders, and Borrower shall have no rights as a third party beneficiary of any of such provisions.  The Administrative Agent shall also act as the “collateral agent” under the Loan Documents, and each of the Lenders hereby irrevocably appoints and authorizes the Administrative Agent to act as the agent of such Lender for purposes of acquiring, holding and enforcing any and all Liens on Collateral granted by any of the Loan Parties to secure any of the Obligations, together with such powers and discretion as are reasonably incidental thereto.

 

11.2        Rights as a Lender.  The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity.  Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.

 

11.3                        Exculpatory Provisions.

 

11.3(a)                  The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents.  Without limiting the generality of the foregoing, the Administrative Agent:

 

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(i)         shall not be subject to any fiduciary or other implied duties, regardless of whether an Event of Default has occurred and is continuing;

 

(ii)        shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents); provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law; and

 

(iii)       shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity.

 

11.3(b)                   The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Section 12.1) or (ii) in the absence of its own gross negligence or willful misconduct.

 

11.3(c)                    The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Event of Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.

 

11.4        Reliance by Administrative Agent.  The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person.  The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon.  In determining compliance with any condition hereunder to the making of a Warehousing Advance, that by its terms must be fulfilled to the satisfaction of a Lender, the Administrative Agent may presume that such condition is satisfactory to such Lender unless the Administrative Agent shall have received notice to the contrary from such Lender prior to the making of such Administrative

 

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Advance.  The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

 

11.5        Delegation of Duties.  The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent.  The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties.  The exculpatory provisions of this Section 11 shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.

 

11.6        Resignation of Administrative Agent.  The Administrative Agent may at any time give notice of its resignation to the Lenders and Borrower.  Upon receipt of any such notice of resignation, the Required Lenders shall have the right, with approval from Borrower (so long as no Event of Default has occurred and is continuing), to appoint a successor, such approval not to be unreasonably withheld or delayed.  If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may on behalf of the Lenders, appoint a successor Administrative Agent; provided that if the Administrative Agent shall notify Borrower and Lenders that no qualifying Person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (i) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any collateral security held by the Administrative Agent on behalf of Lenders under any of the Loan Documents, the retiring Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed) and (ii) all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender and the Issuing Lender directly, until such time as the Required Lenders appoint a successor Administrative Agent as provided for above in this Section 11.6.  Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent, and the retiring Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section).  The fees payable by Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between Borrower and such successor.  After the retiring Administrative Agent’s resignation hereunder and under the other Loan Documents, the provisions of this Section 11 and Section 12.4 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent.

 

11.7        Non-Reliance on Administrative Agent and Other Lenders.  Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or

 

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any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement.  Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.

 

11.8        Authorization to Release Collateral.  The Lenders authorize the Administrative Agent, at Borrower’s expense, to release any Collateral pursuant to and in compliance with the terms of  Section 4.3.

 

11.9        No Reliance on Administrative Agent’s Customer Identification Program.  Each Lender acknowledges and agrees that neither such Lender, nor any of its Affiliates, participants or assignees, may rely on the Administrative Agent to carry out such Lender’s, Affiliate’s, participant’s or assignee’s customer identification program, or other obligations required or imposed under or pursuant to the USA Patriot Act or the regulations thereunder, including the regulations contained in 31 CFR 103.121 (as hereafter amended or replaced, the “CIP Regulations”), or any other Anti-Terrorism Law, including any programs involving any of the following items relating to or in connection with any of the Loan Parties, their Affiliates or their agents, the Loan Documents or the transactions hereunder or contemplated hereby: (i) any identity verification procedures, (ii) any recordkeeping, (iii) comparisons with government lists, (iv) customer notices or (v) other procedures required under the CIP Regulations or such other Laws.

 

12.                               MISCELLANEOUS

 

12.1        Modifications, Amendments or Waivers.  With the written consent of Required Lenders, the Administrative Agent, acting on behalf of all Lenders, and Borrower and Guarantor may from time to time enter into written agreements amending or changing any provision of this Agreement or any other Loan Document or the rights of Lenders or the Borrower or Guarantor, or may grant written waivers or consents hereunder or thereunder.  Any such agreement, waiver or consent made with such written consent shall be effective to bind all the Lenders, Borrower and Guarantor; provided, that no such agreement, waiver or consent may be made which will:

 

(i)                           Increase of Commitment.  Increase the amount of any Lender’s Warehousing Commitment Amount without the written consent of such Lender;

 

(ii)                        Extension of Payment; Reduction of Principal, Interest or Fees; Modification of Terms of Payment.  Whether or not any Warehousing Advances are outstanding, extend the Warehousing Maturity Date or the time for payment of principal or interest of any Loan (excluding the due date of any mandatory prepayment of a Loan), the Commitment Fee or any other fee payable to any Lender, or reduce the principal amount of or the rate of interest borne by any Loan or reduce the Commitment Fee or any other fee payable to any Lender, without the written consent of each Lender directly affected thereby;

 

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(iii)                     Conditions Precedent.  Waive any condition set forth in Section 5.1 and 5.2 and Exhibit B, without the written consent of each Lender;

 

(iv)                    Collateral Release.  Except as set forth in Section 11.8, release all or substantially all of the Collateral in any transaction or series of related transactions, without the written consent of each Lender;

 

(v)                       Guaranty Release.  Release, whether in part or in whole, the Parent from any obligations arising under or evidenced by the Amended and Restated Guaranty, without the written consent of each Lender;

 

(vi)                    Pro Rata Share.  Amend, alter or modify any provision regarding the pro rata treatment of the Lenders or requiring all Lenders to authorize the taking of any action or reduce any percentage specified in the definition of Required Lenders, in each case without the written consent of all of the Lenders (other than Defaulting Lenders);

 

provided that no agreement, waiver or consent which would modify the interests, rights or obligations of the Administrative may be made without the written consent of such Administrative Agent.

 

12.2                        No Implied Waivers, Cumulative Remedies.

 

No course of dealing and no delay or failure of the Administrative Agent or any Lender in exercising any right, power, remedy or privilege under this Agreement or any other Loan Document shall affect any other or future exercise thereof or operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any further exercise thereof or of any other right, power, remedy or privilege.  The rights and remedies of the Administrative Agent and the Lenders under this Agreement and any other Loan Documents are cumulative and not exclusive of any rights or remedies which they would otherwise have.

 

12.3                        Notices

 

Except where telephonic, facsimile notice or other electronic transmission is expressly authorized by this Agreement, all communications required or permitted to be given or made under this Agreement (“Notices”) must be in writing and must be sent by manual delivery, overnight courier or United States mail (postage prepaid), addressed as follows:

 

	
If   to Borrower or Parent:
    	
Walker &   Dunlop, LLC
    
	
 
    	
7501   Wisconsin Avenue, Suite 1200E
    
	
 
    	
Bethesda,   Maryland 20814
    
	
 
    	
Attention:
    	
Stephen   Theobald
    
	
 
    	
Facsimile:
    	
(301)   500-1223
    
	
 
    	
E-mail:
    	
stheobald@walkerdunlop.com
    
	
 
    	
 
    
	
In   each case with a copy to:
    	
Walker &   Dunlop, LLC
    
	
 
    	
7501   Wisconsin Avenue, Suite 1200E
    
	
 
    	
Bethesda,   Maryland 20814
    

 

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Attention:
    	
Richard   M. Lucas
    
	
 
    	
Facsimile:
    	
(301)   500-1223
    
	
 
    	
Email:
    	
rlucas@walkerdunlop.com
    
	
 
    	
 
    	
 
    
	
In   each case with a copy to:
    	
Morgan,   Lewis & Bockius LLP
    
	
 
    	
1701   Market Street
    
	
 
    	
Philadelphia,   Pennsylvania  19103
    
	
 
    	
Attention:
    	
Michael   J. Pedrick
    
	
 
    	
Telephone:
    	
215-963-4808
    
	
 
    	
Facsimile:
    	
215-963-5001
    
	
 
    	
Email:
    	
mpedrick@morganlewis.com
    
	
 
    	
 
    	
 
    
	
If   to the Administrative Agent:
    	
PNC   Real Estate Finance
    
	
 
    	
One   PNC Plaza, 19th Floor
    
	
 
    	
P1   — POPP — 19-2
    
	
 
    	
Pittsburgh,   Pennsylvania 15222
    
	
 
    	
Attention:   
    	
Terri   Wyda, Senior Vice President
    
	
 
    	
Telephone:
    	
(412)   768-8782
    
	
 
    	
Facsimile:
    	
(412)   762-6500
    
	
 
    	
Email:
    	
terri.wyda@pnc.com
    
	
 
    	
 
    	
 
    
	
In   each case with a copy to:
    	
PNC Bank NA
    
	
 
    	
500 First Avenue, 4th Floor
    
	
 
    	
Mail Stop: P7-PFSC-04-V
    
	
 
    	
Pittsburgh, PA 15219
    
	
 
    	
Attention:
    	
Sara   L. Fischer
    
	
 
    	
Telephone:
    	
(412)   762-7916
    
	
 
    	
Facsimile:
    	
(412)   705-2124
    
	
 
    	
Email:
    	
sara.fischer@pnc.com
    
	
 
    	
 
    	
 
    
	
In   each case with a copy to:
    	
Ballard   Spahr LLP
    
	
 
    	
300   East Lombard Street, 18th Floor
    
	
 
    	
Baltimore,   Maryland 21202
    
	
 
    	
Attention:   
    	
Thomas   A. Hauser, Esquire
    
	
 
    	
Telephone:   
    	
(410)   528-5691
    
	
 
    	
Facsimile:   
    	
(410)   528-5650
    
	
 
    	
Email:
    	
hauser@ballardspahr.com
    
					

 

All periods of Notice will be measured from the date of delivery if delivered manually or by facsimile, from the first Business Day after the date of sending if sent by overnight courier or from four (4) days after the date of mailing if sent by United States mail, except that Notices to the Administrative Agent under Article 2 and Section 3.3(e) will be deemed to have been given only when actually received by the Administrative Agent.  Borrower authorizes the Administrative Agent to accept Borrower’s Warehousing Advance Requests, shipping requests, wire transfer instructions, security delivery instructions and other routine communications concerning the Warehousing Commitment and the Collateral transmitted to the Administrative

 

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Agent by electronic transmission (including facsimile or e-mail) and those documents, when transmitted to the Administrative Agent by electronic transmission have the same force and effect as the originals.  Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto.

 

Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices to any Lender pursuant to Article 2 if such Lender has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication.  Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement) and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient, at its e-mail address as described in the foregoing clause (i), of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii) above, if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient.

 

12.4                        Reimbursement Of Expenses; Indemnity

 

12.4(a)                   Whether or not the transactions contemplated hereby shall be consummated, Borrower agrees to pay promptly: (i) all the actual and reasonable out-of-pocket costs and expenses of Administrative Agent and each Lender for preparation of the Loan Documents and any consents, amendments, waivers, or other modifications thereto; (ii) the reasonable fees, expenses, and disbursements of counsel to Administrative Agent and each Lender in connection with the negotiation, preparation, execution, and administration of the Loan Documents and any consents, amendments, waivers, or other modifications thereto and any other documents or matters requested by Borrower; (iii) all other actual and reasonable out-of-pocket costs and expenses incurred by the Administrative Agent and each Lender in connection with the establishment of the facility, and the negotiation, preparation, and execution of the Loan Documents and any consents, amendments, waivers, or other modifications thereto and the transactions contemplated thereby; and (iv) all reasonable out-of-pocket expenses (including reasonable attorneys fees and costs, which attorneys may be employees of the Administrative Agent or any Lender and the fees and costs of appraisers, brokers, investment bankers or other experts retained by Lender) incurred by Administrative Agent and each Lender in connection with (x) the enforcement of or preservation of rights under any of the Loan Documents against Borrower or any other Person, or the administration thereof, (y) any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a “work out” or pursuant to any insolvency or bankruptcy proceedings, and (z) any litigation, proceeding or dispute whether arising hereunder or otherwise, in any way related to Administrative Agent’s or any Lender’s relationship with Borrower, except to the extent arising out of such Person’s gross negligence or willful misconduct as finally determined by a court of

 

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competent jurisdiction.  The covenants of this Section shall survive payment or satisfaction of payment of amounts owing with respect to the Warehousing Note.  The amount of all such expenses shall, until paid, bear interest at the rate applicable to principal hereunder (including the Default Rate) and be an Obligation secured by any Collateral.

 

12.4(b)                   Borrower shall indemnify and hold harmless Administrative Agent and each Lender and their respective parents, affiliates, officers, directors, employees, attorneys, and agents (“Indemnified Party”) from and against any and all claims, actions and suits whether groundless or otherwise, and from and against any and all liabilities, losses, damages and expenses of every nature and character arising out of this Agreement or any of the other Loan Documents or the transactions contemplated hereby (“Damages”) including, without limitation (i) any actual or proposed use by Borrower of the proceeds of the Loan, (ii) Borrower entering into or performing this Agreement or any of the other Loan Documents, or (iii) with respect to Borrower and its properties and assets, the violation of any applicable law, in each case including, without limitation, the reasonable fees and disbursements of counsel and allocated costs of internal counsel incurred in connection with any such investigation, litigation or other proceeding; provided, however, that no Indemnified Party shall be entitled to indemnification if a court of competent jurisdiction finally determines (all appeals having been exhausted or waived) that such Indemnified Party acted with willful misconduct or gross negligence.  In litigation, or the preparation therefor, Administrative Agent and each Lender shall be entitled to select their respective own counsel and, in addition to the foregoing indemnity, Borrower agrees to pay promptly the reasonable fees and expenses of such counsel.  If, and to the extent that the obligations of Borrower under this Section 12.4(b) are unenforceable for any reason, Borrower agrees to make the maximum contribution to the payment in satisfaction of such obligations which is permissible under applicable law.  The provisions of this Section 12.4(b) shall survive the repayment of the Loan and the termination of the obligations of Administrative Agent and each Lender hereunder.

 

12.4(c)                    To the extent that the Borrower for any reason fails to indefeasibly pay any amount required under Sections 12.4(a) or 12.4(b) to be paid by it to the Administrative Agent, each Lender severally agrees to pay to the Administrative Agent, such Lender’s Ratable Share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent in connection with such capacity.

 

12.5                        Financial Information

 

All financial statements and reports furnished to the Administrative Agent under this Agreement must be prepared in accordance with GAAP, applied on a basis consistent with that applied in preparing the most recent Audited Financial Statement of Borrower provided to Administrative Agent.

 

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12.6                        Terms Binding Upon Successors; Survival of Representations

 

The terms and provisions of this Agreement are binding upon and inure to the benefit of Borrower, Administrative Agent, each Lender, and their respective successors and permitted assigns.  All of Borrower’s representations, warranties, covenants and agreements survive the making of any Warehousing Advance, and, except where a longer period is set forth in this Agreement, remain effective for as long as the Warehousing Commitment is outstanding or there remain any Obligations to be paid or performed.

 

12.7                        Pledge to Federal Reserve Banks

 

Each Lender may at any time pledge or assign all or any portion of its rights under the Loan Documents (including, without limitation, any portion of its Warehousing Note) to any of the Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341.  No such pledge or assignment or enforcement thereof shall release a Lender from its obligations under any of the Loan Documents.

 

12.8                        Governing Law

 

This Agreement and the rights and obligations of the parties hereunder shall be construed and interpreted in accordance with the laws of the Commonwealth of Pennsylvania (excluding the laws applicable to conflicts or choice of law).

 

12.9                        Amendments

 

This Agreement may not be amended, modified, or supplemented except by a written agreement signed by Borrower, Parent, Administrative Agent and each Lender.

 

12.10                 Relationship of the Parties

 

This Agreement provides for the making of Warehousing Advances by Lenders, the requirement of Warehousing Advances by Borrower, the payment of interest on those Warehousing Advances, and the payment of certain fees by Borrower to Administrative Agent and Lenders.  The relationship between Administrative Agent, Lenders and Borrower is limited to that of creditor and secured party on the part of Administrative Agent and each Lender and of debtor on the part of Borrower.  The provisions of this Agreement and the other Loan Documents for compliance with financial covenants and the delivery of financial statements and other operating reports are intended solely for the benefit of Administrative Agent and each Lender to protect their interests as creditors and secured party.  Nothing in this Agreement creates or may be construed as permitting or obligating Administrative Agent or any Lender to act as a financial or business advisor or consultant to Borrower, as permitting or obligating Administrative Agent or any Lender to control Borrower or to conduct Borrower’s operations, as creating any fiduciary obligation on the part of Administrative Agent or any Lender or to Borrower, or as creating any joint venture, partnership, agency or other similar relationship between Administrative Agent, any Lender and Borrower.  Borrower acknowledges that it has had the opportunity to obtain the advice of experienced counsel of its own choice in connection with the negotiation and execution of the Loan Documents and to obtain the advice of that counsel with respect to all matters contained in the Loan Documents, including the waivers of jury trial and of punitive,

 

55

 

consequential, special or indirect damages contained in Sections 12.18.  Borrower further acknowledges that it is experienced with respect to financial and credit matters and has made its own independent decisions to apply to Lenders for credit and to execute and deliver this Agreement.

 

12.11                 Severability

 

If any provision of this Agreement or any other Loan Document is declared to be illegal or unenforceable in any respect, that provision is null and void and of no force and effect to the extent of the illegality or unenforceability, and does not affect the validity or enforceability of any other provision of the Agreement or such other Loan Document.

 

12.12                 Consent to Credit References

 

Borrower and Parent each consents to the disclosure of information regarding Borrower, Parent and their relationship with Administrative Agent and Lenders to Persons making credit inquiries to Lender.  This consent is revocable by Borrower or Parent at any time upon Notice to Administrative Agent as provided in Section 12.3.

 

12.13                 Counterparts

 

This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together constitute but one and the same instrument.

 

12.14                 Headings/Captions

 

The captions or headings in this Agreement and the other Loan Documents are for convenience only and in no way define, limit or describe the scope or intent of any provision of this Agreement or any other Loan Document.

 

12.15                 Entire Agreement

 

This Agreement, the Warehousing Note and the other Loan Documents are intended by the parties as the final, complete and exclusive statement of the transactions evidenced by thereby.  All prior or contemporaneous promises, agreements and understandings, whether oral or written, are deemed to be superseded by this Agreement, the Warehousing Note and the other Loan Documents, and no party is relying on any promise, agreement or understanding not set forth in this Agreement, the Warehousing Note or the other Loan Documents.

 

12.16                 Consent to Jurisdiction

 

BORROWER AND PARENT EACH AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF PENNSYLVANIA OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON BORROWER AND PARENT BY MAIL AT THE ADDRESS SET FORTH HEREIN.  BORROWER AND PARENT EACH HEREBY WAIVES

 

56

 

ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT FORUM.

 

12.17                 Waiver of Jury Trial

 

BORROWER, PARENT, ADMINISTRATIVE AGENT AND EACH LENDER (BY ACCEPTANCE OF THIS AGREEMENT) MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY, INCLUDING, WITHOUT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS OR ACTIONS OF ADMINISTRATIVE AGENT OR EACH LENDER RELATING TO THE ADMINISTRATION OF THE LOANS OR ENFORCEMENT OF THE LOAN DOCUMENTS, AND AGREE THAT NO PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.

 

12.18                 Waiver of Punitive, Consequential, Special or Indirect Damages

 

BORROWER AND PARENT EACH WAIVES ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES FROM ADMINISTRATIVE AGENT AND EACH LENDER OR ANY OF THEIR AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS, OR AGENTS WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY BORROWER OR PARENT AGAINST ADMINISTRATIVE AGENT AND EACH LENDER OR ANY OF THEIR AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS, OR AGENTS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.  THIS WAIVER OF THE RIGHT TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES IS KNOWINGLY AND VOLUNTARILY GIVEN BY BORROWER AND PARENT, AND IS INTENDED TO ENCOMPASS EACH INSTANCE AND EACH ISSUE FOR WHICH THE RIGHT TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES WOULD OTHERWISE APPLY.  THE ADMINISTRATIVE AGENT AND EACH LENDER IS AUTHORIZED AND DIRECTED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES TO THIS AGREEMENT AS CONCLUSIVE EVIDENCE OF THIS WAIVER OF THE RIGHT TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES.

