Document:

EXHIBIT 10.1

EXECUTION COPY

AMENDMENT NO. 2 TO
THE CREDIT AGREEMENT

Dated as of August
21, 2006

AMENDMENT NO. 2 TO THE CREDIT AGREEMENT (this “Amendment”) among
Pierre Foods, Inc., a North Carolina corporation (the “Borrower”), the
Lenders (as hereinafter defined) party hereto, Wachovia Bank, National
Associations (“Wachovia”),
as collateral agent (the “Collateral
Agent”), and Wachovia, as administrative agent (the “Administrative Agent”;
together with the Collateral Agent, the “Agents”).

PRELIMINARY STATEMENTS:

(1)    The
Borrower, certain financial institutions and other persons from time to time
parties thereto (collectively, the “Lenders”) and the Agents have entered into
that certain Credit Agreement dated as of June 30, 2004, as amended by
Amendment No. 1 dated as of April 3, 2006 (as amended, restated, supplemented
or otherwise modified, the “Credit Agreement”; capitalized terms used herein but not
defined shall be used herein as defined in the Credit Agreement).

(2)    The
Borrower desires, in connection with the proposed acquisition of Target (the “Acquisition”), to
obtain additional Term B Loans in an amount equal to $24,000,000 in excess of
the principal amount of the Term B Loans outstanding under the Credit Agreement
prior to the effectiveness of this Amendment (the “New Term B Loans”)
and having the same rights and obligations as the Term B Loans, as set forth in
the Loan Documents.

(3)    Each
Person who executes and delivers this Amendment as a New Term B Lender (as
hereinafter defined) has agreed to make New Term B Loans in the aggregate
amount of its New Term B Commitment (as hereinafter defined) on the Amendment
No. 2 Effective Date, the proceeds of which shall be used by the Borrower, in
part, to finance the acquisition of Clovervale Farms, Inc., an Ohio corporation
(“Clovervale”), and the real property used in the business of Clovervale.

(4)    The
Borrower has requested that the Required Lenders and the Required Term Lenders amend the Credit Agreement to
effect the changes described above and to make other amendments set forth
below.

(5)    The
Required Lenders and the Required Term Lenders have agreed, subject to the terms and conditions hereinafter set
forth, to amend the Credit Agreement in certain respects as set forth below.

NOW, THEREFORE, in consideration of the premises and
for other good and valuable consideration (the receipt and sufficiency of which
is hereby acknowledged), the parties hereto hereby agree as follows:

SECTION 1.   Amendment of Credit Agreement.   The
Credit Agreement is, effective as of the date hereof and subject to the
satisfaction of the conditions precedent set forth in Section 2 of this
Amendment, hereby amended as follows:

(a)    Section
1.01 of the Credit Agreement is hereby amended as follows:

(i)     By
amending the definition of “Term B Commitment” to add the following sentence at the
end of such definition:

“The term ‘Term B
Commitment’ also means each New Term B Commitment.”

 

(ii)    By
amending the definition of “Term B Facility” to add the following sentence at the
end of such definition:

“The term ‘Term B
Facility’ also means each New Term B Facility.”

(iii)   By
amending the definition of “Term B Loan” to add the following sentence at the end of
such definition:

“The term ‘Term B
Loan’ also means a New Term B Loan.”

(iv)   By
inserting the following new definitions therein in the appropriate alphabetical
order:

“Amendment No. 2 Effective
Date” means August 21, 2006.

“Initial
Term B Loans” means Term B Loans that are not New Term B Loans.

“New
Term B Commitment” means, as to each New Term B Lender, its
obligation to make New Term B Loans to the Borrower pursuant to Section
2.01(a)(ii), in an aggregate principal amount at any one time outstanding
not to exceed the amount set forth opposite such Lender’s name on Schedule
2.01(a)(ii) under the caption “New Term B Commitment” or in the Assignment
and Assumption pursuant to which such Lender becomes a party hereto, as
applicable, as such amount may be adjusted from time to time in accordance with
this Agreement.

“New
Term B Facility” means, at any time, the aggregate New Term B
Commitments or New Term B Loans, as applicable, of all Lenders at such time.

“New
Term B Lender” means, at any time, any Lender that has a New
Term B Commitment or New Term B Loan, as applicable, at such time.

“New Term B Loan” has
the meaning specified in Section 2.01(a)(ii).

(b)    Section
2.01(a) of the Credit Agreement is hereby amended by:

(i)     Inserting
“(i)” before the first sentence thereof;

(ii)    Inserting
the following after the third sentence thereof: “Anything contained herein to
the contrary notwithstanding, this Section 2.01(a)(i) shall not apply to any
New Term B Loans.”; and

(iii)   Adding a
new Section 2.01(a)(ii) at the end thereof to read as follows:

“(ii)  Subject to
the terms and conditions set forth herein, each New Term B Lender severally
agrees to make a single loan (each, a “New Term B Loan”), in an amount equal to its
New Term B Commitment, to the Borrower on the Amendment No. 2 Effective Date.
Amounts borrowed under this Section 2.01(a)(ii) and repaid or prepaid
may not be reborrowed. New Term B Loans may be Base Rate Loans or Eurodollar
Rate Loans, as further provided herein.”

 2
 

 

(c)    Section
2.03(j)(i) of the Credit Agreement is hereby amended by deleting clause (b)
therein in its entirety and inserting the following new clause (b) in its
place:

“(b) due and
payable on the last Business Day of each quarter, commencing with the first
such date to occur after the issuance of such Letter of Credit, on the Maturity
Date in respect of the Revolving Credit Facility and thereafter on demand.”

(d)    Section
2.07(a) of the Credit Agreement is hereby amended by deleting the figure “$141,375,000”
in the table therein and inserting the figure “$131,000,000” in its place.

(e)    Section
6.11 of the Credit Agreement is hereby amended by inserting the following at
the end thereof:

“In addition, the
proceeds of the New Term B Loans shall be used to finance in part the
acquisition of Target and to pay fees and expenses incurred in connection with
such acquisition.”

(f)     Section
6.12(vi) of the Credit Agreement is hereby amended by deleting the reference to
“title reports” therein and inserting the term “title insurance” in its place.

(g)    Section
7.03(i)(iv)(A) of the Credit Agreement is hereby amended by deleting the figure
“$10,000,000” therein and inserting the figure “$30,000,000” in its place.

(h)    Section
7.03(i)(iv)(B) of the Credit Agreement is hereby amended by deleting the figure
“$30,000,000” therein and inserting the figure “$40,000,000” in its place.

(i)     Section
7.05 of the Credit Agreement is hereby amended by: (i) deleting the word “and”
at the end of clause (m) thereof; (ii) inserting “and” after the semicolon in
clause (n) thereof; and (iii) adding the following new clause (o) thereto:

“(o) the
Disposition of the proprietary formulation for 5.50 ounce beefsteak patties to
Carl Karcher Enterprises, Inc. and the proprietary formulations for 4.10 ounce
beefsteak patties and 5.65 ounce beefsteak patties to Hardee’s Food Systems,
Inc.;”

(j)     Schedule
2.01(a)(ii) is attached as Annex I hereto and is hereby added to the Credit
Agreement.

SECTION 2.   Conditions to Effectiveness.   This
Amendment and the amendments contained herein shall become effective as of the
date hereof (the “Amendment
No. 2 Effective Date”) when each of the conditions set forth in
this Section 2 shall have been fulfilled to the satisfaction of the
Administrative Agent.

(i)   Execution of Counterparts.   The
Administrative Agent shall have received counterparts of this Amendment, duly
executed and delivered on behalf of each of (a) the Loan Parties, (b) the
Required Lenders and the Administrative Agent, (c) the Required Term Lenders,
and (d) each New Term B Lender, or as to any of the foregoing parties, advice
reasonably satisfactory to the Administrative Agent that each of the foregoing
parties has executed a counterpart of this Amendment; provided, however,
that, anything contained herein to the contrary notwithstanding, the amendments
contained in Section 1(a) through 1(e), 1(g), 1(h) and 1(j) and Section 2(vi) and 2(vii)
shall become effective solely upon the Acquisition.

(ii)   Notice of Borrowing.   The
Borrower shall have provided the Administrative Agent with a Notice of
Borrowing in accordance with the requirements of Section 2.02(a) of the
Credit Agreement prior to the Amendment No. 2 Effective Date with respect to
the borrowing of 

 3
 

 

the New Term B Loans on
the Amendment No. 2 Effective Date.

(iii)   Payment of Fees and Expenses.   The
Borrower shall have paid all reasonable expenses (including the reasonable fees
and expenses of Shearman & Sterling LLP) incurred in connection with the
preparation, negotiation and execution of this Amendment and other matters
relating to the Credit Agreement from and after the last invoice to the extent
invoiced.

(iv)   Evidence of Debt.   Each
New Term B Lender shall have received, if requested, one or more Notes payable
to the order of such Lender duly executed by the Borrower in substantially the
form of Exhibit C-1 to the Credit Agreement, evidencing the New Term B Loans
made by such Lender.

(v)   Certificates.   The
Administrative Agent shall have received (i) a certificate of the Secretary or
an Assistant Secretary of each of the Loan Parties certifying (A) the names and
true signatures of the officers of each of the Loan Parties authorized to sign
this Amendment and the other documents to be delivered hereunder and (B) the
resolutions of the Board of Directors of the Loan Parties evidencing approval
for this Amendment and (ii) a certificate of an officer of each of the Loan
Parties certifying (A) that no authorization or approval or other action by, and
no notice to or filing with, any governmental authority or regulatory body, or
any third party to any agreements and instruments is required for the due
execution, delivery or performance by each of the Loan Parties of this
Amendment, (B) the representations and warranties contained in Section 3
of this Amendment are true and correct and (C) no event has occurred and is
continuing that constitutes a Default.

(vi)   Additional Collateral Documents.   As
of the Amendment No. 2 Effective Date, the Borrower shall, and shall cause each
Subsidiary to, furnish to the Administrative Agent:

a)      Evidence that mortgage amendments (the “Mortgage Amendments”)
with respect to the Mortgages dated as of June 30, 2004 (the “Existing Mortgages”)
have been duly executed, acknowledged and delivered by a duly authorized
officer of each party thereto on or before such date and are in form suitable
for filing and recording in all filing or recording offices that the
Administrative Agent may deem necessary or desirable;

b)     Date-down endorsements to the title insurance policies by a title insurer reasonably acceptable
to the Administrative Agent with respect to the property encumbered by the Existing
Mortgages showing (x) no Liens of record other than those created by or
permitted under the terms of the applicable Existing Mortgage and (y) that
title to the applicable property remains vested in the appropriate Loan Party,
together with such confirmations as the Administrative Agent may deem necessary
or desirable and evidence that all other actions that the Administrative Agent
may deem necessary or desirable to confirm that Liens created by the Existing
Mortgages on the property described therein are valid first and subsisting
Liens in favor of the Collateral Agent for the benefit of the Secured Parties;
and

c)      Evidence that all fees, costs and expenses have been paid in
connection with the preparation, execution, filing and recordation of the Mortgage
Amendments, including, without limitation, filing and recording fees, title
insurance company coordination fees, and title search charges and other charges
incurred in connection with the matters described in this Section 2(vi).

 4
 

 

(vii)   Opinions.   The
Administrative Agent shall have received a favorable opinion of Thompson Hine
LLP, counsel to the Loan Parties, on such matters concerning the Loan Parties
and this Amendment as the Administrative Agent may reasonably request.