 

12.19                 U.S. Patriot Act

 

Each of Administrative Agent and each Lender hereby notifies Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies

 

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Borrower, which information includes the name and address of Borrower and other information that will allow such Administrative Agent and such Lenders to identify Borrower in accordance with the Act.

 

12.20                 Assignments and Participations

 

12.20(a)            Each Lender may assign all or any part of, or any interest in, such Lender’s rights and benefits hereunder and under the other Loan Documents, as well as all obligations related to such assigned rights and interest (including all or a portion of its Commitment and the Loans at the time owing to it), provided that any such assignment shall be subject to the following conditions:

 

(i)                           Minimum Amounts.

 

(a)           In the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment and/or Loans at the time owing to it, no minimum amount shall be assigned;

 

(b)           In any case not described in (1) above, the aggregate amount of the Commitment shall not be less than Five Million Dollars ($5,000,000.00).

 

(ii)                        Proportionate Amounts.     Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Commitment assigned.

 

(iii)                     Consent of Administrative Agent.    The consent of Administrative Agent (not to be unreasonably withheld or delayed) and the Borrower (not to be unreasonably withheld or delayed, and provided that no Event of Default shall have occurred and be continuing) shall be required for an assignment of any or part of a Lender’s Commitment, except an assignment to a Lender, an Affiliate of a Lender or an Approved Fund.

 

(iv)                    Assignment and Assumption.  The parties to each assignment shall execute and deliver to Administrative Agent an Assignment Agreement in the form of Exhibit M attached hereto and made a part hereof, together with a processing fee in the amount of Two Thousand Five Hundred Dollars ($2,500);

 

(v)                       No Assignment to Certain Persons.  No assignment shall be mate to (A) the Borrower, Guarantor or any Affiliate of Borrower or Guarantor, (B) any Defaulting Lender, or (C) any natural Person.

 

Subject to acceptance thereof by Administrative Agent pursuant to clause (iii) of this Section 12.20, from and after the effective date specified in each Assignment Agreement, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment Agreement, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment Agreement, be released from its obligations under this Agreement (and in the case of an Assignment Agreement

 

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covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Section 12.4 with respect to facts and circumstances occurring prior to the effective date of such assignment, provided, that except to the extent otherwise expressly agreed by the affected parties, no assignment by a Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.  Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 12.20(b) below.

 

12.20(b)            Each Lender may at any time enter into participation agreements with one or more participating lenders whereby such Lender may allocate certain percentages of such Lender’s Warehousing Credit Limit to such participant(s), provided that no participant shall have, except as provided below, any voting or consent rights on any issue with respect to this Agreement or the other Loan Documents.  No participant shall be entitled to require the Administrative Agent or other Lenders to take or refrain from taking any action under this Agreement or any other Loan Document.  Notwithstanding the foregoing, any such participant shall be considered to be a “Lender” for purposes of Sections 3.11, 10.5, and 12.4 with respect to its participation; provided, however, that no participant shall be entitled to receive any greater amount than such Lender would have been entitled to receive in respect of the participation effected by such Lender had no participation occurred.  Borrower acknowledges that, for the convenience of all parties, this Agreement is being entered into with Lenders only and that its obligations under this Agreement are, to the extent expressly provided for in this Section 12.20, undertaken for the benefit of, and as an inducement to, any such participating lenders as well as Lenders.  Any grant of a participation by any Lender shall not discharge, reduce or otherwise affect such Lender’s obligation under this Agreement to fund Warehousing Advances, which obligation shall remain primary and absolute.  Such grants of participations shall not affect or diminish the rights of the granting Lender to reimbursement or other payments which may become due to such Lender under this Agreement and such reimbursements and other payments will be calculated as if said Lender had not granted any such participation.  Except as provided for herein, no participant shall have, by virtue of any participation, any rights or benefits under this Agreement or claims of any kind against Borrower.

 

12.20(c)             Borrower authorizes Lenders to disclose to any participant or assignee (each, a “Participant”) and any prospective Participant any and all information in the Administrative Agent’s or any Lender’s possession concerning Borrower which has been delivered to Administrative Agent or such Lender by Borrower in connection with the Administrative Agent’s or such Lender’s credit evaluation of Borrower.  Borrower shall assist such Lender in effectuating any assignment or participation pursuant to this Section 12.20 (including during syndication) in whatever manner Lender reasonably deems necessary, including the participation in meetings with prospective Participants.

 

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12.20(d)            No Loan Party may assign or otherwise transfer any of its rights or obligations hereunder or under the Loan Documents without the prior written consent of the Administrative Agent and each Lender.

 

12.20(e)             Notwithstanding anything in this Section 12.20 to the contrary, PNC hereby covenants and agrees with Wells Fargo that in the event PNC assigns or participates any part of its Warehousing Commitment, PNC shall retain a minimum Warehousing Commitment Amount equal to Wells Fargo’s then Warehousing Commitment Amount.

 

12.21                 Confidentiality

 

Each of the Administrative Agent and the Lenders agree to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates in connection with the administration of this Agreement and the preservation, exercise or enforcement of the rights of the Administrative Agent and the Lenders under this Agreement (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential and with the applicable Lender or Administrative Agent being responsible for such Affiliates’ and employees’ compliance with this Section); (b) to the extent required or requested by any regulatory authority purporting to have jurisdiction over such Person; (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process provided, unless specifically prohibited by applicable law or court order, Administrative Agent and each Lender shall use reasonable efforts to notify the Borrower of any request by any governmental agency or representative thereof (other than any such request in connection with an examination of such Lender by such governmental agency) for disclosure of any such Information prior to disclosure of such Information; (d) to any other party hereto; (e) in connection with the exercise of any remedies hereunder or under any this Agreement or any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder; (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights and obligations under this Agreement, or (ii) any actual or prospective party (or its Affiliates) to any swap, derivative or other transaction under which payments are to be made by reference to the Borrower and its obligations, this Agreement or payments hereunder; (g) on a confidential basis to any rating agency in connection with rating the Borrower or the Guarantor; (h) with the consent of the Borrower and/or Guarantor, as applicable; or (i) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section, or (y) becomes available to the Administrative Agent, any Lender, or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrower or Guarantor.

 

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For purposes of this Section, “Information” means all information received from the Borrower or the Guarantor relating to the Borrower or Guarantor or any of their respective businesses, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by the Borrower or the Guarantor; provided that, in the case of information received from the Borrower or the Guarantor after the date hereof, such information is clearly identified at the time of delivery as confidential.  Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

 

12.22                 No Novation.

 

The parties hereto have entered into this Agreement solely to amend and restate the terms of the Original Credit Facility Agreement.  The parties hereto do not intend this Agreement nor the transactions contemplated hereby to be, and this Agreement and the transactions contemplated hereby shall not be construed to be, a novation of any of the obligations owing by Borrower or any other Loan Party under or in connection with the Original Credit Facility Agreement or any of the other Loan Documents.  The parties agree that (a) all of the Loan Documents not otherwise expressly terminated or amended and restated in connection with the execution and delivery of  this Agreement constitute, and shall be deemed to be, Loan Documents; (b) all such Loan Documents remain in full force and effect and (c) any reference to the Original Credit Facility Agreement in any such Loan Document shall be deemed to be a reference to this Agreement.

 

12.23                 Amendment and Restatement.

 

It is the intention of each of the parties hereto that the Original Credit Facility Agreement be amended and restated so as to preserve the perfection and priority of all security interests securing all indebtedness and obligations of the Loan Parties under the Original Credit Facility Agreement, and that all indebtedness and obligations of Borrower hereunder and thereunder be secured by the Liens credited by the Security Documents.  The parties hereto further acknowledge and agree that this Agreement constitutes an amendment and restatement of the Original Credit Facility Agreement.

 

13.                               DEFINITIONS

 

13.1                        Defined Terms

 

In addition to terms defined elsewhere in this Agreement, when used in this Agreement and, unless otherwise defined therein, in any other Loan Document (and including, unless otherwise defined therein, in any Schedules or Exhibits to this Agreement and to the other Loan Documents), capitalized terms defined below or elsewhere in this Agreement have the following meanings:

 

“Acquisition Term Loan” means the term loan made by the lenders pursuant to the Acquisition Term Loan Agreement.

 

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“Acquisition Term Loan Agreement” means the certain Credit Agreement dated as of September 4, 2012, among the Parent, as borrower, Walker & Dunlop Multifamily, Inc., the Borrower, and WD Capital, as guarantors, and Bank of America, National Association, as administrative agent and collateral agent, and the lenders party thereto, as from time to time amended, modified, supplemented, restated and extended.

 

“Adjusted Tangible Net Worth” shall mean Tangible Net Worth, minus Restricted Cash, plus commercial mortgage servicing rights (to the extent otherwise included in Intangible Assets).

 

“Administrative Agent” shall mean PNC Bank, National Association, and its successors and assigns.

 

“Advance Rate” means, with respect to any Eligible Loan, the Advance Rate set forth in Exhibit D for that type of Eligible Loan.

 

“Affiliate” means, when used with reference to any Person, (a) each Person that, directly or indirectly, controls, is controlled by or is under common control with, the Person referred to, (b) each Person that beneficially owns or holds, directly or indirectly, five percent (5%) or more of any class of voting Equity Interests of the Person referred to, (c) each Person, five percent (5%) or more of the voting Equity Interests of which is beneficially owned or held, directly or indirectly, by the Person referred to, and (d) each of such Person’s officers, directors and joint venturers.  For these purposes, the term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the Person in question.

 

“Agency Security” means a Mortgage-backed Security issued or guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae.

 

“Agreement” means this Amended and Restated Warehousing Credit and Security Agreement, either as originally executed or as it may be amended, restated, renewed or replaced, and including all Exhibits and Schedules hereto.

 

“Applicable Base Rate” means for any day, a fluctuating per annum rate of interest equal to the sum of (a) the higher of (i) the Prime Rate and (ii) the Federal Funds Open Rate plus fifty basis points (0.50%), and (b) one and one-half percent (1.5%).  The calculation and determination of the Applicable Base Rate shall be made daily by the Administrative Agent and such determination shall, absent manifest error, be final, conclusive and binding upon Borrower and the Administrative Agent.  Changes in the Applicable Base Rate shall become effective on the same day as the Administrative Agent changes its Prime Rate or a change occurs in the Federal Funds Open Rate, depending upon which rate is applicable on that day to the determination of the Base Rate.

 

“Applicable Daily Floating LIBO Rate” means, for any day, a rate per annum equal to the Daily LIBO Rate for such day, plus one and 50/100th percent (1.50%).

 

“Applicable Rate” means, for any day (a) except as otherwise required from time to time pursuant to Section 3.11(b) or 3.11(g), the Applicable Daily Floating LIBO Rate for such day, or

 

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(b) if, and only for as long as, required from time to time pursuant to Section 3.11(b) or 3.11(g), the Applicable Base Rate for each applicable day.

 

“Approved Custodian” means Fannie Mae, Freddie Mac, FHA and any pool custodian or other Person that the Administrative Agent deems acceptable, in its sole discretion, to hold Mortgage Loans for inclusion in a Mortgage Pool or to hold Mortgage Loans as agent for an Investor that has issued a Purchase Commitment for those Mortgage Loans.

 

“Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

 

“ARA Finance” means ARA Finance LLC, a Delaware limited liability company in which WD Capital holds a 50% membership interest.

 

“At Risk Mortgage Loans” means Mortgage Loans as to which either Borrower or, as may be applicable, WD Capital has any loss sharing arrangement or otherwise is with recourse to Borrower or WD Capital, respectively.

 

“Authorized Representatives” has the meaning set forth in Section 3.12.

 

“Base Rate Loan” means the Loan (or any particular Warehousing Advance) at any time while it bears interest at the Applicable Base Rate.

 

“Borrower” has the meaning set forth in the first paragraph of this Agreement.

 

“Business Day” means any (a) day other than Saturday or Sunday, or (b) day of the year on which offices of Administrative Agent are not required or authorized by law to be closed for business in Pittsburgh, Pennsylvania.  If any day on which a payment is due is not a Business Day, then the payment shall be due on the next day following which is a Business Day.  Further, if there is no corresponding day for a payment in the given calendar month (e.g., there is no “February 30th”), the payment shall be due on the last Business Day of the calendar month.

 

“Calendar Quarter” means the 3 month period beginning on each January 1, April 1, July 1 or October 1.

 

“Cash Collateral Account” means the Administrative Agent access only deposit accounts maintained at Administrative Agent and designated for receipt of the proceeds of the sale or other disposition of Collateral (account no. 130760016803 for Borrower).

 

“Cash Equivalents” means (i) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than twelve months from the date of acquisition (“Government Obligations”), (ii) U.S. dollar denominated (or foreign currency fully hedged) time deposits, certificates of deposit, Eurodollar time deposits and Eurodollar certificates of deposit of (y) any domestic commercial bank of recognized standing having capital and surplus in excess of $250,000,000 or (z) any bank whose short-term commercial paper rating from S&P is at least A-1 or the equivalent

 

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thereof or from Moody’s is at least P-1 or the equivalent thereof (any such bank being an “Approved Bank”), in each case with maturities of not more than 364 days from the date of acquisition, (iii) commercial paper and variable or fixed rate notes rated A-1 (or the equivalent thereof) or better by S&P or P-1 (or the equivalent thereof) or better by Moody’s and maturing within twelve months of the date of acquisition (other than paper or notes issued by the Parent or an Affiliate of the Parent), (iv) repurchase agreements with a bank or trust company (including a Lender) or a recognized securities dealer having capital and surplus in excess of $500,000,000 for direct obligations issued by or fully guaranteed by the United States of America, (v) obligations of any state of the United States or any political subdivision thereof for the payment of the principal and redemption price of and interest on which there shall have been irrevocably deposited Government Obligations maturing as to principal and interest at times and in amounts sufficient to provide such payment, and (vi) U.S. dollar denominated time and demand deposit accounts or money market accounts with those domestic banks meeting the requirements of item (y) or (z) of clause (ii) above and any other domestic commercial banks insured by the FDIC with an aggregate balance not to exceed in the aggregate at any time at any such bank such amount as may be fully insured by the FDIC from time to time.

 

“C&D System” means Fannie Mae’s Commitments and Deliveries system.

 

“Closing Date” means, subject to Borrower’s satisfaction of the conditions set forth in Article 5, the date as of which this Agreement is executed as first above written.

 

“Collateral” has the meaning set forth in Section 4.1.

 

“Collateral Documents” means, with respect to each Mortgage Loan, (a) the documents set forth in the applicable Exhibit B attached hereto and (b) all other documents including, if applicable, any Security Agreement, executed in connection with or relating to the Mortgage Loan.

 

“Commitment” shall mean as to any Lender, its Warehousing Commitment, and “Commitments” shall mean the aggregate of the Warehousing Commitments of all of Lenders.

 

“Compliance Certificate” means a certificate executed on behalf of Borrower by its chief financial officer or other management official having principal financial accounting responsibilities, substantially in the form of Exhibit I.

 

“Daily LIBO Rate” for any day shall mean, the rate per annum determined by the Administrative Agent by dividing (a) the Published Rate by (b) a number equal to 1.00 minus the LIBOR Reserve Percentage.

 

“Damages” has the meaning set forth in Section 12.4(b).

 

“Default” means the occurrence of any event or existence of any condition that, but for the giving of Notice, the lapse of time or both would constitute an Event of Default.

 

“Default Rate” means, on any day, a rate per annum equal to the Applicable Rate on such day plus four percent (4%).

 

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“Defaulting Lender” shall mean any Lender that (a) has failed, within two Business Days of the date required to be funded or paid, to (i) fund any portion of its Advance or (ii) pay over to the Administrative Agent or any Lender any other amount required to be paid by it hereunder, unless, in the case of clause (i) above, such Lender notifies the Administrative Agent in writing that such failure is the result of such Lender’s good faith determination that a condition precedent to funding (specifically identified and including the particular default, if any) has not been satisfied, (b) has notified Borrower or the Administrative Agent in writing, or has made a public statement to the effect, that it does not intend or expect to comply with any of its funding obligations under this Agreement (unless such writing or public statement indicates that such position is based on such Lender’s good faith determination that a condition precedent (specifically identified and including the particular default, if any) to funding an Advance under this Agreement cannot be satisfied), (c) has failed, within two Business Days after request by the Administrative Agent, acting in good faith, to provide a certification in writing from an authorized officer of such Lender that it will comply with its obligations (and is financially able to meet such obligations) to fund prospective Advances under this Agreement, provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon the Administrative Agent’s receipt of such certification in form and substance satisfactory to the Administrative Agent, (d) has become the subject of a Bankruptcy Event.

 

As used in this definition and in Section 2.4, the term “Bankruptcy Event” means, with respect to any Person, such Person or such Person’s direct or indirect parent company becomes the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee, administrator, custodian, assignee for the benefit of creditors or similar Person charged with the reorganization or liquidation of its business appointed for it, or, in the good faith determination of the Administrative Agent, has taken any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any such proceeding or appointment, provided that a Bankruptcy Event shall not result solely by virtue of any ownership interest, or the acquisition of any ownership interest, in such Person or such Person’s direct or indirect parent company by an Official Body or instrumentality thereof if, and only if, such ownership interest does not result in or provide such Person with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Person (or such Official Body or instrumentality) to reject, repudiate, disavow or disaffirm any contracts or agreements made by such Person.

 

“Eligible Loan” means a Mortgage Loan that satisfies the conditions and requirements set forth in Exhibit D and meets the following criteria: (a) such Mortgage Loan has not been previously sold or pledged to obtain financing (whether or not such financing constitutes Indebtedness) under another warehousing financing arrangement or gestation agreement, (b) Administrative Agent believes that such Mortgage Loan is not based on untrue, incomplete, inaccurate or fraudulent information and is not otherwise subject to fraud, and (c) the Warehousing Advance on such Mortgage Loan will not exceed the Advance Rate applicable to that type of Eligible Loan at the time it is pledged.

 

“Eligible Mortgage Pool” means a Mortgage Pool for which (a) an Approved Custodian has issued its initial certification, (b) there exists a Purchase Commitment covering the Agency Security to be issued on the basis of that certification and (c) the Agency Security will be delivered to the Administrative Agent.

 

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“Equity Interest” means, with respect to any Person, any share of capital stock of (or other ownership or profit interests in) such Person, any warrant, option or other right for the purchase or other acquisition from such Person of any share of capital stock of (or other ownership or profit interests in) such Person whether or not certificated, any security convertible into or exchangeable for any share of capital stock of (or other ownership or profit interests in) such Person or warrant, right or option for the purchase or other acquisition from such Person of such shares (or such other interests), and any other ownership, profit or 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 (including, without limitation, partnership, membership or trust interests therein) whether voting or nonvoting, and whether or not such share, warrant, option, right or other interest is authorized or otherwise existing on any date of determination.

 

“Equity Issuance” means any issuance or sale by a Person of any Equity Interest in such Person (and includes any capital contribution from any Person other than the Borrower or a Subsidiary).

 

“ERISA” means the Employee Retirement Income Security Act of 1974 and all rules and regulations promulgated under that statute, as amended, and any successor statute, rules, and regulations.

 

“ERISA Affiliate” means any trade or business (whether or not incorporated) that is a member of a group of which a Borrower is a member and that is treated as a single employer under Section 414 of the Internal Revenue Code.

 

“Escrow Deposits” shall mean escrow deposits maintained by Borrower at the Administrative Agent, which shall be interest bearing or non-interest bearing as designated by Borrower.

 

“Event of Default” means any of the conditions or events set forth in Section 10.1.

 

“Excess Payment” has the meaning set forth in Section 3.11(f).

 

“Fair Market Value” means, at any time for an Eligible Loan or a related Pledged Security (if the Eligible Loan is to be used to back a Pledged Security) as of any date of determination, the market price for such Eligible Loan or Pledged Security, determined by Administrative Agent based on market data for similar Mortgage Loans or Pledged Securities and such other criteria as Administrative Agent deems appropriate in its sole discretion.