(viii)   Legal Details, Etc.   All
documents executed or submitted pursuant hereto shall be reasonably
satisfactory in form and substance to the Administrative Agent and Shearman
& Sterling LLP as counsel. The Administrative Agent and its counsel shall
have received all information and such counterpart originals or such certified
or other copies or such materials as the Administrative Agent or its counsel
may reasonably request, and all legal matters incident to the transactions
contemplated by this Amendment shall be reasonably satisfactory to the
Administrative Agent and its counsel.

(ix)   No Default.   No
Default shall have occurred and be continuing, or would occur as a result of
the transactions contemplated by this Agreement.

SECTION 3.   Confirmation of Representations and
Warranties.   Each of the Loan Parties hereby
represents and warrants, on and as of the date hereof and as of the Amendment
No. 2 Effective Date, that the representations and warranties contained in the
Credit Agreement and the other Loan Documents are correct and true in all
material respects (without duplication of any materiality qualifier contained
in any such representations and warranties) on and as of such date, before and
after giving effect to this Amendment, as though made on and as of such date,
other than any such representations or warranties that by their terms refer to
a specific date.

SECTION 4.   Affirmation of Subsidiary Guarantors.   Each
Guarantor hereby consents to the amendments to the Credit Agreement effected
hereby, and hereby confirms and agrees that, notwithstanding the effectiveness
of this Amendment, the obligations of such Guarantor contained in the Parent
Guaranty, in respect of each of Holdings and the Parent, and the Subsidiary
Guaranty, in respect of each Subsidiary Guarantor, or in any other Loan
Documents to which such Guarantor is a party are, and shall remain, in full
force and effect and are hereby ratified and confirmed in all respects, except
that, on and after the effectiveness of this Amendment, each reference in the
Parent Guaranty and in the Subsidiary Guaranty, as the case may be, and in each
of the other Loan Documents to “the
Agreement”, “thereunder”,
“thereof” or words of like import
shall mean and be a reference to the Credit Agreement, as modified by this
Amendment. Without limiting the generality of the foregoing, the Collateral
Documents to which such Guarantor is a party and all of the Collateral
described therein do, and shall continue to secure, payment of all of the
Secured Obligations (in each case, as defined therein).

SECTION 5.   Reference to and Effect on the Loan
Documents.   ii. On and after the effectiveness of
this Amendment, each reference in the Credit Agreement to “hereunder”, “hereof” or words of like import referring to the Credit
Agreement, and each reference in the other transaction documents to the “Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit
Agreement, shall mean and be a reference to the Credit Agreement as modified by
this Amendment.

(b)    The Credit
Agreement, the Notes and each of the other Loan Documents, as specifically
amended by this Amendment, are and shall continue to be in full force and
effect and are hereby in all respects ratified and confirmed. Without limiting
the generality of the foregoing, the Collateral Documents and all of the
Collateral described therein do and shall continue to secure the payment of all
Obligations of the Loan Parties under the Loan Documents, in each case as
amended by this Amendment.

 5
 

 

(c)    The
execution, delivery and effectiveness of this Amendment shall not, except as
expressly provided herein, operate as a waiver of any right, power or remedy of
any Lender or any Agent under any of the Loan Documents, nor constitute a
waiver of any provision of any of the Loan Documents.

SECTION 6.   Execution in Counterparts.   This
Amendment may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed shall
be deemed to be an original and all of which taken together shall constitute
but one and the same agreement. Delivery of an executed counterpart of a
signature page to this Amendment by facsimile shall be effective as delivery of
a manually executed original counterpart of this Amendment.

SECTION 7.   Governing Law.   This
Amendment shall be governed by, and construed in accordance with, the laws of
the State of New York, and shall be subject to the jurisdictional and service
provisions of the Credit Agreement, as if this were a part of the Credit
Agreement.

SECTION 8.   Entire Agreement; Modification.   This
Amendment constitutes the entire agreement of the parties hereto with respect
to the subject matter hereof, there being no other agreements or
understandings, oral, written or otherwise, respecting such subject matter, any
such agreement or understanding being superseded hereby, shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns, and may not be amended, extended or otherwise modified, except in
a writing executed in whole or in counterparts by each party hereto.

[SIGNATURES
FOLLOW.]

 6

 

IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first above written.

PIERRE
FOODS, INC.

 

 

By    /s/
Joseph W.
Meyers                           

     Joseph W. Meyers

     Vice President, Finance

 

 

PIERRE
HOLDING CORP.

 

 

By    /s/
Joseph W.
Meyers                           

     Joseph W. Meyers

     Vice President, Finance

 

 

PF
MANAGEMENT INC.

 

 

By    /s/
Joseph W.
Meyers                           

     Joseph W. Meyers

     Vice President, Finance

 

 

FRESH
FOODS PROPERTIES, LLC

 

By
PIERRE FOODS, INC.                             

 

 

By    /s/
Joseph W.
Meyers                           

     Joseph W. Meyers

     Vice President, Finance

 

 

WACHOVIA BANK, NATIONAL
ASSOCIATION, as Administrative Agent and Collateral Agent

By    /s/
Kim
Dit                                            

     Name: 
Kim Dit

     Title:  Vice President

Lenders:

 

ANTARES FUNDING, L.P.,

as a Lender

By:  JP Morgan
Chase Bank, N.A., As Trustee of the Antares Funding Trust created under the
Trust Agreement dated as of November 30, 1999.

 

By:    /s/ Leslie
Hundley                               

Name:  Leslie Hundley

Title:  AVP

 

Ares IV CLO Ltd.

 

By:                Ares CLO Management IV, L.P.,

            Investment
Manager

 

By:                            Ares CLO GP IV, LLC,

            Its
Managing Member

 

 

By:                                /s/ Seth J.
Brufsky                         

Name:         Seth
J. Brufsky

Title:                   Vice President

 

Ares VIII CLO Ltd.