 

“Fannie Mae” means Fannie Mae, a corporation created under the laws of the United States, and any successor corporation or other entity.

 

“Fannie Mae DUS Mortgage Loan” has the meaning specified in Exhibit D.

 

“Fannie Mae DUS Program” means Fannie Mae’s program for the purchase of Mortgage Loans originated under Fannie Mae’s Delegated Underwriting and Servicing Guide, as amended from time to time.

 

“Fannie Mae Loan Loss Reserves” means reserves established by Borrower to absorb estimated future losses related to Fannie Mae DUS Mortgage Loans.

 

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“Federal Agency” means FHA, Freddie Mac, Fannie Mae, Ginnie Mae or any other instrumentality or agency of the United States of America or corporation organized under the laws of the United States of America which insures, guaranties or purchases Mortgage Loans.

 

“Federal Funds Open Rate” for any day shall mean the rate per annum (based on a year of three hundred sixty (360) days and actual days elapsed) which is the daily federal funds open rate as quoted by ICAP North America, Inc.  (or any successor) as set forth on the Bloomberg Screen BTMM for that day opposite the caption “OPEN” (or on such other substitute Bloomberg Screen that displays such rate), or as set forth on such other recognized electronic source used for the purpose of displaying such rate as selected by the Administrative Agent (an “Alternate Federal Funds Source”) (or if such rate for such day does not appear on the Bloomberg Screen BTMM (or any substitute screen) or on any Alternate Federal Funds Source, or if there shall at any time, for any reason, no longer exist a Bloomberg Screen BTMM (or any substitute screen) or any Alternate Federal Funds Source, a comparable replacement rate determined by the Administrative Agent at such time (which determination shall be conclusive absent manifest error); provided, that if such day is not a Business Day, the Federal Funds Open Rate for such day shall be the Federal Funds Open Rate on the immediately preceding Business Day.

 

“FHA” means the Federal Housing Administration and any successor agency or other entity.

 

“FHA Construction Mortgage Loan” means an FHA fully-insured Mortgage Loan for the construction or substantial rehabilitation of a multifamily property.

 

“FHA Mortgage Loan” means an FHA Construction Mortgage Loan or an FHA Permanent Mortgage Loan.

 

“FHA Permanent Mortgage Loan” means an FHA fully-insured Mortgage Loan secured by a Mortgage on a Multi-Family Property.

 

“FICA” means the Federal Insurance Contributions Act and all rules and regulations promulgated under that statute, as amended, and any successor statute, rules and regulations.

 

“FIRREA” means the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and all rules and regulations promulgated under that statute, as amended, and any successor statute, rules, and regulations.

 

“First Mortgage” means a Mortgage that constitutes a first Lien on the real property and improvements described in or covered by that Mortgage.

 

“First Mortgage Loan” means a Mortgage Loan secured by a First Mortgage.

 

“Fiscal Year” means any period of twelve consecutive months ending on December 31 of any calendar year.

 

“Freddie Mac” means Freddie Mac, or other Federal Agency to which the powers and duties of Freddie Mac have been transferred.

 

“Freddie Mac Program Plus” means Freddie Mac’s Program Plus Seller/Servicer program.

 

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“Fund” means any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extension of credit in the ordinary course of its activities.

 

“Funding Notice” has the meaning set forth in Section 2.2(a).

 

“GAAP” means generally accepted accounting principles set forth in opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and in statements and pronouncements of the Financial Accounting Standards Board, or in opinions, statements or pronouncements of any other entity approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.

 

“Ginnie Mae” means the Government National Mortgage Association or other Federal Agency as to which the powers and duties of the Governmental National Mortgage Association have been transferred.

 

“Governmental Authority” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).

 

“Hedging Arrangements” means, with respect to any Person, any agreements or other arrangements (including interest rate swap agreements, collars, derivatives, interest rate cap agreements and forward sale agreements) entered into to protect that Person against changes in interest rates or the market value of assets.

 

“HUD” means the Department of Housing and Urban Development, and any successor agency or other entity.

 

“Indebtedness” means, as to any Person, all obligations, contingent and otherwise, that in accordance with GAAP should be classified upon the consolidated balance sheet of such Person and such Person’s Subsidiaries as liabilities, or to which reference should be made by footnotes thereto, including in any event and whether or not so classified: (a) all obligations for borrowed money or other extensions of credit whether secured or unsecured, absolute or contingent, including, without limitation, unmatured reimbursement obligations with respect to letters of credit or guarantees issued for the account of or on behalf of such Person and its Subsidiaries and all obligations representing the deferred purchase price of property; (b) all obligations evidenced by bonds, notes, debentures or other similar instruments; (c) all liabilities secured by any mortgage, pledge, security interest, lien, charge, or other encumbrance existing on property owned or acquired subject thereto, whether or not the liability secured thereby shall have been assumed; (d) all guarantees, endorsements and other contingent obligations whether direct or indirect, in respect of indebtedness of others or otherwise, including any obligations under Hedging Arrangements and otherwise with respect to puts, swaps, and other similar undertakings, any obligation to supply funds to or in any manner to invest in, directly or

 

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indirectly, the debtor, to purchase indebtedness, or to assure the owner of indebtedness against loss, through an agreement to purchase goods, supplies, or services for the purpose of enabling the debtor to make payment of the indebtedness held by such owner or otherwise, and the obligations to reimburse the issuer in respect of any letters of credit; and (e) that portion of all obligations arising under capital leases that is required to be capitalized on the consolidated balance sheet of such Person and its Subsidiaries; but excluding, in all events obligations arising under operating leases and accounts payable arising in the ordinary course of business.

 

“Indemnified Party” has the meaning set forth in Section 12.2(b).

 

“Intangible Assets” shall mean all assets which would be classified as intangible assets under GAAP consistently applied, including, without limitation, goodwill (whether representing the excess of cost over book value of assets acquired or otherwise), patents, trademarks, trade names, copyrights, franchises and deferred charges (including, without limitation, unamortized debt discount and expense, organization costs, and research and development costs).

 

“Interest Expense” for any period shall mean, the sum of (a) the amount of interest accrued on, or with respect to, Indebtedness for such period, including, without limitation, imputed interest on capital leases and imputed or accreted interest in respect of deep discount or zero coupon obligations, plus (b) the net amount payable under all Hedging Arrangements in respect of such period (or minus the net amount receivable under all Hedging Arrangements in respect of such period) plus (c) commitment fees payable during such period.

 

“Internal Revenue Code” means the Internal Revenue Code of 1986, Title 26 of the United States Code, and all rules, regulations and interpretations issued under those statutory provisions, as amended, and any subsequent or successor federal income tax law or laws, rules, regulations and interpretations.

 

“Investment Company Act” means the Investment Company Act of 1940 and all rules and regulations promulgated under that statute, as amended, and any successor statute, rules and regulations.

 

“Investor” means (a) a Federal Agency, or (b) a financially responsible private institution that the Administrative Agent deems acceptable from time to time, in its sole discretion, to issue Purchase Commitments with respect to a particular category of Eligible Loans.

 

“Late Charge” has the meaning set forth in Section 3.10.

 

“Lenders” shall mean the financial institutions named on Schedule I and their respective successors and assigns as permitted hereunder, each of which is referred to herein as a Lender.  For the purpose of any Loan Document which provides for the granting of a security interest or other Lien to Lenders or to the Administrative Agent for the benefit of Lenders as security for the Obligations, “Lenders” shall include any Affiliate of a Lender to which such Obligation is owed.

 

“LIBOR Loan” means the Loan (or any particular Warehousing Advance) at any time it is being maintained at a rate of interest based upon the Daily LIBO Rate (the Applicable Rate for which shall be the Applicable Daily Floating LIBO Rate).

 

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“LIBOR Reserve Percentage” shall mean the maximum effective percentage in effect on such day as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including, without limitation, supplemental, marginal and emergency reserve requirements) with respect to eurocurrency funding (currently referred to as “Eurocurrency liabilities”).

 

“Lien” means (a) any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever and (b) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.

 

“Liquid Assets” means the following unrestricted and unencumbered assets owned by a Person (and, if applicable, that Person’s Subsidiaries, on a consolidated basis) as of any date of determination: (a) cash, (b) Cash Equivalents, and (c) Borrower’s and, as may be applicable, WD Capital’s self-funded Mortgage Loans which are covered by binding purchase commitments from Fannie Mae, Freddie Mac, or another investor approved by the Administrative Agent in its sole discretion, and are not subject to any Liens or Negative Pledge in favor of any Person other than the Administrative Agent.

 

“Loan” shall have the meaning set forth in Section 1.5.

 

“Loan Documents” means this Agreement, the Warehousing Note, and each other document, instrument or agreement executed by any Loan Party in connection with any of those documents, instruments and agreements, or establishing or evidencing an Obligation, including, without limitation, pursuant to a Hedging Arrangement with Administrative Agent or any Lender or an Affiliate as the counterparty, to the extent specifically hedging Borrower’s interest bearing obligations under this Agreement, each as originally executed or as any of the same may be amended, restated, renewed or replaced.

 

“Loan Party” means any of Borrower and/or Parent.

 

“Margin Stock” has the meaning assigned to that term in Regulation U of the Board of Governors of the Federal Reserve System, as amended.

 

“Measurement Period” means, at any date of determination, the most recently completed four Fiscal Quarters of the applicable Person.  For purposes of calculating any financial ratio or financial covenant for a Measurement Period (a) other than with respect to the last Fiscal Quarter of any Fiscal Year, the financial statements delivered to the Agent pursuant to Section 7.2(b) shall be used with respect to each respective Fiscal Quarter covered thereby, provided that, when a Measurement Period includes a Fiscal Quarter that is covered by the then most recently delivered audited financial statements required to be delivered to the Agent pursuant to Section 7.2(a), then the financial statements relating to such prior covered Fiscal Quarters shall be adjusted pursuant to any adjustments made in such audited financial statements, and (b) for the Fourth Quarter, the audited financial statements for the Fiscal Year then ended shall be used.

 

“Miscellaneous Fees and Charges” means, without duplication, the miscellaneous fees set forth on Exhibit L and/or in the custodial agreement and related documents and fee schedule

 

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previously, or to be, entered into by the Administrative Agent (or an affiliate) and Borrower on or before the Closing Date, and all miscellaneous disbursements, charges and expenses incurred by or on behalf of Administrative Agent for the handling and administration of Warehousing Advances and Collateral, including custodial fees, costs for Uniform Commercial Code, tax lien and judgment searches conducted by Administrative Agent, filing fees, charges for wire transfers (outgoing and incoming) and check processing charges, charges for security delivery fees, charges for overnight delivery of Collateral to Investors, recording fees, service fees and overdraft charges.  Upon not less than 3 Business Days’ prior Notice to Borrower, Administrative Agent may modify such Miscellaneous Fees and Charges (and Exhibit L, as may be appropriate) to conform to current Administrative Agent practices.

 

“Mortgage” means a mortgage or deed of trust on real property that, except in the case of an FHA Construction Mortgage Loan, is improved and substantially completed.

 

“Mortgage-backed Securities” means securities that are secured or otherwise backed by Mortgage Loans.

 

“Mortgage Loan” means any loan evidenced by a Mortgage Note and secured by a Mortgage and, if applicable, a Security Agreement.

 

“Mortgage Loan Amount” means the outstanding principal amount of Mortgage Loan.

 

“Mortgage Note” means a promissory note secured by one or more Mortgages and, if applicable, one or more Security Agreements.

 

“Mortgage Pool” means a pool of one or more Pledged Loans on the basis of which a Mortgage-backed Security is to be issued.

 

“Multiemployer Plan” means a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA, to which Borrower or any ERISA Affiliate of a Borrower has any obligation with respect to its employees.

 

“Negative Pledge” means an agreement by a Person with any other Person not to create, incur, assume, or suffer to exist any Lien upon any of its property, assets, or revenues, however characterized for UCC or other purposes.

 

“Net Income” means, for any period, the consolidated net income (or loss) of the Parent, before deduction of income taxes, determined on a consolidated basis in accordance with GAAP.

 

“Net Proceeds” means with respect to an Equity Issuance by a Person, the aggregate amount of all cash or the fair market value of all other property received by such Person in respect of such Equity Issuance net of reasonable and customary legal fees, accountants fees, underwriting discounts and commissions and other customary fees and expenses actually incurred by such Person in connection with such Equity Issuance.

 

“Net Worth” shall mean, as of the date of any determination thereof, the net worth of Borrower determined in accordance with GAAP.

 

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“No Risk Mortgage Loans” means Mortgage Loans as to which Borrower or, as may be applicable, WD Capital has no loss sharing arrangement or otherwise are without recourse to Borrower or WD Capital, respectively.

 

“Notices” has the meaning set forth in Section 12.1.

 

“Obligations” means all indebtedness, obligations and liabilities of Borrower to Administrative Agent or any Lender (whether now existing or arising after the date of this Agreement, voluntary or involuntary, joint or several, direct or indirect, absolute or contingent, liquidated or unliquidated, or decreased or extinguished and later increased and however created or incurred), including, without limitation, Borrower’s obligations and liabilities to Administrative Agent or any Lender (a) under the Loan Documents, (b) for disbursements made by Administrative Agent or any Lender for Borrower’s account, (c) for overdrafts (which, if permitted, shall be at Administrative Agent’s sole discretion), (d) for automated clearinghouse exposure, (e) under Hedging Arrangements with any Lender or an Affiliate as the counterparty, to the extent specifically hedging Borrower’s interest bearing obligations under this Agreement and of which Hedging Arrangement Lender had been provided Notice (and all details thereof) prior to its establishment, and (f) under any cash management or related agreements.

 

“Operating Accounts” means the demand deposit accounts maintained at Administrative Agent in Borrower’s name and designated for funding that portion of each Eligible Loan not funded by a Warehousing Advance made against that Eligible Loan and for returning any excess payment from an Investor for a Pledged Loan or Pledged Security (as of the date hereof, account no. 4212867739 with respect to Borrower).

 

“Other Fannie Mae Mortgage Loan” has the meaning set forth in Exhibit D.

 

“Other Taxes” has the meaning set forth in Section 3.11(d).

 

“Outstanding Amount” means on any date, the aggregate outstanding principal amount of the Loan after giving effect to any prepayments or repayments of the Loan occurring on such date.

 

“Overdraft Advance” has the meaning set forth in Section 3.7.

 

“Parent” means Walker & Dunlop, Inc., a Maryland corporation.

 

“Participant” has the meaning specified in Section 12.21(c).

 

“Person” means and includes natural persons, corporations, limited liability companies, limited liability partnerships, limited partnerships, general partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments and agencies and political subdivisions of those governments.

 

“Plan” means each employee benefit plan (whether in existence on the date of this Agreement or established after that date), as that term is defined in Section 3 of ERISA, maintained for the benefit of directors, officers or employees of a Borrower or any ERISA Affiliate.

 

72

 

“Pledged Hedging Accounts” has the meaning set forth in Section 4.1(g).

 

“Pledged Hedging Arrangements” has the meaning set forth in Section 4.1(g).

 

“Pledged Loans” has the meaning set forth in Section 4.1(b).

 

“Pledged Securities” has the meaning set forth in Section 4.1(c).

 

“PNC” means PNC Bank, National Association.

 

“Prime Rate” means on any day, the rate of interest per annum then most recently established by the Administrative Agent as its “prime rate,” it being understood and agreed that such rate is set by the Administrative Agent as a general reference rate of interest, taking into account such factors as the Administrative Agent may deem appropriate, that it is not necessarily the lowest or best rate actually charged to any customer or a favored rate, that it may not correspond with future increases or decreases in interest rates charged by other lenders or market rates in general, and that Administrative Agent may make various business or other loans at rates of interest having no relationship to such rate.  If Administrative Agent ceases to exist or to establish or publish a prime rate from which the Prime Rate is then determined, the applicable variable rate from which the Prime Rate is determined thereafter shall be instead the prime rate reported in The Wall Street Journal (or the average prime rate if a high and a low prime rate are therein reported), and the Prime Rate shall change without notice with each change in such prime rate as of the date such change is reported.

 

“Prohibited Transaction” has the meanings set forth for such term in Section 4975 of the Internal Revenue Code and Section 406 of ERISA.

 

“Property” means a multifamily property securing a Mortgage Loan.

 

“Published Rate” shall mean the rate of interest published each Business Day in The Wall Street Journal “Money Rates” listing under the caption “London Interbank Offered Rates” for a one-month period (or, if no such rate is published therein for any reason, then the Published Rate shall be the eurodollar rate for a one-month period as published in another publication determined by the Administrative Agent).

 

“Purchase Commitment” means an unconditional, fixed price, irrevocable written commitment, in form and substance satisfactory to the Administrative Agent, issued in favor of Borrower by an Investor under which that Investor commits to purchase Mortgage Loans or Mortgage-backed Securities.

 

“Ratable Share” shall mean the proportion that a Lender’s Commitment bears to the Commitments of all of Lenders, provided that if there exists a Defaulting Lender, “Ratable Share” shall mean the percentage of the aggregate Commitments (disregarding any Defaulting Lender’s Commitment) represented by such Lender’s Commitment.  If the Commitments have terminated or expired, the Ratable Share shall be determined based upon the Commitments most recently in effect, giving effect to any assignments.

 

“Recipient” means (a) Administrative Agent and (b) any Lender, as applicable.

 

73

 

“Reference Rate” means, as applicable for determining the Applicable Rate for any day, the Daily LIBO Rate or the Applicable Base Rate for such day.

 

“Release Amount” has the meaning set forth in Section 4.3(f).

 

“Restricted Cash” shall mean segregated funds of Borrower held for the benefit of third parties and noted as “restricted cash and cash equivalents” in Borrower’s financial statements.

 

“Restriction List” and “Restriction Lists” means each and every list of Persons who are Specially Designated Nationals and Blocked Persons or otherwise are Persons to whom the Government of the United States prohibits or otherwise restricts the provision of financial services.  For the purposes of this Agreement, Restriction Lists include the list of Specially Designated Nationals and Blocked Persons established pursuant to Executive Order 13224 (September 23, 2001) and maintained by the U.S. Department of the Treasury’s Office of Foreign Assets Control or any successor agency or other entity, U.S. Department of the Treasury, current as of the day the Restriction List is used for purposes of comparison in accordance with the requirements of this Agreement.

 

“Required Lenders” shall mean

 

(A)                               If there exists fewer than three (3) Lenders, all Lenders (other than any Defaulting Lender), and

 

(B)                               If there exist three (3) or more Lenders, Lenders (other than any Defaulting Lender) having more than fifty percent (50%) of the Total Credit Exposures of all Lenders (with the Total Credit Exposure of any Defaulting Lender being disregarded in such determination).

 

“Second Mortgage” means a subordinate Mortgage that is in second lien position, subordinate to a first lien position Mortgage.

 

“Second Mortgage Loan” means a Mortgage Loan secured by a Second Mortgage.

 

“Security Agreement” means a security agreement or other agreement that creates a Lien on personal property, including furniture, fixtures and equipment, to secure repayment of a Mortgage Loan.

 

“Servicing Contract” means, with respect to any Person, the arrangement, whether or not in writing, under which that Person has the right to service Mortgage Loans.

 

“Servicing Portfolio” means, as to any Person, the unpaid principal balance of Mortgage Loans serviced by that Person under Servicing Contracts, minus the principal balance of all Mortgage Loans that are serviced by that Person for others under subservicing arrangements.

 

“Servicing Report” has the meaning set forth in Section 7.3(a).

 

“Specially Designated Nationals or Blocked Persons” means Persons which are owned or controlled by, or acting on behalf of, the government of target countries or are associated with international narcotics trafficking or terrorism.

 

74

 

“Subordinate Mortgage” means a Second Mortgage or a Third Mortgage.

 

“Subordinate Mortgage Loan” means a Mortgage Loan secured by a Subordinate Mortgage for which all prior Mortgage Loans on that Property are under a Servicing Contract with Borrower, and for which all prior Mortgage Loans on that Property have been sold to, or are subject to a Purchase Commitment issued by, Fannie Mae.