 

By:                Ares CLO Management VIII, L.P.,

            Investment
Manager

 

By:                            Ares CLO GP VIII, LLC,

            Its
General Partner

 

 

By:                                /s/ Seth J.
Brufsky                         

Name:         Seth
J. Brufsky

Title:                   Vice President

 

 

Ares VR CLO Ltd.

 

By:                Ares CLO Management VR, L.P.,

                                    Investment Manager

 

By:                Ares CLO GP VR, LLC,

                                    Its General Partner

 

 

By:                                /s/ Seth J.
Brufsky                         

Name:         Seth
J. Brufsky

Title:                   Vice President

 

ARES ENHANCED LOAN INVESTMENT

STRATEGY LTD.

 

By:                Ares Enhanced Loan Management, L.P.,

            Investment
Manager

 

By:                            Ares Enhanced Loan GP, LLC

            Its
General Partner

 

 

By:                                /s/ Seth J.
Brufsky                         

Name:         Seth
J. Brufsky

Title:                   Vice President

 

Ballyrock CLO II limited, By: Ballyrock Investment

Advisors LLC, as Collateral Manager

as a New Term B Lender

 

 

By:      /s/
Lisa
Rymut                                   

Name:  Lisa
Rymut

Title: 
Assistant Treasurer

 

Bank of America, N.A.

as a Lender

 

 

By:      /s/
Alysa
Trakas                                

Name:  Alysa
Trakas

Title:  Vice
President

 

 

Bushnell CBNA Loan Funding LLC, for

Itself or as agent for Bushnell CFPI Loan

Funding LLC

                        as a Lender

 

 

By:      /s/
Beata
Konopko                            

Name:  Beata
Konopko

Title:  As
attorney in fact

 

By: Callidus Debt Partners CLO Fund II, Ltd.

                                          By:  Its
Collateral Manager,

                        Callidus Capital Management, LLC

 

By:      /s/
Peter R. Bennitt                            

Name:  Peter R.
Bennitt

Title: 
Principal

 

By: Callidus Debt Partners CLO Fund III, Ltd.

                                          By:  Its
Collateral Manager,

                        Callidus Capital Management, LLC

 

By:      /s/
Peter R.
Bennitt                            

Name:  Peter R.
Bennitt

Title: 
Principal

 

           /s/
John
Basaraba                                

as a new Term B Lender

 

By:  CIT Group

Name:  John
Basaraba

Title:  Vice
President

 

CIT Lending Services Corporation

 

 

By:      /s/
John
Basaraba                              

Name:  John
Basaraba

Title:  Vice
President

 

COOPERATIEVE CENTRALE RAIFFEISEN-

BOERENLEENBANK B.A., "RABOBAND

INTERNATIONAL," NEW YORK BRANCH,

 

By:      /s/
Michael L.
Laurie                         

Name:  Michael
L. Laurie

Title: 
Executive Director

 

By:      /s/
Andrew
Sherman                          

Name:  Andrew
Sherman

Title: 
Executive Director

 

 

Denali Capital LLC, managing member of

DC Funding Partners LLC, portfolio manager for

DENALI CAPITAL CLO IV, LTD., or an affiliate

 

 

By:      /s/
John P.
Thacker                            

                        Name:  John P.
Thacker

                        Title:  Chief
Credit Officer

 

Emerald Orchard Limited

as a Lender

 

 

By:      /s/
Wendy
Cheung                             

Name:  Wendy
Cheung

Title: 
Authorized Signatory

 

Fidelity Central Investment Portfolios LLC: Fidelity

Floating Rate Central Investment Portfolio

as a New Term B Lender

 

 

By:      /s/
John H.
Costello                                

Name:  John H.
Costello

Title: 
Assistant Treasurer

 

FOOTHILL INCOME TRUST II, L.P.

as a Lender

 

By:  FIT II GP,
LLC, its general partner

 

 

By:      /s/
Dennis R.
Ascher                                

Name:  Dennis R.
Ascher

Title:  Managing
Member

 

Harch CLO II Limited

as a Lender

 

 

By:      /s/
Michael E.
Lewitt                                

Name:  Michael
E. Lewitt

Title: 
Authorized Signatory

 

 

The Hartford Mutual Funds, Inc., on behalf of the

Hartford Floating Rate Fund by Hartford

Investment Management Company, its sub-advisor,

as a lender,

 

 

By:      /s/
Franasco
Ossino                                  

Name:  Franasco
Ossino

Title:  Vice
President

 

________________________

as a new Term B Lender

 

 

By:      /s/
Robert
Wilson                              

Name:  Robert
Wilson

Title:  Senior
Vice President

 

ING International (II) – Senior bank Loans Euro

By:  ING
Investment Management Co.

and its investment manager

 

 

            /s/
Robert
Wilson                                 

Name:  Robert
Wilson

Title:  Senior
Vice President

 

Landmark IV CDO Limited

By Alladin Capital Management LLC, as manager

 

 

By:      /s/
Thomas E.
Bausby                       

Name:  Thomas E.
Bausby

Title: 
Authorized Signatory

 

Landmark II CDO Limited

By Alladin Capital Management LLC, as manager

 

 

By:      /s/
Thomas E.
Bausby                       

Name:  Thomas E.
Bausby

Title: 
Authorized Signatory

 

LaSalle Bank,
N                                            

as a new Term B Lender

 

 

By:      /s/
Anthony M.
Buehler                     

Name:  Anthony
M. Buehler

Title:  Vice
President

 

 

 

 

Loan Funding VII LLC

By:  Highland
Capital management, L.P.,

As Collateral Manager

By:  Strand
Advisors, Inc., Its General Partner

 

 

By:      /s/
Chad
Schramek                            

Name:  Chad
Schramek,

Title: 
Assistant Treasurer

                        Strand Advisors, Inc., General Partner of

                        Highland Capital Management, L.P.

 

Morgan Stanley Prime Income Trust

 

 

By:      /s/
John
Hayes                                   

Name:  John
Hayes

Title: 
Executive Director

 

NAVIGATOR CDO 2004, LTD.,

as a new term B Lender

 

By:  Antares
Asset Management Inc.,

as Collateral Manager

 

 

By:      /s/
David
Schmuck                            

Name:  David
Schmuck

Title: 
Authorized Signatory

 

QUALCOMM Global Trading, Inc.

By: Morgan Stanley Investment Management Inc.

as Investment Manager

 

 

By:      /s/
John
Hayes                                  

Name:  John
Hayes

title: 
Executive Director

 

Prospero CLO I B.V.

as a Lender

 

 

By:      /s/
Eric
Hurshman                             

name:  Eric
Hurshman

Title: 
Attorney-in-Fact

 

 

VAN KAMPEN

SENIOR LOAN FUND

By:  Van Kampen
Asset Management

 

 

By:      /s/
Robert P.
Drobny                         

Name:  Robert P.
Drobny

Title:  Vice
President

 

VAN KAMPEN

SENIOR INCOME TRUST

By:  Van Kampen
Asset Management

 

 

By:      /s/
Robert P.
Drobny                         

Name:  Robert P.
Drobny

Title:  Vice
President

 

Venture CDO 2002, Limited

By its investment advisor,

MJX Asset Management LLC

 

 

By:      /s/
Michael G.
Regan                        

Name:  Michael
G. Regan

Title:  Managing
Director

Venture III CDO Limited

By its investment advisor,

MJX Asset Management LLC

 

 

By:      /s/
Michael G.
Regan                        

Name:  Michael
G. Regan

Title:  Managing
Director

 

 

Venture IV CDO Limited

By its investment advisor,

MJX Asset Management LLC

 

 

By:      /s/
Michael G.
Regan                        

Name:  Michael
G. Regan

Title:  Managing
Director

 

SCHEDULE 2.01(a)(ii)

 

COMMITMENTS(1)

 

	
   Name of New Term B Lender

   	
   New Term B Commitment

   
	
  Wachovia Bank, National Association

  	
  24,000,000.00

  
	
  Total

  	
  24,000,000.00

  

(1)        On Amendment No. 2 Effective Date.United States Securities & Exchange Commission EDGAR Filing

EXHIBIT 4.1

THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

Empire Financial Holding Company

WARRANT TO PURCHASE COMMON STOCK

			
	Warrant No.: ___

	                                                                                   

	Shares: __

Date of Issuance: January 18, 2006

Empire Financial Holding Company, a Florida corporation (the “Company”), hereby certifies that, for Ten United States Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, ____________________, the registered holder hereof or its permitted assigns, is entitled, subject to the terms set forth below, to purchase from the Company upon surrender of this Warrant, at any time or times on or after January 18, 2006, but not after 11:59 P.M., Orlando, Florida time on the Expiration Date (as defined herein) ________________ thousand (___) fully paid nonassessable shares of Common Stock (as defined herein) of the Company (the “Warrant Shares”) at the Warrant Exercise Price (as defined below). 

Section 1.

Definitions.  The following words and terms as used in this Warrant shall have the following meanings:

“Approved Stock Plan” means any employee benefit plan which has been approved by the Board of Directors of the Company, pursuant to which the Company’s securities may be issued to any employee, officer or director for services provided to the Company.

“Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law to remain closed.

“Closing Bid Price” means, for any security as of any date, the last closing bid price for such security on the Principal Market as reported by Bloomberg Financial Markets (“Bloomberg”), or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price, then the last bid price of such security at 4:00 p.m. New York Time (or such other time as the Principal Market publicly announces is the official close of trading) as reported by Bloomberg, or, if the foregoing do not apply, the last closing bid price 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 is reported for such security by Bloomberg, the last closing trade price for such security as reported by Bloomberg, or, if no last closing trade price is reported for such security by Bloomberg, the average of the bid prices of any market makers for such security as reported in the “pink sheets” by the National Quotation Bureau, Inc.  If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as mutually determined by the Company and the holders of the Warrants representing a majority of the shares of Common Stock issuable upon exercise of the Warrants then outstanding.  If the Company and the holders of the Warrants are unable to agree upon the fair market value of the Common Stock, then such dispute shall be resolved pursuant to Section 2(a) of this Warrant, with the term “Closing Bid Price” being substituted for the term “Market Price.”  All such determinations shall be appropriately adjusted for any stock dividend, stock split or other similar transaction during such period.

“Common Stock” means (i) the Company’s common stock, par value $0.01 per share, and (ii) any capital stock into which such Common Stock shall have been changed or any capital stock resulting from a reclassification of such Common Stock.

“Common Stock Deemed Outstanding” means, at any given time, the number of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be outstanding pursuant to Sections 8(b)(i) and 8(b) (ii) hereof regardless of whether the Options or Convertible Securities are actually exercisable or convertible at such time, but excluding any shares of Common Stock owned or held for the account of the Company or issuable upon exercise of the Warrants.

“Convertible Securities” means any stock or securities (other than Options) directly or indirectly convertible into or exchangeable or exercisable for Common Stock.

“Expiration Date” means January 17, 2011.

“Market Price” means, with respect to any security for any date of determination, that price which shall be computed as the arithmetic average of the Closing Bid Prices for such security on each of the five trading days immediately proceeding such date of determination.  All such determinations shall be appropriately 

2

adjusted for any stock dividend, stock split or other similar transaction during the pricing period.

“Options” means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities. 

“Other Securities” means (i) those warrants of the Company issued prior to, and outstanding on, the date of issuance of this Warrant and (ii)  the shares of Common Stock issued upon exercise of the Warrants.

“Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization or a government or any department or agency thereof.

“Principal Market” means The American Stock Exchange, Inc. or, if the Common Stock is not traded on The American Stock Exchange, Inc., then the principal securities exchange or trading market for the Common Stock.

“Securities Act” means the Securities Act of 1933, as amended.