 

“Subsidiary” means any corporation, partnership, association or other business entity in which more than fifty percent (50%) of the shares of stock or other ownership interests having voting power for the election of directors, managers, trustees or other Persons performing similar functions is at the time owned or controlled by any Person either directly or indirectly through one or more Subsidiaries of that Person.

 

“Tangible Net Worth” means, at any time of determination, the excess, at such time, of the Parent’s and its Subsidiaries’, on a consolidated basis, total assets, minus the sum of (i) total liabilities, and (ii) the book value of all intangible assets, including, without limitation, good will, trademarks, trade names, service marks, brand names, copyrights, patents and unamortized debt discount and expense, organizational expenses and the excess of the equity in any Subsidiary over the cost of the investment in such Subsidiary, all of the foregoing determined in accordance with GAAP applied in a manner consistent with the most recent audited financial statements delivered to Administrative Agent under this Agreement.  For the purposes of this definition, mortgage servicing rights shall not be considered intangible assets.

 

“Taxes” has the meaning set forth in Section 3.11(c).

 

“Third Mortgage” means a subordinate Mortgage that is in third lien position, subordinate to a first lien position Mortgage and a Second Mortgage.

 

“Third Mortgage Loan” means a Mortgage Loan secured by a Third Mortgage.

 

“Total Credit Exposure” means, as to any Lender at any time, the unused Commitments at such time.

 

“Trust Receipt” means a trust receipt in a form approved by and under which the Administrative Agent may deliver any document relating to the Collateral to Borrower for correction or completion.

 

“USPAP” means the Appraisal Foundation’s Uniform Standards of Professional Appraisal Practice, as in effect from time to time.

 

“Warehousing Advance” means a disbursement by Lenders under Section 1.1.

 

“Warehousing Advance Due Date” means, with respect to a Warehousing Advance, the date that is sixty (60) days after the date of such Warehousing Advance.

 

“Warehousing Advance Request” has the meaning set forth in Section 2.1.

 

75

 

“Warehousing Commitment” means the obligation of Lenders to make Warehousing Advances to Borrower under Section 1.1.

 

“Warehousing Commitment Amount” means, for any Lender, at any date, that dollar amount designated opposite such Lender’s name on Schedule I as its Warehousing Commitment Amount, as the same may be amended from time to time in accordance with this Agreement.

 

“Warehousing Credit Limit” means Six Hundred Fifty Million Dollars ($650,000,000).

 

“Warehousing Maturity Date” has the meaning set forth in Section 1.2.

 

“Warehousing Note” has the meaning set forth in Section 1.3.

 

“WD Capital” means Walker & Dunlop Capital, LLC (formerly known as CWCapital, LLC), a Massachusetts limited liability company.

 

“Wells Fargo” means Wells Fargo Bank, National Association.

 

13.2                        Other Definitional Provisions; Terms of Construction

 

13.2(a)                   Accounting terms not otherwise defined in this Agreement have the meanings given to those terms under GAAP.

 

13.2(b)                   Defined terms may be used in the singular or the plural, as the context requires.

 

13.2(c)                    All references to time of day mean the then applicable time in Pittsburgh, Pennsylvania, unless otherwise expressly provided.

 

13.2(d)                   References to Sections, Exhibits, Schedules and like references are to Sections, Exhibits, Schedules and the like of this Agreement unless otherwise expressly provided.

 

13.2(e)                    The words “include,” “includes” and “including” are deemed to be followed by the phrase “without limitation.”

 

13.2(f)                     Unless the context in which it is used otherwise clearly requires, the word “or” has the inclusive meaning represented by the phrase “and/or.”

 

13.2(g)                    All incorporations by reference of provisions from other agreements are incorporated as if such provisions were fully set forth into this Agreement, and include all necessary definitions and related provisions from those other agreements.  All provisions from other agreements incorporated into this Agreement by reference survive any termination of those other agreements until the Obligations of Borrower under this Agreement and the Warehousing Notes are irrevocably paid in full and the Warehousing Commitment is terminated.

 

13.2(h)                   All references to the Uniform Commercial Code are deemed to be references to the Uniform Commercial Code in effect on the date of this Agreement in the applicable jurisdiction.

 

76

 

13.2(i)                       Unless the context in which it is used otherwise clearly requires, all references to days, weeks and months mean calendar days, weeks and months.

 

13.2(j)                      Unless a payment from a Loan Party directly relates to an Obligation to Administrative Agent, payments received by Administrative Agent under the Loan Documents shall be for the benefit of Lenders.

 

[Signature pages follow]

 

77

 

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written.

 

	
 
    	
WALKER &   DUNLOP, LLC, as Borrower
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Stephen P. Theobald
    
	
 
    	
Name:
    	
Stephen   P. Theobald
    
	
 
    	
Title:
    	
Executive   Vice President, Chief Financial Officer and Treasurer
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
WALKER &   DUNLOP, INC., as Parent
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Stephen P. Theobald
    
	
 
    	
Name:
    	
Stephen   P. Theobald
    
	
 
    	
Title:
    	
Executive   Vice President, Chief Financial Officer and Treasurer
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
PNC   BANK, NATIONAL ASSOCIATION,
    
	
 
    	
as   Administrative Agent and Lender
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Donald Thomas
    
	
 
    	
Name:
    	
Donald   Thomas
    
	
 
    	
Title:
    	
Associate
    
	
 
    	
 
    	
 
    
	
 
    	
 
    
	
 
    	
WELLS   FARGO BANK, NATIONAL ASSOCIATION, as Lender
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   John Nelson
    
	
 
    	
Name:
    	
John   Nelson
    
	
 
    	
Title:
    	
Managing   Director
    

 

S-1

 

Exhibit A

 

FORM OF WAREHOUSING NOTE

 

	
$
    	
June 25, 2013
    

 

FOR VALUE RECEIVED, Walker & Dunlop, LLC (“Borrower”), a Delaware limited liability company, promises to pay to the order of [PNC Bank, National Association, a national banking association] [Wells Fargo Bank, National Association] (together with its successors and assigns, the “Lender”), in accordance with the provisions of the Agreement (as hereinafter defined), at the offices of Administrative Agent located at One PNC Plaza, Pittsburgh, Pennsylvania 15222, or at such other place as Administrative Agent may designate from time to time (i) the principal sum of                      Million Dollars ($                    ), or so much thereof as may be outstanding under the Agreement relating to Lender’s Warehousing Commitment Amount, (ii) interest on that amount from the date of each Warehousing Advance from Lender until repaid in full, and (iii) all other fees, charges and other Obligations due to Administrative Agent or Lender under the Agreement, at the rates, at the times, and in the manner set forth in the Agreement.  All payments under this Note and the Agreement must be made in lawful money of the United States and in immediately available funds.

 

This Warehousing Note (this “Note”) evidences a line of credit and is one of the Warehousing Notes referred to in that certain Amended and Restated Warehousing Credit and Security Agreement, dated as of June       , 2013, by and among Borrower, Lender and certain other parties (the “Agreement”).  Reference is made to the Agreement (which is incorporated by reference as fully and with the same effect as if set forth at length in this Note) for a description of the Collateral and a statement of (a) the covenants and agreements made by Borrower, (b) the rights and remedies granted to Administrative Agent and Lender, and (c) the other matters governed by the Agreement.  Capitalized terms not otherwise defined in this Note have the meanings set forth in the Agreement.

 

In addition to principal, interest, fees and other charges payable by Borrower under this Note and the Agreement, Borrower must pay in accordance with the terms of Section 12.2(a) of the Agreement, all out-of-pocket costs and expenses of Administrative Agent and each Lender, including reasonable fees, expenses and disbursements of counsel, in connection with the enforcement and collection of this Note.

 

Borrower waives demand, notice, protest and presentment in connection with collection of amounts outstanding under this Note.

 

This Note is governed by the laws of the Commonwealth of Pennsylvania, without reference to its principles of conflicts of laws, as an instrument under seal.

 

[Signature Page Follows]

 

A-1

 

IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of the date set forth above as a sealed instrument.

 

	
 
    	
WALKER &   DUNLOP, LLC, a Delaware limited liability company
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    

 

A-2

 

Exhibit B-1 – FNMA/DUS

 

PROCEDURES AND DOCUMENTATION FOR WAREHOUSING FANNIE MAE DUS AND OTHER FANNIE MAE MORTGAGE LOANS

 

Walker & Dunlop, LLC, a Delaware limited liability company (“Borrower”) must observe the following procedures and documentation requirements in all respects.  All documents must be satisfactory to PNC Bank, N.A., a national banking association (“Administrative Agent”) in its sole discretion.  Capitalized terms used in this Exhibit without further definition have the meanings set forth in the Amended and Restated Warehousing Credit and Security Agreement among Borrower, Lenders party thereto and Administrative Agent (as amended, restated, renewed or replaced, the “Agreement”).  Fannie Mae form numbers used in this Exhibit are for convenience only and Borrower must use the equivalent forms required at the time of delivery of a Pledged Loan or a Pledged Security.

 

I.                                        At least Three (3) Business Days prior to the Warehousing Advance Date, the Administrative Agent must receive a letter signed by Borrower, providing the following information on the Pledged Loan:

 

1.                                      Mortgagor’s name.

 

2.                                      Project Name.

 

3.                                      Borrower’s case/loan number.

 

4.                                      Location of project.

 

5.                                      Mortgage Note Amount.

 

6.                                      Expected Warehousing Advance date.

 

7.                                     Name, street address, e-mail address, telephone number and telecopier number of title company and settlement attorney and contact person.  Must identify who will be responsible for custody of closing documents and delivery of required items to Administrative Agent.

 

II.                                   At least One (1) Business Day prior to the Warehousing Advance Date, Borrower will send via overnight carrier or electronically to the Administrative Agent, for receipt before 11:00 a.m. (Pittsburgh, Pennsylvania time) the following Business Day, the following:

 

1.                                      An original, facsimile or other electronic copy (with the original to be forwarded via overnight delivery) of the Warehousing Advance Request subject to changes to be communicated in writing by Borrower to the Administrative Agent before 11:00 a.m. (Pittsburgh, Pennsylvania time) on the day of the Warehousing Advance.

 

2.                                      A letter from Borrower providing the following additional information on the Pledge Loan:

 

1

 

(a)                                 Note Rate.

 

(b)                                 Name of Investor.

 

(c)                                  Discount (if any).

 

3.                                      Closing settlement statement, if available, otherwise must be delivered on the date of the Warehousing Advance, prior to funding.

 

4.                                      A completed and executed Loan Disbursement Authorization in the form attached hereto as Exhibit O.

 

5.                                      For Other Fannie Mae Mortgage Loans, a copy of the Fannie Mae Multifamily Commitment printed from the C&D System.

 

6.                                      For Fannie Mae DUS Mortgage Loans, a copy of the confirmed Fannie Mae Multifamily MBS/DUS Commitment printed from the C&D System.

 

7.                                      If a Mortgage-backed Security is to be issued, a copy of the Purchase Commitment or trade confirmations for the Pledged Security.

 

8.                                      Original, facsimile or other electronic copy of the Administrative Agent’s escrow instructions letter to the settlement attorney, countersigned by an authorized representative of the settlement attorney involved with the transaction, in a form substantially similar to that attached hereto as (a) Exhibit N-1 if the settlement attorney will also be acting as the bailee with respect to the Mortgage Note or (b) Exhibit N-2 if the settlement attorney will not be acting as the bailee with respect to the Mortgage Note.

 

No Warehousing Advance will be made by the Administrative Agent prior to the Administrative Agent’s receipt of all the documents required under Section II above.  The Administrative Agent has a reasonable time (one (1) Business Day under ordinary circumstances) to examine Borrower’s Warehousing Advance Request and the related documents to be delivered by Borrower before funding the requested Warehousing Advance, and may reject any Mortgage Loan that does not meet the requirements of this Exhibit, the Agreement or of the related Purchase Commitment.

 

In accordance with the Escrow Letter, disbursement will be authorized only after the settlement attorney or closing counsel takes possession, on behalf of Administrative Agent, of the signed Mortgage Note, endorsed by Borrower in blank and without recourse, and the title company is prepared to issue its title insurance policy.  Immediately after disbursement, the settlement attorney, the closing attorney or title company (herein, the “Closing Agent”) must send the original of the Mortgage Note to the Administrative Agent for receipt by the Administrative Agent on the following Business Day.  In the event the Pledged Loan is not closed and the related Mortgage submitted for recording by 4:30 p.m. (Pittsburgh, Pennsylvania time) on the date of the Warehousing Advance, the Closing Agent must return the Warehousing Advance immediately to the account specified in the Administrative Agent’s escrow instructions unless otherwise approved by the Administrative Agent prior to such time; provided, however, that the Warehousing Advance may remain with the title company for up to two (2) Business Days with

 

2

 

prior written notice to the Administrative Agent and, if longer than two (2) Business Days, with prior written approval of the Administrative Agent.

 

The foregoing arrangements, which permits the Administrative Agent to fund the Warehousing Advance after the Mortgage Note has been delivered to a third person on behalf of, and as agent and bailee for, the Administrative Agent, and before the Mortgage Note is received by Administrative Agent, are for the convenience of Borrower.  Borrower retains all risk of loss or nondelivery of the Mortgage Note, and the Administrative Agent does not have any liability or responsibility for those risks.

 

III.                              On The Warehousing Advance Date, the Administrative Agent must receive the following:

 

1.                                      The closing settlement statement.

 

2.                                      A copy of the Mortgage Note made by the Mortgagor in favor of Borrower, executed by the Mortgagor.

 

3.                                      A copy of the unrecorded, undated and in blank, assignment of the Mortgage in the form attached hereto as Exhibit P.

 

4.                                      A copy of the first page of the title insurance policy or the title insurance commitment to issue a policy marked to show the final policy exceptions, which:

 

(a)                                 Names as insured Borrower and/or the Investor, and their successors and assigns, as their interests may appear;

 

(b)                                 Shows effective date and time which is as of the date and time of disbursement of the Warehousing Advance from escrow; and

 

(c)                                  Sets forth an insured amount which is equal to or greater than the aggregate Warehousing Advance amount.

 

5.                                      A bailee agreement executed by Borrower’s closing counsel, in the form of (a) Exhibit N-1 if the closing counsel is also acting as the settlement attorney with respect to the Warehousing Advance funds or (b) Exhibit N-3 if the closing counsel is not acting as the settlement attorney with respect to the Warehousing Advance funds, whereby in either case the closing counsel agrees that it will hold the original Mortgage Note as bailee for and on behalf of Administrative Agent and deliver it to the Administrative Agent by recognized overnight delivery within One (1) Business Day after the Warehousing Advance Date.

 

6.                                      Written notice by electronic mail or facsimile authorizing the Administrative Agent to disburse funds to the Escrow Agent as set forth in the Escrow Letter, to be held in trust by the Escrow Agent pending the Administrative Agent’s authorization to release such funds.

 

7.                                      Documents that are reasonably requested by the Administrative Agent.

 

3

 

IV.                               As soon as possible following the Warehousing Advance Date, and no later than One (1) Business Day after the Warehousing Advance Date, the Administrative Agent must receive the following:

 

1.                                      The original Mortgage Note, endorsed by Borrower in blank and without recourse, sent by overnight delivery.

 

V.                                    As soon as possible following the Warehousing Advance Date, and no later than Two (2) Business Days prior to the date the Investor or the Approved Custodian must receive the Pledged Loan, the Administrative Agent must receive the following:

 

1.                                      The original unrecorded, undated and in blank, assignment of the Mortgage, in the form attached hereto as Exhibit P, sent by overnight delivery.

 

2.                                      The remainder of the documents required for shipping to the Investor as specified by the Investor or in the applicable Seller/Servicer Guide or to an Approved Custodian for the Investor, including the original release documents required by the Investor.

 

3.                                      Documents that are reasonably requested by Administrative Agent.

 

VI.                               As soon as possible following the Warehousing Advance Date, and no later than Two (2) Business Days prior to the date the Investor or the Approved Custodian must receive the Pledged Loan, Administrative Agent must receive the following:

 

1.                                      Signed shipping instructions for the delivery of the Pledged Loan, including the following:

 

(a)                                 Name and address of the Investor or the Approved Custodian to which the Collateral Documents are to be shipped, the desired shipping date and the preferred method of delivery (which must be a shipper ordinarily utilized by Administrative Agent) with Borrower’s billing account information for such shipper (or alternatively a pre-labeled envelope);

 

(b)                                 Date by which the Investor or the Approved Custodian must receive the Pledged Loan; and

 

(c)                                  Instructions for endorsement of the Mortgage Note.

 

2.                                      For Other Fannie Mae Mortgage Loans and Fannie Mae DUS Mortgage Loans, the following additional documents must be received:

 

(a)                                 Executed bailee letter with the appropriate applicable Schedule (in form approved by Fannie Mae and Administrative Agent).

 

3.                                     For cash payments, the signed original Wire Transfer Request (Fannie Mae Form 4639) or Fannie Mae Wiring Instructions printed from the C&D System, specifying the

 

4

 

applicable Cash Collateral Account as the receiving account for loan purchase proceeds.  Wire instructions are as follows:

 

For Borrower:

 

PNC Bank, N.A.

ABA #: 043-000-096

ACCOUNT #:  XXXXXXXXXXX

REF:  Walker & Dunlop LLC

ATTN:  Lesley McKee @ (412) 768-5622

 

4.                                      If a Mortgage-backed Security is to be issued by Fannie Mae, a copy of the Fannie Mae Wiring Instructions printed from the C&D System, instructing Fannie Mae to issue the Mortgage-backed Security in Borrower’s name and to deliver the Pledged Security to Administrative Agent’s custody account at the Administrative Agent using the following instructions:

 

For Borrower:

 

Federal Reserve Bank of Cleveland

ABA #:  043000096

For:  PNC BANKPITT/Trust/324006094413

REF:  Walker & Dunlop LLC

 

5.                                      If a Mortgage-backed Security is to be issued, completed and signed Security Delivery Instructions, in the form attached as Schedule I to this Exhibit.

 

Unless otherwise agreed in writing with Borrower, the Administrative Agent exclusively will deliver the Mortgage Note and other original Collateral Documents required by this Exhibit evidencing the Pledged Loan, together with a bailee letter, to an Investor or an Approved Custodian.  Upon instruction by Borrower, the Administrative Agent will complete the endorsement of the Mortgage Note.  If no Mortgage-backed Security is to be issued, the Administrative Agent will deliver the Mortgage Note and the other documents required for shipping to the Investor as specified by the Investor or in the applicable Seller/Servicer Guide with a bailee letter to the Investor that issued the Purchase Commitment for the Pledged Loan or to an Approved Custodian for the Investor.  If a Mortgage-backed Security is to be issued, Administrative Agent will deliver the Mortgage Note and the other documents required for shipping.

 

5

 

Schedule I To Exhibit B-1 – FNMA/DUS

 

PNC BANK, N.A.

SECURITY DELIVERY INSTRUCTIONS

 

INSTRUCTIONS MUST BE RECEIVED TWO (2) BUSINESS DAYS IN ADVANCE OF PICK-UP/DELIVERY

 

	
BOOK-ENTRY   DATE:
    	
SETTLEMENT   DATE:
    
	
 
    	
 
    
	
ISSUER:
    	
SECURITY:   $
    

 

(For Borrower):[                  ]

 

(For Borrower):[                        ]

 

CUSIP NO.

 

Pool No.                           MI No.

 

Coupon Rate:

 

Issue Date (M/D/Y):                                    Maturity Date (M/D/Y):

 

POOL TYPE:

 

DELIVERY INSTRUCTIONS:                          DVP AMOUNT $

 

	
AUTHORIZED   SIGNATURE:
    	
 
    	
 
    
	
 
    
	
TITLE:
    	
 
    	
 
    
				

 

 

6

 

Exhibit B-2 – FHA/GNMA

 

PROCEDURES AND DOCUMENTATION FOR WAREHOUSING

FHA PERMANENT MORTGAGE LOANS, FHA CONSTRUCTION MORTGAGE

LOANS, AND RELATED GINNIE MAE MORTGAGE-BACKED SECURITIES

 

Walker & Dunlop, LLC, a Delaware limited liability company (“Borrower”) must observe the following procedures and documentation requirements in all respects.  All documents must be satisfactory to PNC Bank, N.A., a national banking association (“Administrative Agent”) in its sole discretion.  Capitalized terms used in this Exhibit without further definition have the meanings set forth in the Amended and Restated Warehousing Credit and Security Agreement among Borrower, Lenders party thereto and Administrative Agent (as amended, restated, renewed or replaced, the “Agreement”).  HUD form numbers used in this Exhibit are for convenience only and Borrower must use the equivalent forms required at the time of delivery of a Pledged Mortgage or a Pledged Security.

 

I.                                       At least Three (3) Business Days prior to the Warehousing Advance Date, the Administrative Agent must receive a letter signed by Borrower providing the following information on the Pledged Mortgage or Security:

 

1.                                      Mortgagor’s name.

 

2.                                      Project Name.

 

3.                                      Borrower’s case/loan number.

 

4.                                      HUD’s case/loan number.

 

5.                                      Location of project.

 

6.                                      Mortgage Note Amount.

 

7.                                      Expected Warehousing Advance date.

 

8.                                      Name and address of Borrower’s counsel to be present at closing.

 

9.                                      Name, street address, e-mail address, telephone number and telecopier number of title company and settlement attorney and contact person.  Must identify who will be responsible for custody of closing documents and delivery of required items to Administrative Agent.

 

Upon receipt of Borrower’s letter required under this Section I, in form and substance satisfactory to Administrative Agent, Administrative Agent will issue its closing instructions letter to Borrower’s counsel and its escrow instructions letter to the settlement attorney involved with the transaction.

 

1

 

II.                                   At least One (1) Business Day prior to the Warehousing Advance Date, Borrower will send to the Administrative Agent, for receipt before 11:00 a.m (Pittsburgh, Pennsylvania time) the following Business Day, the following:

 

1.                                      An original or facsimile (with original to be forwarded via overnight delivery) of the Warehousing Advance Request subject to changes to be communicated in writing by Borrower to the Administrative Agent before 11:00 a.m. (Pittsburgh, Pennsylvania time) on the day of the Warehousing Advance.

 

2.                                      A letter from Borrower providing the following additional information on the Pledge Loan:

 

(a)                                 Note Rate.

 

(b)                                 Name of Investor.

 

(c)                                  Discount (if any).

 

3.                                      Closing settlement statement, if available, otherwise must be delivered on the date of the Warehousing Advance, prior to funding.

 

4.                                      A completed and executed Loan Disbursement Authorization in the form attached hereto as Exhibit O.

 

5.                                      Copy of current FHA Firm Commitment to insure.

 

6.                                      If no mortgage-backed Security is to be issued, a copy of the Purchase Commitment (which must conform to the requirements of the Agreement) for the Pledged Mortgage (or the original thereof if requested by Administrative Agent).

 

7.                                      If a mortgage-backed Security is to be issued, a copy of the Purchase Commitment or trade confirmation for the mortgage-backed Security (or the original thereof if requested by Administrative Agent).

 

8.                                      Original or facsimile of the Administrative Agent’s closing instructions letter to Borrower’s attorney, countersigned by the attorney involved with transaction.

 

9.                                      Original or facsimile of the Administrative Agent’s escrow instructions letter to the settlement attorney, countersigned by an authorized representative of the settlement attorney involved with the transaction, in a form substantially similar to that attached hereto as (a) Exhibit N-1 if the settlement attorney will also be acting as the bailee with respect to the Mortgage Note or (b) Exhibit N-2 if the settlement attorney will not be acting as the bailee with respect to the Mortgage Note.

 

10.                               For FHA Construction Mortgage Loans, a copy of the Application for Insurance of Advance of Mortgage Proceeds (HUD Form 92403) to be submitted to HUD.

 

2

 

No Warehousing Advance will be made by the Administrative Agent prior to the Administrative Agent’s receipt of all documents required under Section II above.  The Administrative Agent has a reasonable time (one (1) Business Day under ordinary circumstances) to examine Borrower’s Warehousing Advance Request and the related documents to be delivered by Borrower before funding the requested Warehousing Advance, and may reject any Eligible Mortgage that does not meet the requirements of this Exhibit, the Agreement or of the related Purchase Commitment.

 

In accordance with the Escrow Letter, in the event the Pledged Loan is not closed and the related Mortgage submitted for recording by 4:30 p.m. (Pittsburgh, Pennsylvania time) on the date of the Warehousing Advance, the settlement attorney or closing counsel must return the Warehousing Advance immediately to the account specified in Administrative Agent’s escrow instructions, unless otherwise approved by the Administrative Agent prior to such time; provided, however, that the Warehousing Advance may remain with the title company for up to two (2) Business Days with prior written notice to the Administrative Agent, and if longer than two (2) Business Days, with prior written approval of the Administrative Agent.

 

The foregoing arrangements, which permit the Administrative Agent to fund the Warehousing Advance after the Mortgage Note has been delivered to a third person on behalf of, and as agent and bailee for, Administrative Agent, and before the Mortgage Note is received by Administrative Agent, are for the convenience of Borrower.  Borrower retains all risk of loss or non-delivery of the Mortgage Note, and the Administrative Agent does not have any liability or responsibility for those risks.

 

III.                              On the Warehousing Advance Date, the Administrative Agent must receive the following:

 

1.                                      The closing settlement statement.

 

2.                                      A copy of the Mortgage Note made by the Mortgagor in favor of Borrower, executed by the Mortgagor and endorsed for insurance by HUD.

 

3.                                      A copy of the unrecorded, undated and in blank, assignment of the Mortgage, in the form attached hereto as Exhibit P.

 

4.                                      A copy of the first page of the title insurance policy or the title insurance commitment to issue a policy marked to show the final policy exceptions, which:

 

(a)                                 Names as insured the “Mortgagee and/or the Secretary of the Department of Housing and Urban Development, and their successors and assigns, as their interests may appear.”

 

(b)                                 Shows an effective date and time that is as of the date and time of disbursement of the Warehousing Advance from escrow.

 

(c)                                  Sets forth an insured amount that is equal to or greater than the aggregate Warehousing Advance amount.

 

3

 

5.                                      A bailee agreement executed by Borrower’s closing counsel, in the form of (a) Exhibit N-1 if the closing counsel is also acting as the settlement attorney with respect to the Warehousing Advance funds or (b) Exhibit N-3 if the closing counsel is not acting as the settlement attorney with respect to the Warehousing Advance funds, whereby in either case the closing counsel agrees that it will hold the original Mortgage Note as bailee for and on behalf of Administrative Agent and deliver it to the Administrative Agent by recognized overnight delivery within One (1) Business Day after the Warehousing Advance Date.

 

6.                                      Written notice by electronic mail or facsimile authorizing the Administrative Agent to disburse funds to the Escrow Agent as set forth in the Escrow Letter, to be held in trust by the Escrow Agent pending the Borrower’s authorization to release such funds.

 

7.                                      Documents that are reasonably requested by the Administrative Agent.

 

8.                                      For FHA Construction Mortgage Loans, a copy of the Application for Insurance of Advance of Mortgage Proceeds (HUD Form 92403), signed by an authorized representative of HUD.

 

IV.                               FOR SUBSEQUENT WAREHOUSING ADVANCES FOR FHA CONSTRUCTION MORTGAGE LOAN:  AT LEAST ONE (1) BUSINESS DAY PRIOR TO THE DATE OF THE WAREHOUSING ADVANCE THE ADMINISTRATIVE AGENT MUST RECEIVE THE FOLLOWING:

 

1.                                      Original or facsimile of the signed Warehousing Advance Request.

 

2.                                      An Application for Insurance of Advance of Mortgage Proceeds (HUD Form 92403), signed by an authorized representative of HUD.

 

V.                                    FOR SUBSEQUENT WAREHOUSING ADVANCES FOR FHA CONSTRUCTION MORTGAGE LOAN: ON THE DAY OF THE WAREHOUSING ADVANCE THE ADMINISTRATIVE AGENT MUST RECEIVE THE FOLLOWING

 

1.                                      Administrative Agent must receive evidence of the insurance coverage in an amount equal to the amount of the Warehousing Advance with a copy of the title insurance policy endorsement immediately following closing.

 

VI.                               As soon as possible after the Warehousing Advance Date, and no later than Two (2) Business Days prior to the date the Investor or the Approved Custodian must receive the Pledged Mortgage, Administrative Agent must receive:

 

1.                                      The original unrecorded, undated and in blank, assignment of the Mortgage, in the form attached hereto as Exhibit P, sent by overnight delivery.

 

2.                                     The remainder of the documents required for shipping to the Investor as specified by the Investor or in the applicable Seller/Servicer Guide or to an Approved Custodian for the Investor, including the original release documents required by the Investor.

 

4

 

3.                                      Documents that are reasonably requested by the Administrative Agent.

 

VII.                          As soon as possible after the Warehousing Advance Date, and no later than Two (2) Business Days prior to the date the Investor or the Approved Custodian must receive the Pledged Mortgage, the Administrative Agent must receive signed shipping instructions for the delivery of the Pledged Loan, including the following:

 

1.                                      Name and address of the Investor or the Approved Custodian to which the Collateral Documents are to be shipped, the desired shipping date and the preferred method of delivery (which must be a shipper utilized by Administrative Agent), with Borrower’s billing account information for such shipper (or alternatively a pre-labeled envelope).

 

2.                                      Name of the project securing the Pledged Loan.

 

3.                                      Date by which the Investor or the Approved Custodian must receive the Pledged Loan.

 

4.                                      Instructions for endorsement of the Mortgage Note.  For an FHA Construction Mortgage Loan, Administrative Agent will, if instructed, endorse and deliver the Mortgage Note following the initial Warehousing Advance for that Mortgage Loan.

 

5.                                      Completed but not signed Release of Security Interest (HUD Form 11711A), to be signed and delivered by Administrative Agent.  With respect to Warehousing Advances against FHA Construction Mortgage Loans, Administrative Agent will only sign and deliver a Release of Security Interest (HUD Form 11711A) for the initial and the last Warehousing Advances for that Mortgage Loan.

 

Unless otherwise agreed in writing with Borrower, the Administrative Agent exclusively will deliver the Mortgage Note and other original Collateral Documents relating to the Collateral evidencing a Pledged Loan, together with a bailee letter, to an Investor or an Approved Custodian.  Upon instruction by Borrower, the Administrative Agent will complete the endorsement of the Mortgage Note.  If no Mortgage-backed Security is to be issued, the Administrative Agent will deliver the Mortgage Note with a bailee letter to the Investor that issued the Purchase Commitment for the Pledged Loan or an Approved Custodian for the Investor.  If a Mortgage-backed Security is to be issued, Administrative Agent will deliver the Mortgage Note and the Release of Security Interest with a Bailee Letter to an Approved Custodian for Ginnie Mae.

 

VIII.                     If A Ginnie Mae Security is to be issued, as soon as possible following Closing, but no later than Three (3) Business Days prior to Settlement Date for a Security, Administrative Agent must receive:

 

1.                                      A signed copy of the Schedule of Subscribers (HUD Form HUD-11705), instructing Ginnie Mae to issue the mortgage-backed Security in Borrower’s name, and to deliver the Security to Administrative Agent’s custody account at the Federal Reserve Bank of Cleveland (ABA 043000096, For: PNC Pitt/Trust/XXXXXXXXX, Reference:  Walker & Dunlop, LLC).

 

5

 

2.                                      Completed and signed Securities Delivery Instructions, in the form set forth below in this Exhibit.

 

Upon receipt of a Security, the Administrative Agent will deliver the Security to the Investor that issued the Purchase Commitment for the Security.  The Security will be released to the Investor only upon payment of the purchase proceeds to Administrative Agent.  Cash proceeds of the sale of a Pledged Loan or a Security will be applied to the related Warehousing Advance.  As long as no Default or Event of Default exists, Administrative Agent will return any excess proceeds from the sale of a Pledged Loan or a Security to Borrower (by transfer to Borrower’s Operating Account), unless otherwise instructed in writing.

 

6

 

OPERATING ACCOUNT#: 130760016803

SCHEDULE I TO EXHIBIT B-2— FHA/GNMA

 

PNC BANK, N.A.

SECURITY DELIVERY INSTRUCTIONS

 

INSTRUCTIONS MUST BE RECEIVED TWO (2) BUSINESS DAYS IN ADVANCE OF PICK-UP/ DELIVERY

 

	
BOOK-ENTRY   DATE:
    	
 
    	
SETTLEMENT   DATE:
    
	
ISSUER:
    	
 
    	
 
    
	
$
    	
 
    	
SECURITY:
    
	
NO.   OF CERTIFICATES:
    	
 
    	
1)
    
	
 
    	
 
    	
2)
    
	
 
    	
 
    	
3)
    
	
CUSIP   NO.:
    	
 
    	
 
    
	
Pool   No. 
    	
MI   No.
    	
 
    	
Coupon   Rate:
    
	
Issue Date (MM/DD/YYYY):
    	
 
    	
Maturity   Dated (MM/DD/YYYY):
    
	
 
    	
 
    	
 
    	
 
    
	
POOL TYPE (circle one):
    	
 
    	
 
    
	
Ginnie Mae:  
    	
GINNIE MAE I
    	
 
    	
GINNIE   MAE II
    
	
 
    	
 
    	
 
    	
 
    
	
Fannie Mae:  
    	
FIXED ARM
    	
 
    	
DISCOUNT   NOTE DEBENTURES REMIC
    
	
 
    	
 
    	
 
    
	
DELIVER   TO:
    	
 
    	
(   ) Versus Payment
    
	
 
    	
 
    	
DVP   AMOUNT $
    
	
DELIVER   TO:
    	
 
    	
(   ) Versus Payment
    
	
 
    	
 
    	
DVP   AMOUNT $
    
	
DELIVER   TO:
    	
 
    	
(   ) Versus Payment
    
	
 
    	
 
    	
DVP   AMOUNT $
    
	
 
    	
 
    	
 
    
	
CLIENT:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
PROJECT:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
AUTHORIZED   SIGNATURE:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
TITLE:
    	
 
    	
 
    	
 
    
						

 

7

 

EXHIBIT B-3 — FREDDIE MAC PROGRAM PLUS LOANS

 

PROCEDURES FOR DOCUMENTING WAREHOUSING ADVANCES

 

PROCEDURES AND DOCUMENTATION FOR WAREHOUSING

FREDDIE MAC PROGRAM PLUS LOANS

 

Walker & Dunlop, LLC, a Delaware limited liability company (“Borrower”) must observe the following procedures and documentation requirements in all respects.  All documents must be satisfactory to PNC Bank, N.A., a national banking association (“Administrative Agent”) in its sole discretion.  Administrative Agent shall deliver any information received hereunder to each Lender promptly upon receipt thereof.  Capitalized terms used in this Exhibit without further definition have the meanings set forth in the Amended and Restated Warehousing Credit and Security Agreement among Borrower, Lenders party thereto and Administrative Agent (as amended, restated, renewed or replaced, the “Agreement”).  Freddie Mac form numbers used in this Exhibit are for convenience only and Borrower must use the equivalent forms required at the time of delivery of a Pledged Loan or a Pledged Security.

 

I.                                        At least Three (3) Business Days prior to the Warehousing Advance Date, the Administrative Agent must receive a letter signed by Borrower, providing the following information on the Pledged Loan:

 

1.                                      Mortgagor’s name.

 

2.                                      Project name.

 

3.                                      Borrower’s case/loan number.

 

4.                                      Location of project.

 

5.                                      Mortgage Note Amount.

 

6.                                      Expected Warehousing Advance Date.

 

7.                                      Name and address of Borrower’s counsel to be present at closing.

 

8.                                      Name, street address, e-mail address, telephone number and telecopier number of title company and settlement attorney and contact person.  Must identify who will be responsible for custody of closing documents and delivery of required items to Administrative Agent.

 

Upon receipt of Borrower’s letter required under this Section I, in form and substance satisfactory to the Administrative Agent, the Administrative Agent will issue its escrow instructions letter to the title company or the settlement attorney.

 

1

 

II.                                   At least One (1) Business Day prior to the Warehousing Advance Date, Borrower will send to the Administrative Agent, for receipt before 11:00 a.m (Pittsburgh, Pennsylvania time) the following Business Day, the following:

 

1.                                      An original or facsimile (with original to be forwarded via overnight delivery) of the Warehousing Advance Request subject to changes to be communicated in writing by Borrower to the Administrative Agent before 11:00 a.m. (Pittsburgh, Pennsylvania time) on the day of the Warehousing Advance.

 

2.                                      A letter from Borrower providing the following additional information on the Pledge Loan:

 

(a)                                 Note Rate.

 

(b)                                 Name of Investor.

 

(c)                                  Discount (if any).

 

3.                                      Closing settlement statement, if available, otherwise must be delivered on the date of the Warehousing Advance, prior to funding.

 

4.                                      A completed and executed Loan Disbursement Authorization in the form attached hereto as Exhibit O.

 

5.                                      A copy of the executed Purchase Commitment (which must conform to requirements of the Agreement).

 

6.                                      Original or facsimile of the Administrative Agent’s escrow instructions letter to the settlement attorney, countersigned by an authorized representative of the title company or the settlement attorney involved with the transaction.

 

7.                                      If applicable, original or facsimile of the Administrative Agent’s closing instructions letter to Borrower’s attorney, countersigned by the attorney involved with the transaction.

 

8.                                      Original or facsimile of the Administrative Agent’s escrow instructions letter to the settlement attorney, countersigned by an authorized representative of the settlement attorney involved with the transaction, in a form substantially similar to that attached hereto as (a) Exhibit N-1 if the settlement attorney will also be acting as the bailee with respect to the Mortgage Note or (b) Exhibit N-2 if the settlement attorney will not be acting as the bailee with respect to the Mortgage Note.

 

No Warehousing Advance will be made by the Administrative Agent prior to the Administrative Agent’s receipt of all the documents required under Section II above.  The Administrative Agent has a reasonable time (one (1) Business Day under ordinary circumstances) to examine Borrower’s Warehousing Advance Request and the related documents to be delivered by Borrower before funding the requested Warehousing Advance, and may reject any Mortgage Loan that does not meet the requirements of this Exhibit, the Agreement or of the related Purchase Commitment.

 

In accordance with the Escrow Letter, disbursement will be authorized only after the settlement attorney or closing counsel takes possession, on behalf of Administrative Agent, of the signed Mortgage Note, endorsed by Borrower in blank and without recourse, and the title company is

 

2

 

prepared to issue its title insurance policy.  Immediately after disbursement, the settlement attorney, the closing attorney or title company (herein, the “Closing Agent”) must send the original of the Mortgage Note to the Administrative Agent for receipt by the Administrative Agent on the following Business Day.  In the event the Pledged Loan is not closed and the related Mortgage submitted for recording by 4:30 p.m. (Pittsburgh, Pennsylvania time) on the date of the Warehousing Advance, the Closing Agent must return the Warehousing Advance immediately to the account specified in the Administrative Agent’s escrow instructions unless otherwise approved by the Administrative Agent prior to such time; provided, however, that the Warehousing Advance may remain with the title company for up to two (2) Business Days with prior written notice to the Administrative Agent and, if longer than two (2) Business Days, with prior written approval of the Administrative Agent.

 

The foregoing arrangements, which permit the Administrative Agent to fund the Warehousing Advance after the Mortgage Note has been delivered to a third person on behalf of, and as agent and bailee for, Administrative Agent, and before the Mortgage Note is received by Administrative Agent, are for the convenience of Borrower.  Borrower retains all risk of loss or nondelivery of the Mortgage Note, and neither Administrative Agent nor any Administrative Agent has any liability or responsibility for those risks.

 

III.                              On the Warehousing Advance Date, the Administrative Agent must receive the following:

 

1.                                      The closing settlement statement.

 

2.                                      A copy of the Mortgage Note made by the Mortgagor in favor of Borrower, executed by the Mortgagor.