“Warrant” means this Warrant and all Warrants issued in exchange, transfer or replacement thereof.

“Warrant Exercise Price” shall be equal to, with respect to any Warrant Share, $5.46, subject to adjustment as hereinafter provided.

Section 2.

Exercise of Warrant.

(a)

Subject to the terms and conditions hereof, this Warrant may be exercised by the holder hereof then registered on the books of the Company, in whole or in part, at any time on any Business Day on or after the opening of business on January 18, 2006 and prior to 11:59 P.M., Orlando, Florida time on the Expiration Date by (i) delivery of a written notice, in the form of the subscription form attached as Exhibit A hereto (the “Exercise Notice”), of such holder’s election to exercise this Warrant, which notice shall specify the number of Warrant Shares to be purchased, (ii) payment to the Company of an amount equal to the Warrant Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the “Aggregate Exercise Price”) by wire transfer of immediately available funds (or by check if the Company has not provided the holder of this Warrant with wire transfer instructions for such payment), and (iii) the surrender to a common carrier for overnight delivery to the Company as soon as practicable following such date, this Warrant (or an indemnification undertaking with respect to this Warrant in the case of its loss, theft or destruction); provided, that if such Warrant Shares are to be issued in any name other than that of the registered holder of this Warrant, such issuance shall be deemed a transfer and the provisions of Section 7 shall be applicable.  In the event of any exercise of the rights represented by this Warrant in compliance with this Section 2(a), the Company shall on the second (2nd) Business Day (the “Warrant Share Delivery Date”) following the date of its receipt of the Exercise Notice, the Aggregate 

3

Exercise Price and this Warrant (or an indemnification undertaking with respect to this Warrant in the case of its loss, theft or destruction) (the “Exercise Delivery Documents”) (A) provided that the transfer agent is participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program and provided that the holder is eligible to receive shares through DTC, credit such aggregate number of shares of Common Stock to which the holder shall be entitled to the holder’s or its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission system or (B) issue and deliver to the address specified in the Exercise Notice, a certificate, registered in the name of the holder or its designee, for the number of shares of Common Stock to which the holder shall be entitled.  Upon delivery of the Exercise Notice and Aggregate Exercise Price referred to in clause (ii) above, the holder of this Warrant shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of this Warrant as required by clause (iii) above or the certificates evidencing such Warrant Shares.  In the case of a dispute as to the determination of the Warrant Exercise Price, the Market Price of a security or the arithmetic calculation of the number of Warrant Shares, the Company shall promptly issue to the holder the number of shares of Common Stock that is not disputed and shall submit the disputed determinations or arithmetic calculations to the holder via facsimile within one Business Day of receipt of the holder’s Exercise Notice.  If the holder and the Company are unable to agree upon the determination of the Warrant Exercise Price, the Market Price or arithmetic calculation of the number of Warrant Shares within one (1) Business Day of such disputed determination or arithmetic calculation being submitted to the holder, then the Company shall immediately submit via facsimile (i) the disputed determination of the Warrant Exercise Price or the Market Price to an independent, reputable investment banking firm selected by the Company and approved by the holders of the Warrants representing at least a majority of the shares of Common Stock issuable upon exercise of the Warrants then outstanding or (ii) the disputed arithmetic calculation of the number of Warrant Shares to its independent public accountants.  The Company shall cause the investment banking firm or the accountants, as the case may be, to perform the determinations or calculations and notify the Company and the holder of the results no later than 48 hours from the time it receives the disputed determinations or calculations.  Such investment banking firm’s or accountants’ determination or calculation, as the case may be, shall be deemed conclusive absent manifest error.

(b)

Unless the rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, as soon as practicable and in no event later than five Business Days after any exercise (the “Warrant Delivery Date”) and at its own expense, issue a new Warrant identical in all respects to this Warrant exercised, except it shall represent rights to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant has been exercised.

(c)

No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock issued upon exercise of this Warrant shall be rounded up or down to the nearest whole number.

Section 3.

Covenants as to Common Stock.  The Company hereby covenants and agrees as follows:

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(a)

This Warrant is, and any Warrants issued in substitution for or replacement of this Warrant will upon issuance be, duly authorized and validly issued.

(b)

All Warrant Shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof.

(c)

During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved at least 110% of the number of shares of Common Stock needed to provide for the exercise of the rights then represented by this Warrant and the par value of said shares will at all times be less than or equal to the applicable Warrant Exercise Price.

(d)

The Company shall promptly secure the listing of the shares of Common Stock issuable upon exercise of this Warrant upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance upon exercise of this Warrant) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all shares of Common Stock from time to time issuable upon the exercise of this Warrant; and the Company shall so list on each national securities exchange or automated quotation system, as the case may be, and shall maintain such listing of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed on such national securities exchange or automated quotation system.

(e)

The Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may reasonably be requested by the holder of this Warrant in order to protect the exercise privilege of the holder of this Warrant against dilution or other impairment, consistent with the tenor and purpose of this Warrant.  Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Warrant Exercise Price then in effect, and (ii) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.

(f)

This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company’s assets.

Section 4.

Taxes.  The Company shall pay any and all taxes which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant.

Section 5.

Warrant Holder Not Deemed a Stockholder.  Except as otherwise specifically provided herein, no holder, as such, of this Warrant shall be entitled to vote or 

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receive dividends or be deemed the holder of shares of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the holder of this Warrant of the Warrant Shares which he or she is then entitled to receive upon the due exercise of this Warrant.  In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on such holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.  Notwithstanding this Section 5, the Company will provide the holder of this Warrant with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.

Section 6.