 

3.                                      A copy of the unrecorded, undated and in blank, assignment of the Mortgage, in the form attached hereto as Exhibit P.

 

4.                                      A copy of the first page of the title insurance policy or the title insurance commitment to issue a policy marked to show the final policy exceptions, which:

 

(a)                                 Names as insured Borrower and/or the Investor.

 

(b)                                 Shows an effective date and time that is as of the date and time of disbursement of the Warehousing Advance from escrow.

 

(c)                                  Sets forth an insured amount that is equal to or greater than the Warehousing Advance amount.

 

5.                                      A bailee agreement executed by Borrower’s closing counsel, in the form of (a) Exhibit N-1 if the closing counsel is also acting as the settlement attorney with respect to the Warehousing Advance funds or (b) Exhibit N-3 if the closing counsel is not acting as the settlement attorney with respect to the Warehousing Advance funds, whereby in either case the closing counsel agrees that it will hold the original Mortgage Note as bailee for and on behalf of Administrative Agent and deliver it to the Administrative Agent by

 

3

 

recognized overnight delivery within One (1) Business Day after the Warehousing Advance Date.

 

6.                                      Written notice by electronic mail or facsimile authorizing the Administrative Agent to disburse funds to the Escrow Agent as set forth in the Escrow Letter, to be held in trust by the Escrow Agent pending the Administrative Agent’s authorization to release such funds.

 

7.                                      Documents that are reasonably requested by the Administrative Agent.

 

IV.                               As soon as possible following the Warehousing Advance Date, and no later than One (1) Business Day after the Warehousing Advance Date, the Administrative Agent much receive the following:

 

1.                                      The original signed Mortgage Note, endorsed by Borrower in blank and without recourse.

 

V.                                    As soon as possible after the Warehousing Advance Date, and no later than Two (2) Business Days prior to the date the Investor or the Approved Custodian must receive the Pledged Mortgage, Administrative Agent must receive:

 

1.                                      The original unrecorded, undated and in blank assignment of the Mortgage, in the form attached hereto as Exhibit P, sent by overnight delivery.

 

2.                                      The remainder of the documents required for shipping to the Investor as specified by the Investor or in the applicable Seller/Servicer Guide or to an Approved Custodian for the Investor, including the original release documents required by the Investor.

 

3.                                      Documents that are reasonably requested by the Administrative Agent.

 

VI.                               As soon as possible following the Warehousing Advance Date, and no later than Two (2) Business Days prior to the date the Investor or the Approved Custodian must receive the Pledged Loan, Administrative Agent must receive the following:

 

1.                                      Signed shipping instructions for the delivery of the Pledged Loan, including the following:

 

(a)                                 Name and address of the Investor or the Approved Custodian to which the Collateral Documents are to be shipped, the desired shipping date and the preferred method of delivery (which must be a shipper utilized by Administrative Agent), with Borrower’s billing account information for such shipper (or alternatively a pre-labeled envelope);

 

(b)                                 Name of project securing the Pledged Loan;

 

(c)                                  Date by which the Investor or the Approved Custodian must receive the Pledged Loan; and

 

(d)                                 Instructions for endorsement of the Mortgage Note.

 

4

 

2.                                      For Freddie Mac Program Plus Loans, the following additional documents must be received:

 

(a)                                 For cash payments, the signed original Wire Transfer Authorization for a Cash Warehouse Delivery (Multifamily) (Freddie Mac Form 987M), specifying the Cash Collateral Account as the receiving account for loan purchase proceeds.

 

(b)                                 Warehouse Lender Release of Security Interest (Multifamily) (Freddie Mac Form 996M).

 

3.                                      The remainder of the documents required for shipping to the Investor, as specified by the Investor or in the applicable seller/servicer guide.

 

5

 

Exhibit C

 

Warehousing Advance Request Against Eligible Loans

 

WALKER & DUNLOP, LLC

 

	
ELIGIBLE   LOAN TYPE:
    	
o FANNIE MAE   DUS MORTGAGE LOAN
    
	
 
    	
o Check if   ASAPP funding
    
	
 
    	
o OTHER FANNIE   MAE MORTGAGE LOAN
    
	
 
    	
o FHA   PERMANENT MORTGAGE LOAN
    
	
 
    	
o FHA   CONSTRUCTION MORTGAGE LOAN
    
	
 
    	
o FREDDIE MAC   PROGRAM PLUS MORTGAGE LOAN
    
	
STATUS   OF ELIGIBLE LOAN:
    	
o FIRST   MORTGAGE LOAN
    
	
 
    	
o SECOND   MORTGAGE LOAN [If permitted]
    
	
 
    	
o THIRD   MORTGAGE LOAN [If permitted]
    

 

[PLEASE UPDATE STATUS]

 

NOTE: FHA MORTGAGE LOANS MAY ONLY BE REQUESTED BY WALKER & DUNLOP, LLC (“BORROWER”), AND ARE NOT ELIGIBLE UNTIL THE ADMINISTRATIVE AGENT HAS CONFIRMED BORROWER’S STATUS AS APPROVED HUD/FHA MORTGAGEE AND GINNIE MAE SERVICER, AS APPLICABLE

 

	
Loan   No.:
    	
Warehouse   Date:
    
	
 
    	
 
    
	
Project   Name:
    	
Contract/Pool   No.:
    
	
 
    	
 
    
	
Project   State and Zip Code:
    	
 
    
	
 
    	
 
    
	
Mortgage   Note Amount:
    	
Interest   Rate:
    
	
 
    	
 
    
	
Mortgage   Note Date:
    	
 
    
	
 
    	
 
    
	
Warehousing   Advance Amount:
    	
 
    
	
 
    	
 
    
	
Approved   Warehouse Amount:
    	
Endorsement   Amount:
    
	
 
    	
 
    
	
Cumulative   Endorsement Amount:
    	
 
    
	
 
    	
 
    
	
Investor:
    	
Expiration   Date:
    
	
 
    	
 
    
	
Committed   Purchase Price:
    	
 
    
	
 
    	
 
    
	
Title   Company/Closing Agent:
    	
 
    

 

C-1

 

	
Title   Contact Person:
    	
Phone   No.:
    
	
 
    	
 
    
	
Title   Contact Person E-Mail Address:
    	
 
    
	
 
    	
 
    
	
Title   Company Address:
    	
 
    

 

C-2

 

Wire Transfer Information

 

	
Wire Amount:  
    	
Date of Wire: 
    
	
Receiving Bank: PNC BANK, N.A
    	
ABA No.: #043-000-096
    
	
City & State: Pittsburgh, PA
    	
 
    
	
Credit Account Name: Walker & Dunlop LLC
    	
Number: XXXXXXXXXX
    
	
Advise:  Lesley McKee
    	
Phone:  (412) 768-5622
    

 

Walker & Dunlop, LLC, a Delaware limited liability company (“Borrower”) has granted, and hereby reaffirms the grant of, a security interest to PNC Bank, N.A., a national banking association, as agent for Lenders (“Administrative Agent”) in all of Borrower’s right, title and interest in and to the Mortgage Loan described above and all related Collateral pursuant to Section 4.1 of the Amended and Restated Warehousing Credit and Security Agreement between Borrower, Lenders and Administrative Agent (as amended, restated, renewed or replaced, the “Agreement”).  Capitalized terms used in this Exhibit without further definition have the meanings set forth in the Agreement.

 

The undersigned represent and warrant as follows:

 

(a)                                 The borrowing requested hereby complies with all applicable requirements of the Agreement.

 

(b)                                 Except as previously disclosed to the Administrative Agent in writing, each representation and warranty made in the Agreement is true and correct at and as of the date hereof (except to the extent relating to a specific date) and will be true and correct at and as of the time the Warehousing Advance is made, in each case both with and without giving effect to the Warehousing Advance and the application of the proceeds thereof.

 

(c)                                  No Default or Event of Default has occurred and is continuing as of the date hereof or would result from the making of the Warehousing Advance or the application of the proceeds thereof if the Warehousing Advance were made on the date hereof, and no Default or Event of Default will have occurred and be continuing at the time the Warehousing Advance is to be made or would result from the making of the Warehousing Advance or the application of the proceeds thereof .

 

(d)                                 Borrower agrees to cause the Mortgage Notes(s) and the other Collateral Documents to be delivered to Administrative Agent on the first Business Day after the date of the Warehousing Advance made to fund the Mortgage Loan.

 

(e)                                  If the proceeds of the Warehousing Advance requested hereby are intended to be used for a FHA Mortgage Loan for which a Ginnie Mae Security will be issued, Ginnie Mae has confirmed sufficient additional commitment authority and pool numbers have been identified to

 

C-3

 

permit the consummation of such transactions.

 

AUTHORIZED SIGNATURE:

 

WALKER & DUNLOP, LLC, a Delaware limited liability company

 

 

	
By:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Name
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Title:
    	
 
    	
 
    

 

C-4

 

Exhibit D

 

Eligible Loans and Terms of Warehousing Advances

 

Subject to compliance with the terms and limitations set forth below, and the terms, representations and warranties and the covenants in the Agreement (including applicable Exhibits), each of the following Mortgage Loans is an Eligible Loan for purposes of the Agreement:

 

Fannie Mae DUS Mortgage Loan

 

Definition: A permanent Mortgage Loan on a Multifamily Property originated by Borrower under Fannie Mae’s Delegated Underwriting and Servicing Guide.

 

Subordinate Mortgage Loan: Only Second Mortgage Loans and Third Mortgage Loans permitted.

 

Committed/Uncommitted: Purchase Commitment required.

 

Advance Rate: 100% of the lesser of (i) the Mortgage Note Amount or (ii) the Committed Purchase Price.

 

FHA Permanent Mortgage Loan

 

Definition: A permanent FHA fully-insured Mortgage Loan secured by a mortgage on a Multi-Family Property.

 

Subordinate Mortgage Loans: Only second mortgage loans permitted.

 

Committed/Uncommitted: Purchase Commitment required.

 

Advance Rate: 100% of the lesser of (i) the Mortgage Note Amount or (ii) the Committed Purchase Price.

 

FHA Construction Mortgage Loan

 

Definition.  An FHA fully-insured Mortgage Loan for the construction or substantial rehabilitation of a Multi-Family Property.  No Warehousing Advance will be made against an FHA Construction Mortgage Loan unless (i) the Administrative Agent has or at one time had or will obtain (as provided in Exhibit B-2 — FHA/GNMA) possession of the related Mortgage Note, or (ii) the related Mortgage Note is in the possession of a Person other than Borrower or an Affiliate of Borrower.

 

Subordinate Mortgage Loans: Not permitted.

 

Committed/Uncommitted: Purchase Commitment required.

 

Advance Rate: 100% of the lesser of (i) Mortgage Note Amount or (ii) the Committed Purchase Price.

 

D-1

 

Freddie Mac Program Plus Loan

 

Definition: Multi-Family Loans sold to Freddie Mac pursuant to the Freddie Mac Program Plus Seller/Servicer program.

 

Subordinate Mortgage Loans: Only Second Mortgage Loans or Third Mortgage Loans permitted.

 

Committed/Uncommitted: Purchase Commitment required.

 

Advance Rate: 100% of the lesser of (i) the Mortgage Note Amount or (ii) the Committed Purchase Price.

 

D-2

 

Exhibit E

 

Authorized Representatives

 

Stephen Theobald

 

Donna Mighty

 

Howard W. Smith III

 

William M. Walker

 

Debra A. Casale

 

Veronica Langhofer

 

Shanekwa Harrison Jones

 

Richard Warner

 

Jenna Treible

 

Gregory Florkowski

 

Wendy LeBlanc

 

Sandy Barlow

 

Jim Schroeder

 

Shannon Chase

 

E-1

 

Exhibit F

 

Subsidiaries of Borrower

 

[Intentionally omitted[

 

F-1

 

Exhibit G

 

Assumed Names

 

None

 

G-1

 

Exhibit H

 

Servicing Portfolio

 

Walker & Dunlop, Inc.
 Loan Servicing Portfolio
 Portfolio Size, Number of Loans
 As of March 31, 2013

 

	
 
    	
 
    	
Loan
   Count
    	
 
    
	
Fannie Mae (combined or Full Risk)
    	
 
    	
1,836
    	
 
    
	
Fannie Mae SLP
    	
 
    	
1,430
    	
 
    
	
Freddie Mac
    	
 
    	
590
    	
 
    
	
Ginnie Mae-HUD
    	
 
    	
570
    	
 
    
	
Aegon Non-Cashier (Est.)
    	
 
    	
22
    	
 
    
	
Advantus
    	
 
    	
1
    	
 
    
	
AIG
    	
 
    	
18
    	
 
    
	
Allstate
    	
 
    	
8
    	
 
    
	
American Equity Investment
    	
 
    	
37
    	
 
    
	
American United Life
    	
 
    	
7
    	
 
    
	
Americo Life, Inc.
    	
 
    	
1
    	
 
    
	
Ameritas
    	
 
    	
1
    	
 
    
	
Assurant Asset Management
    	
 
    	
13
    	
 
    
	
Aviva
    	
 
    	
37
    	
 
    
	
Berkadia (formerly Capmark/GMAC)
    	
 
    	
7
    	
 
    
	
CDT
    	
 
    	
12
    	
 
    
	
Continental Casualty Co.
    	
 
    	
2
    	
 
    
	
CUNA/MEMBERS Capital Advisors
    	
 
    	
30
    	
 
    
	
GMAC
    	
 
    	
1
    	
 
    
	
ING Investment Management
    	
 
    	
21
    	
 
    
	
JP/WAMU
    	
 
    	
112
    	
 
    
	
Lincoln National Life
    	
 
    	
32
    	
 
    
	
Minnesota Life Ins Co.
    	
 
    	
10
    	
 
    
	
Nationwide Life Insurance Co.
    	
 
    	
36
    	
 
    
	
Nationwide (Securitized)
    	
 
    	
13
    	
 
    
	
Ohio National Financial Services
    	
 
    	
3
    	
 
    
	
PNC Non-Cashier (Est.)
    	
 
    	
6
    	
 
    
	
PPM Financial
    	
 
    	
1
    	
 
    
	
RBS Citizens
    	
 
    	
1
    	
 
    
	
ReliaStar
    	
 
    	
1
    	
 
    
	
RiveSource of NY
    	
 
    	
1
    	
 
    
	
Sun Life Assurance of Canada
    	
 
    	
48
    	
 
    
	
Symetra Life Ins Company
    	
 
    	
1
    	
 
    
	
Thrivent Financial
    	
 
    	
2
    	
 
    
	
Union Central Life
    	
 
    	
1
    	
 
    
	
Unum
    	
 
    	
3
    	
 
    
	
W&D Interim Loan Fund LLC
    	
 
    	
1
    	
 
    
	
Wachovia
    	
 
    	
11
    	
 
    
	
Woodman of the World
    	
 
    	
4
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
COMBINED TOTAL
    	
 
    	
4,931
    	
 
    

 

H-1

 

Exhibit I

 

Compliance Certificate

 

Reference is made to that certain Amended and Restated Warehousing Credit and Security Agreement between Walker & Dunlop, LLC, a Delaware limited liability company (“Borrower”), Lenders and PNC Bank, N.A., a national banking association as administrative agent (“Administrative Agent”), dated as of June       , 2013 (as the same may be amended, modified, supplemented, renewed or restated from time to time, the “Agreement”).  All capitalized terms and all Section numbers used herein refer to those terms and Sections set forth in the Agreement.  This Compliance Certificate is submitted to Lender pursuant to Section 7.2(c) of the Agreement.

 

The undersigned hereby certifies to Lender that, as of the close of business on                                  (“Statement Date”):

 

1.                                      As demonstrated by the attached calculations supporting this Compliance Certificate, no Event of Default exists under Sections 8.7, 8.8, 8.9, 8.10, 8.11, 8.12, 8.16 and 8.17 of the Agreement, or, if any such Event of Default exists, a detailed explanation is attached setting forth the nature and the period of existence of any Default or Event of Default, and the action Borrower has taken, is taking, or proposes to take with respect to that Default or Event of Default and/or fail to comply.

 

2.                                      I have reviewed the terms of the Agreement, and have made, or caused to be made under my supervision, a review in reasonable detail of the transactions and conditions of Borrower and Parent.  That review has not disclosed, and I have no other knowledge of the existence of, any Default or Event of Default, or, if any such Default or Event of Default existed or exists, a detailed explanation is attached setting forth the nature and the period of existence of such Default or Event of Default and the action Borrower has taken, is taking or proposes to take with respect that Default or Event of Default.

 

3.                                      Pursuant to Section 7.2 of the Agreement, enclosed are the financial statements and related materials of Borrower or Parent, as applicable, as of the Statement Date.  The financial statements for the period ending on the Statement Date fairly present the financial condition and results of operations of Borrower or Parent, as applicable, as of the Statement Date.

 

[Remainder of page intentionally left blank]

 

I-1

 

 

 

 

Submitted under the pains and penalties of perjury this            day of               ,         .

 

 

	
 
    	
WALKER &   DUNLOP, LLC, a Delaware limited liability company
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    

 

I-2

 

Exhibit J

 

Lines of Credit

 

1.                                      Bank of America, N.A. - $575,000,000

 

J-1

 

Exhibit K

 

Foreign Qualifications and Licenses

 

Walker and Dunlop, LLC current holds the following foreign licenses and qualifications from these states:

 

·                  Alabama- Registered foreign limited liability company

·                  Arkansas- Registered foreign limited liability company; Collection Agency License

·                  California- Registered foreign limited liability company; Finance Lender License

·                  Colorado- Registered foreign limited liability company

·                  District of Columbia- Registered foreign limited liability company

·                  Florida- Registered foreign limited liability company

·                  Georgia- Certificate of Authority

·                  Idaho- Registered foreign limited liability company

·                  Illinois- Registered foreign limited liability company

·                  Iowa- Registered foreign limited liability company

·                  Kentucky- Registered foreign limited liability company

·                  Louisiana- Registered foreign limited liability company

·                  Maryland- Registered foreign limited liability company

·                  Massachusetts- Registered foreign limited liability company

·                  Michigan- Registered foreign limited liability company

·                  Nevada- Registered foreign limited liability company

·                  New Jersey- Registered foreign limited liability company; Collection Agency Bond

·                  New York- Registered foreign limited liability company

·                  North Carolina- Registered foreign limited liability company

·                  North Dakota- Registered foreign limited liability company; Money Broker License

·                  Ohio- Registered foreign limited liability company

·                  Oklahoma- Registered foreign limited liability company

·                  Pennsylvania- Registered foreign limited liability company

·                  Puerto Rico- Registered foreign limited liability company

·                  South Carolina- Registered foreign limited liability company

·                  South Dakota- Registered foreign limited liability company; Mortgage Lender License

·                  Tennessee- Registered foreign limited liability company

·                  Texas-  Registered foreign limited liability company

·                  Utah- Registered foreign limited liability company; Collection Agency License

·                  Virginia- Registered foreign limited liability company

·                  Washington- Registered foreign limited liability company

·                  Wisconsin- Registered foreign limited liability company

 

K-1

 

Exhibit L

 

Miscellaneous Fees and Charges

 

None

 

L-1

 

Exhibit M

 

Form of Assignment and Assumption Agreement

 

Dated: as of [                   , 20    ]

 

Reference is made to that certain Amended and Restated Warehousing Credit and Security Agreement dated as of                 , 2013, among Walker & Dunlop, LLC, a Delaware limited liability company (“Borrower”), The Lenders and PNC Bank, National Association, a national banking association, as administrative agent (“Administrative Agent”) (as amended, modified, restated and/or supplemented and in effect, the “Loan Agreement”).  Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Loan Agreement.

 

[·] (the “Assignor”) and [·] (the “Assignee”) agree as follows:

 

The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, $[·] of the Assignor’s Warehousing Commitment and unpaid principal balance outstanding under the Assignor’s Warehousing Note, representing [·] percent ([·]%) of the Warehousing Credit Limit (such percentage, a “Commitment Percentage”) as of the Effective Date (as hereinafter defined).