Representations of Holder.  The holder of this Warrant, by the acceptance hereof, represents that it is acquiring this Warrant and the Warrant Shares for its own account and not with a view towards, or for resale in connection with, the public sale or distribution of this Warrant or the Warrant Shares, except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the representations herein, the holder does not agree to hold this Warrant or any of the Warrant Shares for any minimum or other specific term and reserves the right to dispose of this Warrant and the Warrant Shares at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act.  The holder of this Warrant further represents, by acceptance hereof, that, as of this date, such holder is an “accredited investor” as such term is defined in Rule 501(a)(3) of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act (an “Accredited Investor”).

Section 7.

Ownership and Transfer.

(a)

The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee.  The Company may treat the person in whose name any Warrant is registered on the register as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any transfers made in accordance with the terms of this Warrant.

(b)

This Warrant and the rights granted hereunder shall be assignable by the holder hereof without the consent of the Company.

Section 8.

Adjustment of Warrant Exercise Price and Number of Warrant Shares.  The Warrant Exercise Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted from time to time as follows: 

(a)

Adjustment of Warrant Exercise Price and Number of Shares upon Issuance of Common Stock.  If and whenever on or after the date of issuance of this Warrant, the 

6

Company issues or sells, or 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, but excluding shares of Common Stock issued or deemed to have been issued by the Company in connection with any employee stock options or in connection with any acquisition by the Company or upon exercise or conversion of the Other Securities) for a consideration per share less than a price (the “Applicable Price”) equal to the lower or the Warrant Exercise Price in effect immediately prior to such issuance or sale or the then Market Price of such Common Stock, then immediately after such issue or sale the Warrant Exercise Price shall be reduced to an amount equal to the product of (i) the Applicable Price and (ii) the quotient determined by dividing (A) the sum of (1) the product derived by multiplying the Applicable Price by the number of shares of Common Stock Deemed Outstanding immediately prior to such issue or sale, plus (2) the consideration, if any, received by the Company upon such issue or sale, by (B) the product derived by multiplying the (1) Applicable Price by (2) the number of shares of Common Stock Deemed Outstanding immediately after such issue or sale.  Upon each such adjustment of the Warrant Exercise Price pursuant to the immediately preceding sentence, the number of shares of Common Stock acquirable upon exercise of this Warrant shall be adjusted to the number of shares determined by multiplying the Warrant Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock acquirable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Warrant Exercise Price resulting from such adjustment.

(b)

Effect on Warrant Exercise Price of Certain Events.  For purposes of determining the adjusted Warrant Exercise Price under Section 8(a) above, the following shall be applicable:

(i)

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, exchange or exercise 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 Section 8(b)(i), the “lowest price per share for which one share of Common Stock is issuable upon exercise of such Options or upon conversion, exchange or exercise of such Convertible Securities” 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, exchange or exercise of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Warrant Exercise Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion, exchange or exercise of such Convertible Securities.

(ii)

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 such conversion, exchange or exercise thereof is 

7

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 8(b)(ii), the “lowest price per share for which one share of Common Stock is issuable upon such conversion, exchange or exercise” 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, exchange or exercise of such Convertible Security.  No further adjustment of the Warrant Exercise Price shall be made upon the actual issuance of such Common Stock upon conversion, exchange or exercise 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 Warrant Exercise Price had been or are to be made pursuant to other provisions of this Section 8(b), no further adjustment of the Warrant Exercise Price shall be made by reason of such issue or sale.  

(iii)

Change in Option Price or Rate of Conversion.  If the purchase price or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exchange or exercise of any Convertible Securities, or the rate at which any Options or Convertible Securities are convertible into or exchangeable or exercisable for Common Stock changes at any time, the Warrant Exercise Price in effect at the time of such change shall be adjusted to the Warrant Exercise Price which would have been in effect at such time had such Options or Convertible Securities provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold, and the number of shares of Common Stock acquirable hereunder shall be correspondingly readjusted.  For purposes of this Section 8(b)(iii), if the terms of any Option or Convertible Security that was outstanding as of the date of issuance of this Warrant are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change.  No adjustment shall be made if such adjustment would result in an increase of the Warrant Exercise Price then in effect.

(c)

Effect on Warrant Exercise Price of Certain Events.  For purposes of determining the adjusted Warrant Exercise Price under Sections 8(a) and 8(b), the following shall be applicable:

(i)

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 $.01.  If any 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 net amount received by the Company therefor.  If any 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 

8

fair value of such consideration, except where such consideration consists of marketable securities, in which case the amount of consideration received by the Company will be the Market Price of such securities on the date of receipt of such securities.  If any 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 Common Stock, Options or Convertible Securities, as the case may be.  The fair value of any consideration other than cash or securities will be determined jointly by the Company and the holders of Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the Warrants then outstanding.  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) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the holders of Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the Warrants then outstanding.  The determination of such appraiser shall be final and binding upon all parties absent manifest error, and the fees and expenses of such appraiser shall be borne by the Company.

(ii)

Record Date.  If the Company takes a record of the holders of Common Stock for the purpose of entitling them (1) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (2) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

(d)

Adjustment of Warrant Exercise Price upon Subdivision or Combination of Common Stock.  If the Company at any time after the date of issuance of this Warrant subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Warrant Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately increased.  If the Company at any time after the date of issuance of this Warrant combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Warrant Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately decreased.  Any adjustment under this Section 8(d) shall become effective at the close of business on the date the subdivision or combination becomes effective

(e)

Distribution of Assets.  If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of 

9

cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case:

(i)

the Warrant Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Warrant Exercise Price by a fraction of which (A) the numerator shall be the Closing Bid Price of the Common Stock on the trading day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company’s Board of Directors) applicable to one share of Common Stock, and (B) the denominator shall be the Closing Bid Price of the Common Stock on the trading day immediately preceding such record date; and

(ii)

either (A) the number of Warrant Shares obtainable upon exercise of this Warrant shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding clause (i), or (B) in the event that the Distribution is of common stock of a company whose common stock is traded on a national securities exchange or a national automated quotation system, then the holder of this Warrant shall receive an additional warrant to purchase Common Stock, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable into the amount of the assets that would have been payable to the holder of this Warrant pursuant to the Distribution had the holder exercised this Warrant immediately prior to such record date and with an exercise price equal to the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding clause (i).