 

The Assignor (i) represents that as of the date hereof, its Commitment Percentage (without giving effect to assignments thereof which have not yet become effective) is [·]%, and the unpaid principal balance of the Loan outstanding under the Warehousing Note held by the Assignor (unreduced by any assignments thereof which have not yet become effective) is $[·]; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any other instrument or document furnished pursuant thereto, other than that the Assignor is the legal and beneficial owner of the interest being assigned by it hereunder, that such interest is free and clear of any adverse claim, and that it is legally authorized to enter into this Assignment and Acceptance; (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of Borrower, any Guarantor or any other person which may be primarily or secondarily liable in respect of any of the Obligations or any of their obligations, or the performance or observance by Borrower, any Guarantor or any other person primarily or secondarily liable in respect of any of the obligations under any of the Loan Documents or any other instrument or document delivered or executed pursuant thereto; and (iv) attaches the Warehousing Note delivered to it under the Loan Agreement and requests that Borrower exchange such Warehousing Note for new Warehousing Notes payable to each of the Assignor and the Assignee as follows:

 

	
Warehousing   Note Payable to the Order of:
    	
Amount   of Note
    
	
[                                              ]
    	
$[                        ]
    
	
[                                              ]
    	
$[                        ]
    

 

M-1

 

The Assignee (i) represents and warrants that it is legally authorized to enter into this Assignment and Acceptance; (ii) confirms that it has received a copy of the Loan Documents, together with copies of the most recent financial statements delivered pursuant to the Loan Agreement and such other documents and information as the Assignee has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (iii) confirms and represents that it has, independently and without reliance upon the Assignor or any other Lender under the Loan Agreement, and based on such documents and information as the Assignee deems appropriate, made such Person’s own credit decision to join in the credit facility contemplated by the Loan Documents and to become a Lender; (iv) agrees that it will, independently and without reliance upon the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents; (v) appoints and authorizes Administrative Agent to take such action as agent on its behalf and to exercise such powers as are expressly delegated to or conferred upon Assignor by the terms of the Loan Documents together with such other powers as are reasonably incidental thereto; (vi) agrees that it will perform all the obligations which by the terms of the Loan Documents are required to be performed by the Assignee as a Lender in accordance with the terms of the Loan Documents; and (vii) specifies as its address for notices the office set forth beneath its name on the signature page hereof.

 

The effective date for this Assignment and Acceptance shall be [                   ,                   ] (the “Effective Date”).  Following the execution of this Assignment and Acceptance, it will be delivered to Assignor for acceptance.

 

Upon such acceptance, from and after the Effective Date (i) the Assignee shall be a party to the Loan Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder, and (ii) the Assignor shall, with respect to that portion of its interest under the Loan Documents assigned hereunder relinquish its future rights and be released from its future obligations under the Loan Documents but shall remain liable for all obligations which arose prior to such assignment.

 

Upon such acceptance, from and after the Effective Date, Borrower shall make all payments in respect of the rights and obligations assigned hereby (including payments of principal, interest, fees and other amounts) to the Assignee.  The Assignor and the Assignee shall make all appropriate adjustments in payments for periods prior to the Effective Date by Borrower or with respect to the making of this assignment directly between themselves.

 

THIS ASSIGNMENT AND ACCEPTANCE SHALL IN ALL RESPECTS BE GOVERNED, CONSTRUED, APPLIED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE COMMONWEALTH OF PENNSYLVANIA WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

 

M-2

 

 

IN WITNESS WHEREOF, intending to be legally bound, each of the undersigned has caused this Assignment and Acceptance to be executed on its behalf by its officer thereunto duly authorized, as of the date first above written.

 

	
 
    	
“ASSIGNOR”
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Title:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
“ASSIGNEE”
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Title:
    	
 
    
	
Notice Address of   Assignee:   
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Attn:
    	
 
    
	
 
    	
 
    
	
 
    	
Telephone   No.:
    	
 
    
	
 
    	
Telecopier   No.:
    	
 
    
	
 
    	
 
    
	
Wiring Instructions of Assignee:
    	
 
    
	
 
    	
 
    
	
 
    	
Bank   Name and address:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Routing   No.:
    
	
 
    	
Account   Name:
    
	
 
    	
Account   No.:
    
						

 

M-3

 

	
 
    	
BORROWER’S   CONSENT
    

 

If required under the Loan Agreement, Walker & Dunlop, LLC, a Delaware limited liability company hereby approves the foregoing assignment.

 

	
 
    	
WALKER &   DUNLOP, LLC, a Delaware limited liability company
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    

 

M-1

 

Exhibit N-1

 

Form of Escrow and Bailee Letter

 

Date

 

Attn:

Closing Agent

XXXXXXXXXXXX

XXXXXXXXXXXX

 

Phone #: (xxx) xxxxxxx

Fax #: (xxx) xxxxxxx

 

RE:                          Mortgage Loan:                     

 

Dear                   :

 

Walker & Dunlop, LLC, a Delaware limited liability company, whose address is 7501 Wisconsin Avenue, Suite 1200, Bethesda, Maryland 20818 (the “Borrower”) has advised PNC Bank, National Association (the “Administrative Agent”), that Borrower has appointed [name of Closing Agent firm], and [name of Closing Agent firm] has agreed, by and through its undersigned employee, to serve as the closing agent (the “Closing Agent”) and counsel relative to the origination and closing of the mortgage loan to be made by Borrower for the above-referenced property (the “Mortgage Loan”).  Pursuant to an Amended and Restated Warehousing Credit and Security Agreement by and among Borrower, Lenders and Administrative Agent (the “Agreement”), Lenders have agreed to provide certain funding for the Mortgage Loan to you as the Closing Agent.  Terms used in this letter and not defined herein have the meanings set forth in the Credit Agreement.

 

To facilitate the closing of the Mortgage Loan (the “Closing”), you will confirm to the Administrative Agent on the date of the Closing that you are in possession of the original mortgage note evidencing the Mortgage Loan.  As agent and bailee for the Administrative Agent, you agree to hold the original mortgage note evidencing the Mortgage Loan as bailee for and on behalf of the Administrative Agent, and to deliver the original mortgage note evidencing the Mortgage Loan and the original Assignment of Mortgage Note and Mortgage in blank to Administrative Agent by recognized overnight delivery promptly after Closing, and in any event within one (1) Business Day.  Such delivery shall be made to the address set forth below, unless otherwise directed by the Administrative Agent.

 

PNC Bank, National Association

500 W. Jefferson, Mailstop K-1 KHDQ-04-6

Louisville, KY 40202

Attention:  Jennifer Elmore

 

Upon receipt of your confirmation that you are in possession of the original mortgage note evidencing the Mortgage Loan, the Administrative Agent will remit to you, by wire transfer, immediately available funds in the approximate amount of $                       (the “Funds”), which

 

N-1

 

you are to hold in trust for the Administrative Agent until written or oral instructions to disburse the funds are obtained from Borrower, at which time you may disburse the Funds in accordance with such instructions.  Once you have received instructions from the Administrative Agent to disburse the Funds to close the Mortgage Loan, please advise an authorized representative of the Administrative Agent by facsimile of the fact of such disbursement immediately upon making such disbursement.

 

Authorized representatives of the Administrative Agent are listed in the attached Schedule A to this letter.

 

If the Funds cannot be or are not disbursed for any reason on or before 4:30 p.m. Eastern Time on the date of Closing, you shall advise the Administrative Agent immediately by telephone that disbursement has not occurred and the Funds must be returned immediately to the Administrative Agent at the wiring instructions in the attached Schedule B to this letter unless otherwise approved by the Administrative Agent prior to such time; provided, however, that the Funds may remain with you for up to two (2) Business Days with prior written notice given to the Administrative Agent, and if longer than two (2) Business Days upon prior written approval from the Administrative Agent.

 

In the event you are not able for any reason to comply with the terms and conditions set forth in this letter, you shall advise an authorized representative of Administrative Agent immediately by fax and comply with any instructions given to you by such authorized representative.

 

Please acknowledge your receipt of this letter and your agreement to comply with the terms and conditions set forth herein by signing below and returning this letter by facsimile to my attention at 502-581-2743.  The Administrative Agent will not forward the Funds to you until it receives a properly completed and signed copy of this letter.

 

	
 
    	
Sincerely,
    
	
 
    	
 
    
	
 
    	
PNC   Bank, National Association
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
[Name]
    
	
 
    	
 
    	
[Title]
    

 

N-2

 

The undersigned Closing Agent acknowledges the terms of this letter and agrees to comply with the terms and conditions set forth herein.  In addition, Closing Agent agrees that, notwithstanding any contrary understanding with Borrower or Borrower’s instructions to Closing Agent, these terms and conditions shall control and may not be altered except by written or oral authorization executed by the Administrative Agent.

 

	
CLOSING   AGENT:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
 
    	
 
    
	
Name:
    	
 
    	
 
    
	
Title:
    	
 
    	
 
    
	
 
    	
 
    
	
Wire   Transfer Instructions:
    	
Bank:
    	
 
    
	
 
    	
City,   State:
    	
 
    
	
 
    	
ABA   #:
    	
 
    
	
 
    	
Account   Name:
    	
 
    
	
 
    	
Account   #:
    	
 
    
	
 
    	
Reference:
    	
 
    
	
 
    	
Attn:
    	
 
    
	
 
    	
 
    	
 
    
	
Date:
    	
 
    	
 
    
				

 

N-3

 

SCHEDULE A

 

AUTHORIZED REPRESENTATIVES

 

	
 
    	
 
    	
Phone
    	
 
    	
Fax
    
	
Sharon   Wilson
    	
 
    	
(502)   581-3345
    	
 
    	
(502)   581-2743
    
	
Anna   Marie Stepnick
    	
 
    	
(412)   768-5361
    	
 
    	
(412)   705-2400
    
	
Jennifer   Elmore
    	
 
    	
(502)   581-2958
    	
 
    	
(502)   581-2743
    
	
Sherry   Boston
    	
 
    	
(502)   581-2959
    	
 
    	
(502)   581-2743
    

 

NOTE DELIVERY

 

Deliver Note to:

 

1) Jenny Elmore — fax number 502-581-2958, e-mail:  Jennifer.elmore@pnc.com

 

Original Note and Endorsement should be delivered by Closing Counsel to:

 

2)            Jenny Elmore
                 PNC Bank, NA
                 500 W. Jefferson, Mailstop K1-KHDQ-04-6
                 Louisville, KY  40202

 

N-4

 

SCHEDULE B

 

PNC NATIONAL ASSOCIATION

WIRE INSTRUCTIONS

 

	
Bank   Name:
    	
PNC   Bank, National Association
    
	
City,   State:
    	
Pittsburgh,   PA
    
	
ABA   #:
    	
043-000-096
    
	
Account   Name:
    	
Commercial   Loan Operations
    
	
Account   Number:
    	
XXXXXXXXXXX
    
	
Attention:
    	
Lesley   McKee
    
	
Phone   Advice:
    	
Phone:   (412) 768-5622
    
	
RE:
    	
Walker &   Dunlop, LLC
    

 

N-5

 

Exhibit N-2

 

Form of Escrow Letter

 

Date

 

Attn:

Closing Agent

XXXXXXXXXXXX

XXXXXXXXXXXX

 

Phone #: (xxx) xxxxxxx

Fax #: (xxx) xxxxxxx

 

RE:         Mortgage Loan:                     

 

Dear                   :

 

Walker & Dunlop, LLC, a Delaware limited liability company, whose address is 7501 Wisconsin Avenue, Suite 1200, Bethesda, Maryland 20818 (the “Borrower”) has advised PNC Bank, National Association (the “Administrative Agent”), that Borrower has appointed [name of Closing Agent firm], and [name of Closing Agent firm] has agreed, by and through its undersigned employee [if an agent of Title Company add: (which employee is authorized pursuant to the attached insured closing production letter)], to serve as the closing agent (the “Closing Agent”) relative to the mortgage loan to be made by Borrower for the above-referenced property (the “Mortgage Loan”).  Pursuant to an Amended and Restated Warehousing Credit and Security Agreement by and among Borrower, Lenders and Administrative Agent (the “Agreement”), Lenders have agreed to provide certain funding for the Mortgage Loan to you as the Closing Agent.  Terms used in this letter and not defined herein have the meanings set forth in the Credit Agreement.

 

To facilitate the closing of the Mortgage Loan (the “Closing”), the Administrative Agent will remit to you, by wire transfer, immediately available funds in the approximate amount of $                       (the “Funds”), which you are to hold in trust for the Administrative Agent until written or oral instructions to disburse the funds are obtained from Borrower, at which time you may disburse the Funds in accordance with such instructions.  Once you have received instructions from Borrower to disburse the Funds to close the Mortgage Loan, please advise an authorized representative of the Administrative Agent by facsimile of the fact of such disbursement immediately upon making such disbursement.

 

Authorized representatives of the Administrative Agent are listed in the attached Schedule A to this letter.

 

If the Funds cannot be or are not disbursed for any reason on or before 4:30 p.m. Eastern Time on the date of Closing, you shall advise the Administrative Agent immediately by telephone that disbursement has not occurred and the Funds must be returned immediately to the

 

N-6

 

Administrative Agent at the wiring instructions in the attached Schedule B to this letter unless otherwise approved by the Administrative Agent prior to such time; provided, however, that the Funds may remain with you for up to two (2) Business Days with prior written notice given to the Administrative Agent, and if longer than two (2) Business Days upon prior written approval from the Administrative Agent.

 

In the event you are not able for any reason to comply with the terms and conditions set forth in this letter, you shall advise an authorized representative of Administrative Agent immediately by fax and comply with any instructions given to you by such authorized representative.

 

Please acknowledge your receipt of this letter and your agreement to comply with the terms and conditions set forth herein by signing below and returning this letter by facsimile to my attention at 502-581-2743.  The Administrative Agent will not forward the Funds to you until it receives a properly completed and signed copy of this letter.

 

	
 
    	
Sincerely,
    
	
 
    	
 
    
	
 
    	
PNC   Bank, National Association
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
[Name]
    
	
 
    	
[Title]
    

 

The undersigned Closing Agent acknowledges the terms of this letter and agrees to comply with the terms and conditions set forth herein.  In addition, Closing Agent agrees that, notwithstanding any contrary understanding with Borrower or Borrower’s instructions to Closing Agent, these terms and conditions shall control and may not be altered except by written or oral authorization executed by the Administrative Agent.

 

CLOSING AGENT:

 

 

	
By:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Name:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Title:
    	
 
    	
 
    
	
 
    	
 
    
	
Wire   Transfer Instructions:
    	
Bank:
    	
 
    
	
 
    	
City,   State:
    	
 
    
	
 
    	
ABA   #:
    	
 
    
	
 
    	
Account   Name:
    	
 
    
	
 
    	
Account   #:
    	
 
    
	
 
    	
Reference:
    	
 
    
	
 
    	
Attn:
    	
 
    
				

 

N-7

 

	
Date:
    	
 
    	
 
    

 

N-8

 

SCHEDULE A

 

AUTHORIZED REPRESENTATIVES

 

	
 
    	
 
    	
Phone
    	
 
    	
Fax
    
	
Sharon   Wilson
    	
 
    	
(502)   581-3345
    	
 
    	
(502)   581-2743
    
	
Anna   Marie Stepnick
    	
 
    	
(412)   768-5361
    	
 
    	
(412)   705-2400
    
	
Jennifer   Elmore
    	
 
    	
(502)   581-2958
    	
 
    	
(502)   581-2743
    
	
Sherry   Boston
    	
 
    	
(502)   581-2959
    	
 
    	
(502)   581-2743
    

 

NOTE DELIVERY

 

Deliver Note to:

 

1) Jenny Elmore — fax number 502-581-2958, e-mail:  Jennifer.elmore@pnc.com

 

Original Note and Endorsement should be delivered by Closing Counsel to:

 

2)            Jenny Elmore
                 PNC Bank, NA
                 500 W. Jefferson, Mailstop K1-KHDQ-04-6
                 Louisville, KY  40202

 

N-9

 

SCHEDULE B

 

PNC NATIONAL ASSOCIATION

WIRE INSTRUCTIONS

 

	
Bank   Name:
    	
PNC   Bank, National Association
    
	
 
    	
 
    
	
City,   State:
    	
Pittsburgh,   PA
    
	
 
    	
 
    
	
ABA   #:
    	
043-000-096
    
	
 
    	
 
    
	
Account   Name:
    	
Commercial   Loan Operations
    
	
 
    	
 
    
	
Account   Number:
    	
XXXXXXXXXXX
    
	
 
    	
 
    
	
Attention:
    	
Leslie   McKee
    
	
 
    	
 
    
	
Phone   Advice:
    	
Phone:   (412) 768-5622
    
	
 
    	
 
    
	
RE:
    	
Walker &   Dunlop, LLC
    

 

N-10

 

Exhibit N-3

 

Form of Bailee Letter

 

Date

 

Attn:

XXXXXXXXXX

XXXXXXXXXXXX

XXXXXXXXXXXX

 

Phone #: (xxx) xxxxxxx

Fax #: (xxx) xxxxxxx

 

RE:         Mortgage Loan:               

 

Dear                   :

 

Walker & Dunlop, LLC, a Delaware limited liability company, whose address is 7501 Wisconsin Avenue, Suite 1200, Bethesda, Maryland 20818 (the “Borrower”) has advised PNC Bank, National Association (the “Administrative Agent”), that Borrower has appointed [name of Closing Agent firm], and [name of Closing Agent firm] has agreed, by and through its undersigned employee, to serve as the closing agent (the “Closing Agent”) and counsel relative to the origination and closing of the  mortgage loan to be made by Borrower for the above-referenced property (the “Mortgage Loan”).  Pursuant to an Amended and Restated Warehousing Credit and Security Agreement by and among Borrower, Lenders and Administrative Agent (the “Agreement”), Lenders have agreed to provide certain funding for the Mortgage Loan to you as the Closing Agent.  Terms used in this letter and not defined herein have the meanings set forth in the Credit Agreement.

 

To facilitate the closing of the Mortgage Loan (the “Closing”), you will confirm to the Administrative Agent on the date of the Closing that you are in possession of the original mortgage note evidencing the Mortgage Loan.  As agent and bailee for the Administrative Agent, you agree to hold the original mortgage note evidencing the Mortgage Loan as bailee for and on behalf of the Administrative Agent, and to deliver the original mortgage note evidencing the Mortgage Loan and the original Assignment of Mortgage Note and Mortgage in blank to Administrative Agent by recognized overnight delivery promptly after Closing, and in any event within one (1) Business Day.  Such delivery shall be made to the address set forth below, unless otherwise directed by the Administrative Agent.

 

PNC Bank, National Association

500 West Jefferson, Mailstop K-1 KHDQ-04-6
 Louisville, KY  402012

Attention:  Jennifer Elmore

 

N-10

 

Please acknowledge your receipt of this letter and your agreement to comply with the terms and conditions set forth herein by signing below and returning this letter by facsimile to my attention at 502-581-2743.  The Administrative Agent will not forward the funds necessary to fund the Mortgage Loan until it receives a properly completed and signed copy of this letter.

	
 
    	
 
    
	
 
    	
Sincerely,
    
	
 
    	
 
    
	
 
    	
PNC   Bank, National Association
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
[Name]
    
	
 
    	
[Title]
    

 

N-11

 

The undersigned Closing Agent acknowledges the terms of this letter and agrees to comply with the terms and conditions set forth herein.  In addition, Closing Agent agrees that, notwithstanding any contrary understanding with Borrower or Borrower’s instructions to Closing Agent, these terms and conditions shall control and may not be altered except by written or oral authorization executed by the Administrative Agent.

 

CLOSING AGENT:

 

 

	
By:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Name:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Title:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Date:
    	
 
    	
 
    

 

N-12

 

Exhibit O

 

Form of Loan Disbursement Authorization

 

	
Loan   Disbursement Authorization
    	

    

 

	
To:
    	
PNC   Bank, National Association
    	
 
    	
Date:                      , 201
    
	
 
    	
ATTN:  Loan Administrator Name
    	
 
    
	
 
    	
500   First Avenue, MS PF-PFSC-04-V
    	
 
    
	
 
    	
Pittsburgh   PA  15219
    	
 
    

 

RE:                          WALKER & DUNLOP, LLC

 

You are hereby authorized to make the following disbursements under our $650,000,000.00 Committed Line of Credit for a total advance of $                                   .