(f)

Certain Events.  If any event occurs of the type contemplated by the provisions of this Section 8 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s Board of Directors will make an appropriate adjustment in the Warrant Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant so as to protect the rights of the holders of the Warrants; provided that no such adjustment will increase the Warrant Exercise Price or decrease the number of shares of Common Stock obtainable as otherwise determined pursuant to this Section 8.

(g)

Notices.

(i)

Immediately upon any adjustment of the Warrant Exercise Price, the Company will give written notice thereof to the holder of this Warrant, setting forth in reasonable detail, and certifying, the calculation of such adjustment.

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(ii)

The Company will give written notice to the holder of this Warrant at least ten (10) Business Days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Organic Change (as defined below), dissolution or liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder.

(iii)

The Company will also give written notice to the holder of this Warrant at least ten (10) days prior to the date on which any Organic Change, dissolution or liquidation will take place, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder.

Section 9.

Purchase Rights; Reorganization, Reclassification, Consolidation, Merger or Sale.  (a)  In addition to any adjustments pursuant to Section 8 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the “Purchase Rights”), then the holder of this Warrant will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

(b)

Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company’s assets to another Person or other transaction which is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as “Organic Change.”  Prior to the consummation of any (i) sale of all or substantially all of the Company’s assets to an acquiring Person or (ii) other Organic Change following which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic Change (in each case, the “Acquiring Entity”) a written agreement (in form and substance satisfactory to the holders of Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the Warrants then outstanding) to deliver to each holder of Warrants in exchange for such Warrants, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to this Warrant and satisfactory to the holders of the Warrants (including, an adjusted warrant exercise price equal to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, and exercisable for a corresponding number of shares of Common Stock acquirable and receivable upon exercise of the Warrants, if the value so reflected is less than the Warrant Exercise Price in effect immediately prior to such consolidation, merger or sale).  Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the holders of Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the Warrants then outstanding) to insure that each of 

11

the holders of the Warrants will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the exercise of such holder’s Warrants, such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of shares of Common Stock which would have been acquirable and receivable upon the exercise of such holder’s Warrant as of the date of such Organic Change.

Section 10.

Lost, Stolen, Mutilated or Destroyed Warrant.  If this Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly, on receipt of an indemnification undertaking (or in the case of a mutilated Warrant, the Warrant), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.

Section 11.

Notice.  Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Warrant must be in writing and will be deemed to have been delivered:  (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such communications shall be:

If to the Company:

Empire Financial Holding Company

2170 West State Road 434

Longwood, Florida  32779

Attention:

Donald A. Wojnowski Jr.

Facsimile:

(407) 830-5078

If to the Holder:

Notice may also be given at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party five days prior to the effectiveness of such change.  Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service shall be rebuttable evidence of personal service, receipt by facsimile or deposit with a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.

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Section 12.

Amendments.  This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party or holder hereof against which enforcement of such change, waiver, discharge or termination is sought.

Section 13.

Date.  The effective date of this Warrant is January 18, 2006 (the “Warrant Date”).  This Warrant, in all events, shall be wholly void and of no effect after the close of business on the Expiration Date, except that notwithstanding any other provisions hereof, the provisions of Section 7 shall continue in full force and effect after such date as to any Warrant Shares or other securities issued upon the exercise of this Warrant.

Section 14.

Amendment and Waiver.  Except as otherwise provided herein, the provisions of the Warrants may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the holders of Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the Warrants then outstanding; provided that no such action may increase the Warrant Exercise Price of any of the Warrants or decrease the number of shares or class of stock obtainable upon exercise of any Warrants without the written consent of the holder of such Warrant.

Section 15.

Descriptive Headings; Governing Law.  The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant.  This Agreement shall be governed by and construed in accordance with the laws of the State of Florida without giving effect (to the extent permitted by law) to any choice or conflict of law provision or rule (whether of the State of Florida or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Florida. 

 *  *  *  *  *  *

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed as of the date first written above.

EMPIRE FINANCIAL HOLDING COMPANY

By:______________________________________

 Steven Rabinovici, Chairman

13

EXHIBIT A TO WARRANT

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT

EMPIRE FINANCIAL HOLDING COMPANY

The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock (“Warrant Shares”) of EMPIRE FINANCIAL HOLDING COMPANY, a Florida corporation (the “Company”), evidenced by the attached Warrant (the “Warrant”).  Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

1.  Payment of Warrant Exercise Price.  The holder shall pay the Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.

3.  Delivery of Warrant Shares.  The Company shall deliver to the holder __________ Warrant Shares in accordance with the terms of the Warrant.

Date: _______________ __, ______

Name of Registered Holder

By: ___________________________

Name:___________________

Title:____________________

ACKNOWLEDGMENT

The Company hereby acknowledges this Exercise Notice and hereby directs [TRANSFER AGENT] to issue the above indicated number of shares of Common Stock. 

			
	 
	 

	 
	 
	 

	                                                            

	EMPIRE FINANCIAL HOLDING COMPANY

	 
	 
	 

	 
	By:

	 

	 
	Name:

	 

	 
	Title:

	 

A-1

EXHIBIT B TO WARRANT

FORM OF WARRANT POWER

FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to ________________, Federal Identification No. __________, a warrant to purchase ____________ shares of the capital stock of EMPIRE FINANCIAL HOLDING COMPANY, a Florida corporation, represented by warrant certificate no. _____, standing in the name of the undersigned on the books of said corporation.  The undersigned does hereby irrevocably constitute and appoint ______________, attorney to transfer the warrants of said corporation, with full power of substitution in the premises.

Dated:  _________, 200_

 

			
	                                                                       

	__________________________________

	 
	 
	 

	 
	Name:

	_____________________________

	 
	Title:

	_____________________________

B-1

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