 

XXX                  Credit the undersigned’s demand deposit account with you, Account Number                                    , in the amount of $                                    .

 

XXX                  Wire transfer funds in the amount of $                                             to:

 

	
 
    	
 
    	
 
    
	
Bank   Name, City & State
    	
 
    	
ABA   Transit Number
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Account   Title
    	
 
    	
Account   Number
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
REF:
    	
 
    	
ATTN:
    

 

[Remainder of page intentionally left blank]

 

O-1

 

The person signing below is authorized to make this request, and you are entitled to rely conclusively on the above instructions to disburse loan proceeds in the amount and manner specified.

 

 

	
 
    	
WALKER &   DUNLOP, LLC
    
	
 
    	
a   Delaware limited liability company
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Form 8P — Multistate Rev 1/02
    

 

O-2

 

Exhibit P

 

Form of Assignment of Mortgage

 

	
 
    	
Project   Name:
    	
 
    
	
 
    	
Project   Location:
    	
 
    
	
 
    	
Project   No.:
    	
 
    

 

ASSIGNMENT OF MORTGAGE

 

FOR VALUE RECEIVED and for other good and valuable consideration, Walker & Dunlop, LLC, a Delaware limited liability company (“Assignor”), hereby endorses, assigns, transfers, grants, conveys and delivers to                                 , its successors and assigns (collectively, “Assignee”), all right, title and interest of Assignor in and to:

 

1.                                      Mortgage given by Mortgagor in favor of Assignor dated as of                                   , 201    , and recorded of                                   , 200    , in the Public Records of                          County,        Official Records Book         , Page          (the “Mortgage”), which Mortgage secures repayment of the Note and has been filed as a lien against the real property described in attached Exhibit A;

 

2.                                      [Security Agreement dated as of                                   , 201    , by and between Assignor as secured party and Mortgagor as debtor (the “Security Agreement”);] [If applicable]

 

3.                                      any and all other instruments or documents, and all covenants, agreements, benefits, and rights under those instruments or documents further evidencing or securing the indebtedness evidenced by the Note and secured by the Mortgage.

 

This Assignment is made without recourse, and without representation or warranty of any kind whatsoever, express or implied, except that Assignor hereby represents and warrants to Assignee that as of the date of this Assignment, Assignor is the holder of the Note and the mortgagee under the Mortgage, and has the full power and authority to assign, transfer and sell the Note, the Mortgage, [the Security Agreement] and the other loan documents.

 

[Remainder of page intentionally left blank]

 

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In witness whereof the Assignor has executed this Assignment as of                  , 20    .

 

	
 
    	
 
    	
ASSIGNOR:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
WALKER &   DUNLOP, LLC, a Delaware limited liability company
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Witness:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
 
    	
Title:
    	
 
    

 

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)

)

)

 

I hereby certify that on the          day of                 , 20    , before me, an officer duly authorized in the jurisdiction aforesaid to take acknowledgements, the foregoing instrument was acknowledged before me by                                 .  He/She is personally known to me as the                      of Walker & Dunlop, LLC, a Delaware limited liability company.

 

	
 
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Notary   Public in and for the
    	
 
    
				

 

[Seal]

 

My Commission Expires:

 

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Exhibit Q

 

[Intentionally Omitted]

 

Q-1

 

Exhibit R

 

Form Amended and Restated Guaranty

 

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Amended and Restated Guaranty

and Suretyship Agreement
    	

    

 

THIS AMENDED AND RESTATED GUARANTY AND SURETYSHIP AGREEMENT (this “Guaranty”) is made and entered into as of this            day of June, 2013, by WALKER & DUNLOP, INC., a Maryland corporation  (the “Guarantor”), with an address at 7501 Wisconsin Avenue, Ste. 1200E, Bethesda, Maryland 20814, for the benefit of PNC BANK, NATIONAL ASSOCIATION (the “Agent”), as administrative agent for PNC BANK, NATIONAL ASSOCIATION, as lender and WELLS FARGO BANK, NATIONAL ASSOCIATION, as lender (collectively, the “Lenders”) with an address at One PNC Plaza, 19th Floor, Pittsburgh, Pennsylvania 15222, in consideration of the extension of credit by the Lenders to WALKER & DUNLOP, LLC, a Delaware limited liability company (the “Borrower”), and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged.

 

WHEREAS, Guarantor previously executed and delivered to Agent that certain Guaranty and Suretyship Agreement, dated as of June 30, 2011 (the “Original Guaranty”), whereby Guarantor guaranteed the Borrower’s payment and performance under that certain Warehousing Credit and Security Agreement, dated as of June 30, 2010, between Borrower and Agent, as the same has been amended from time to time (the “Original Agreement”).  The Borrower, Guarantor, Agent and Lenders have contemporaneously herewith amended and restated the Original Agreement pursuant to that certain Amended and Restated Warehousing Credit and Security Agreement, of even date, among Borrower, Guarantor, Agent and Lenders (the Amended and Restated Warehouse Credit and Security Agreement, as the same may be amended, renewed, extended, restated or otherwise modified is herein the “Credit Agreement”).  In connection with the execution and delivery of the Credit Agreement, Guarantor has agreed to guarantee the Borrower’s payment and performance thereunder, and to amend and restate the terms of the Original Guaranty pursuant to the terms hereof.

 

1.             Guaranty of Obligations.  The Guarantor hereby unconditionally guarantees, as a primary obligor, and becomes surety for, the prompt payment and performance of all loans, advances, debts, liabilities, obligations, covenants and duties owing by the Borrower to the Agent on behalf of the Lenders, and to the Lenders, arising under or relating to the Credit Agreement (including any interest accruing thereon after maturity, or after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), and all costs and expenses of the Agent and each Lender incurred in the documentation, negotiation, modification, enforcement, collection of the Credit Agreement and otherwise in connection with any of the foregoing, including reasonable attorneys’ fees and expenses (collectively, the “Obligations”).  If the Borrower defaults under any such Obligations, the Guarantor will pay the amount due to the Agent on behalf of the Lenders.

 

2.             Nature of Guaranty; Waivers.  This is a guaranty of payment and not of collection and the Agent shall not be required or obligated, as a condition of the Guarantor’s liability, to make any demand upon or to pursue any of its rights against the Borrower, or to pursue any rights which may be available to it with respect to any other person who may be liable for the payment of the Obligations.

 

This is an absolute, unconditional, irrevocable and continuing guaranty and will remain in full force and effect until all of the Obligations have been indefeasibly paid in full, and the Agent has terminated this Guaranty. This Guaranty will remain in full force and effect even if there is no principal balance outstanding under the Obligations at a particular time or from time to time.  This Guaranty will not be

 

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affected by any surrender, exchange, acceptance, compromise or release by the Agent of any other party, or any other guaranty or any security held by it for any of the Obligations, by any failure of the Agent to take any steps to perfect or maintain its lien or security interest in or to preserve its rights to any security or other collateral for any of the Obligations or any guaranty, or by any irregularity, unenforceability or invalidity of any of the Obligations or any part thereof or any security or other guaranty thereof.  The Guarantor’s obligations hereunder shall not be affected, modified or impaired by any counterclaim, set-off, recoupment, deduction or defense based upon any claim the Guarantor may have (directly or indirectly) against the Borrower or the Agent, except payment or performance of the Obligations.

 

Notice of acceptance of this Guaranty, notice of extensions of credit to the Borrower from time to time, notice of default, diligence, presentment, notice of dishonor, protest, demand for payment, and any defense based upon the Agent’s failure to comply with the notice requirements under Sections 9-611 and 9-612 of the Uniform Commercial Code as in effect from time to time are hereby waived.  The Guarantor waives all defenses based on suretyship or impairment of collateral.

 

The Agent at any time and from time to time, without notice to or the consent of the Guarantor, and without impairing or releasing, discharging or modifying the Guarantor’s liabilities hereunder, may (a) change the manner, place, time or terms of payment or performance of or interest rates on, or other terms relating to, any of the Obligations; (b) renew, substitute, modify, amend or alter, or grant consents or waivers relating to any of the Obligations, any other guaranties, or any security for any Obligations or guaranties; (c) apply any and all payments by whomever paid or however realized including any proceeds of any collateral, to any Obligations of the Borrower in such order, manner and amount as the Agent may determine in its sole discretion; (d) settle, compromise or deal with any other person, including the Borrower or the Guarantor, with respect to any Obligations in such manner as the Agent deems appropriate in its sole discretion; (e) substitute, exchange or release any security or guaranty; or (f) take such actions and exercise such remedies hereunder as provided herein.

 

3.             Repayments or Recovery from the Agent.  If any demand is made at any time upon the Agent for the repayment or recovery of any amount received by it in payment or on account of any of the Obligations and if the Agent repays all or any part of such amount by reason of any judgment, decree or order of any court or administrative body or by reason of any settlement or compromise of any such demand, the Guarantor will be and remain liable hereunder for the amount so repaid or recovered to the same extent as if such amount had never been received originally by the Agent.  The provisions of this section will be and remain effective notwithstanding any contrary action which may have been taken by the Guarantor in reliance upon such payment, and any such contrary action so taken will be without prejudice to the Agent’s rights hereunder and will be deemed to have been conditioned upon such payment having become final and irrevocable.

 

4.             Financial Statements.  Unless compliance is waived in writing by the Agent or until all of the Obligations have been paid in full, the Guarantor will promptly submit to the Agent such information relating to the Guarantor’s affairs (including but not limited to annual financial statements and tax returns for the Guarantor) or any security for the Guaranty as the Agent may reasonably request.

 

5.             Enforceability of Obligations.  No modification, limitation or discharge of the Obligations arising out of or by virtue of any bankruptcy, reorganization or similar proceeding for relief of debtors under federal or state law will affect, modify, limit or discharge the Guarantor’s liability in any manner whatsoever and this Guaranty will remain and continue in full force and effect and will be enforceable against the Guarantor to the same extent and with the same force and effect as if any such proceeding had not been instituted.  The Guarantor waives all rights and benefits which might accrue to it by reason of any such proceeding and will be liable to the full extent hereunder, irrespective of any

 

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modification, limitation or discharge of the liability of the Borrower that may result from any such proceeding.

 

6.             Events of Default.  The occurrence of any of the following shall be an “Event of Default”: (i) any Event of Default (as defined in the Credit Agreement); (ii) the Guarantor’s failure to perform any of its obligations hereunder; (iii) the falsity, inaccuracy or material breach by the Guarantor of any written warranty, representation or statement made or furnished to the Agent by or on behalf of the Guarantor; or (iv) the termination or attempted termination of this Guaranty.  Upon the occurrence of any Event of Default, (a) the Guarantor shall pay to the Agent the amount of the Obligations; or (b) on demand of the Agent, the Guarantor shall immediately deposit with the Agent, in U.S. dollars, all amounts due or to become due under the Obligations, and the Agent may at any time use such funds to repay the Obligations; or (c) the Agent in its discretion may exercise with respect to any collateral any one or more of the rights and remedies provided a secured party under the applicable version of the Uniform Commercial Code; or (d) the Agent in its discretion may exercise from time to time any other rights and remedies available to it at law, in equity or otherwise.

 

7.             Right of Setoff.  In addition to all liens upon and rights of setoff against the Guarantor’s money, securities or other property given to the Agent and/or the Lenders by law, the Agent and each of the Lenders shall have, with respect to the Guarantor’s obligations to the Agent and the Lenders under this Guaranty and to the extent permitted by law, a contractual possessory security interest in and a contractual right of setoff against, and the Guarantor hereby grants the Agent on behalf of the Lenders, and the Lenders, a security interest in, and hereby assigns, conveys, delivers, pledges and transfers to the Agent on behalf of the Lenders, and each of the Lenders, all of the Guarantor’s right, title and interest in and to, all of the Guarantor’s deposits, moneys, securities and other property now or hereafter in the possession of or on deposit with, or in transit to, the Agent on behalf of the Lenders, and each of the Lenders, whether held in a general or special account or deposit, whether held jointly with someone else, or whether held for safekeeping or otherwise.  Every such security interest and right of setoff may be exercised without demand upon or notice to the Guarantor.  Every such right of setoff shall be deemed to have been exercised immediately upon the occurrence of an Event of Default hereunder without any action of the Agent on behalf of the Lenders, and each of the Lenders, although the Agent may enter such setoff on their books and records at a later time.

 

8.             Intentionally Omitted.

 

9.             Costs.  To the extent that the Agent incurs any costs or expenses in protecting or enforcing its rights under the Obligations or this Guaranty, including reasonable attorneys’ fees and the costs and expenses of litigation, such costs and expenses will be due on demand, will be included in the Obligations and will bear interest from the incurring or payment thereof at the Default Rate (as defined in any of the Obligations).

 

10.          Postponement of Subrogation.  Until the Obligations are indefeasibly paid in full, expire, are terminated and are not subject to any right of revocation or rescission, the Guarantor postpones and subordinates in favor of the Agent or its designee (and any assignee or potential assignee) any and all rights which the Guarantor may have to (a) assert any claim whatsoever against the Borrower based on subrogation, exoneration, reimbursement, or indemnity or any right of recourse to security for the Obligations with respect to payments made hereunder, and (b) any realization on any property of the Borrower, including participation in any marshalling of the Borrower’s assets.

 

11.          Notices.  All notices, demands, requests, consents, approvals and other communications required or permitted hereunder (“Notices”) must be in writing and will be effective upon receipt.  Notices may be given in any manner to which the Agent and the Guarantor may separately agree,

 

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including electronic mail.  Without limiting the foregoing, first-class mail, facsimile transmission and commercial courier service are hereby agreed to as acceptable methods for giving Notices.  Regardless of the manner in which provided, Notices may be sent to  addresses for the Agent and the Guarantor as set forth above or to such other address as either may give to the other  for such purpose in accordance with this section.

 

12.          Preservation of Rights.  No delay or omission on the Agent’s part to exercise any right or power arising hereunder will impair any such right or power or be considered a waiver of any such right or power, nor will the Agent’s action or inaction impair any such right or power.  The Agent’s rights and remedies hereunder are cumulative and not exclusive of any other rights or remedies which the Agent may have under other agreements, at law or in equity.  The Agent may proceed in any order against the Borrower, the Guarantor or any other obligor of, or any collateral securing, the Obligations.

 

13.          Illegality.  If any provision contained in this Guaranty should be invalid, illegal or unenforceable in any respect, it shall not affect or impair the validity, legality and enforceability of the remaining provisions of this Guaranty.

 

14.          Changes in Writing.  No modification, amendment or waiver of, or consent to any departure by the Guarantor from, any provision of this Guaranty will be effective unless made in a writing signed by the Agent, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.  No notice to or demand on the Guarantor will entitle the Guarantor to any other or further notice or demand in the same, similar or other circumstance.

 

15.          Entire Agreement.  This Guaranty (including the documents and instruments referred to herein) constitutes the entire agreement and supersedes all other prior agreements and understandings, both written and oral, between the Guarantor and the Agent with respect to the subject matter hereof; provided, however, that this Guaranty is in addition to, and not in substitution for, any other guarantees from the Guarantor to the Agent.

 

16.          Successors and Assigns.  This Guaranty will be binding upon and inure to the benefit of the Guarantor and the Agent and their respective heirs, executors, administrators, successors and assigns; provided, however, that the Guarantor may not assign this Guaranty in whole or in part without the Agent’s prior written consent and the Agent at any time may assign this Guaranty in whole or in part.

 

17.          Interpretation.  In this Guaranty, unless the Agent and the Guarantor otherwise agree in writing, the singular includes the plural and the plural the singular; references to statutes are to be construed as including all statutory provisions consolidating, amending or replacing the statute referred to; the word “or” shall be deemed to include “and/or”, the words “including”, “includes” and “include” shall be deemed to be followed by the words “without limitation”; and references to sections or exhibits are to those of this Guaranty.  Section headings in this Guaranty are included for convenience of reference only and shall not constitute a part of this Guaranty for any other purpose.  If this Guaranty is executed by more than one party as Guarantor, the obligations of such persons or entities will be joint and several.

 

18.          Indemnity.  The Guarantor agrees to indemnify each of the Agent, the Lenders, each legal entity, if any, who controls, is controlled by or is under common control with the Agent and the Lenders and each of their respective directors, officers and employees (the “Indemnified Parties”), and to defend and hold each Indemnified Party harmless from and against, any and all claims, damages, losses, liabilities and expenses (including all fees and charges of internal or external counsel with whom any Indemnified Party may consult and all expenses of litigation  and preparation therefor) which any Indemnified Party may incur or which may be asserted against any Indemnified Party by any person, entity or governmental authority (including any person or entity claiming derivatively on behalf of the

 

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Guarantor), in connection with or arising out of or relating to the matters referred to in this Guaranty, whether (a) arising from or incurred in connection with any breach of a representation, warranty or covenant by the Guarantor, or (b) arising out of or resulting from any suit, action, claim, proceeding or governmental investigation, pending or threatened, whether based on statute, regulation or order, or tort, or contract or otherwise, before any court or governmental authority; provided, however, that the foregoing indemnity agreement shall not apply to any claims, damages, losses, liabilities and expenses solely attributable to an Indemnified Party’s gross negligence or willful misconduct.  The indemnity agreement contained in this Section shall survive the termination of this Guaranty and assignment of any rights hereunder.  The Guarantor may participate at its expense in the defense of any such claim.

 

19.          Governing Law and Jurisdiction.  This Guaranty has been delivered to and accepted by the Agent and will be deemed to be made in the State where the Agent’s office indicated above is located.  THIS GUARANTY WILL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE AGENT ON BEHALF OF THE LENDERS AND THE GUARANTOR DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE AGENT’S OFFICE INDICATED ABOVE IS LOCATED, EXCLUDING ITS CONFLICT OF LAWS RULES.  The Guarantor hereby irrevocably consents to the exclusive jurisdiction of any state or federal court in the county or judicial district where the Agent’s office indicated above is located; provided that nothing contained in this Guaranty will prevent the Agent from bringing any action, enforcing any award or judgment or exercising any rights against the Guarantor individually, against any security or against any property of the Guarantor within any other county, state or other foreign or domestic jurisdiction.  The Guarantor acknowledges and agrees that the venue provided above is the most convenient forum for both the Agent and the Guarantor.  The Guarantor waives any objection to venue and any objection based on a more convenient forum in any action instituted under this Guaranty.

 

20.          Equal Credit Opportunity Act.  If the Guarantor is not an “applicant for credit” under Section 202.2 (e) of the Equal Credit Opportunity Act of 1974 (“ECOA”), the Guarantor acknowledges that (i) this Guaranty has been executed to provide credit support for the Obligations, and (ii) the Guarantor was not required to execute this Guaranty in violation of Section 202.7(d) of the ECOA.

 

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

 

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23.          WAIVER OF JURY TRIAL.  THE GUARANTOR IRREVOCABLY WAIVES ANY AND ALL RIGHT THE GUARANTOR MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY NATURE RELATING TO THIS GUARANTY, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS GUARANTY OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS.  THE GUARANTOR ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.

 

The Guarantor acknowledges that it has read and understood all the provisions of this Guaranty, including the waiver of jury trial, and has been advised by counsel as necessary or appropriate.

 

WITNESS the due execution hereof as a document under seal, as of the date first written above, with the intent to be legally bound hereby.

 

	
WITNESS   / ATTEST:
    	
WALKER &   DUNLOP, INC.,
    
	
 
    	
a   Maryland corporation
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    	
(SEAL)
    
	
Print   Name:
    	
 
    	
 
    	
Print   Name:
    	
 
    
	
 
    	
 
    	
 
    	
Title:
    	
 
    
								

 

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Schedule I

 

List of Lenders and Lenders’ Warehousing Commitments

 

	
Lender
    	
 
    	
Warehousing Commitment
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
PNC Bank, National Association
    	
 
    	
$
    	
450,000,000.00
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Wells Fargo Bank, National   Association
    	
 
    	
$
    	
200,000,000.00

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