Document:

ex10x2.htm

Exhibit 10.2

 

GOLD RESOURCE CORPORATION

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (this “Agreement”), dated September 19, 2010, is entered into among Gold Resource Corporation, a Colorado corporation (including any successors, the “Company”), and the Purchasers identified on the signature pages attached hereto (each, a “Purchaser” and collectively, the “Purchasers”).  This Agreement is made pursuant to the Securities Purchase Agreement dated as of the date hereof between the Company and each of the Purchasers (the “Purchase Agreement”).

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Purchasers agree as follows:

 

1.  Definitions. References to filing a document with the Securities and Exchange Commission (the “Commission”) shall mean to file such document with the Commission via the Commission’s Electronic Data Gathering, Analysis and Reporting, or EDGAR, system. As used in this Agreement, the following terms shall have the respective meanings set forth in this Section,  except that capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement:

 

“Additional Effectiveness Deadline” shall have the meaning specified in Section 2(b).

 

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

 

“Effective Date” means the date that a Registration Statement filed pursuant to Section 2(a) or Section 2(b), as applicable, is first declared effective by the Commission.

 

“Effectiveness Deadline” means the Initial Effectiveness Deadline and the Additional Effectiveness Deadline, as applicable.

 

“Effectiveness Period” shall have the meaning set forth in Section 2(a).

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Filing Deadline” means: (a) with respect to the initial Registration Statement to be filed pursuant to Section 2(a), the 30th day following the Closing Date under the Purchase Agreement, and (b) with respect to any additional Registration Statement filed pursuant to Section 2(b), the earlier of (i) the 30th day following the date on which the Commission shall indicate as being the first date or time that such filing may be made and (ii) six (6) months following the Effective Date.

 

“Holder” or “Holders” means the holder or holders, as the case may be, from time to time of Registrable Securities.

 

 

  

  

  

“Indemnified Party” shall have the meaning set forth in Section 5(c).

 

“Indemnifying Party” shall have the meaning set forth in Section 5(c).

 

“Initial Effectiveness Deadline” means 120 days following the Closing Date; provided that, if the Company is advised by the Commission that the Registration Statement filed pursuant to Section 2(a) will not be reviewed, then the Initial Effectiveness Deadline shall mean 20 days after the Company receives notification of such no-review.

 

“Losses” shall have the meaning set forth in Section 5(a).

 

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

 

“Prospectus” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A or 430B promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

 

“Registrable Securities” means the Securities, together with any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event.

 

“Registration Statement” means: (i) the initial registration statement which is required to register the resale of the Registrable Securities pursuant to Section 2(a), and (ii) each additional registration statement, if any, contemplated by Section 2(b), and including, in each case, the Prospectus, amendments and supplements to each such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

 

“Required Holders” means the holders of at least two-thirds of the Registrable Securities.

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

 

“Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

 

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

 

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“Securities” means the Securities sold to the Purchasers pursuant to the Purchase Agreement.

 

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

 

“Trading Market” means any of NYSE Amex Equities, The New York Stock Exchange, The Nasdaq Capital Market, the Nasdaq Global Market or the Nasdaq Global Select Market.

 

2.  Registration.

 

(a)  Initial Registration.  On or prior to the Filing Deadline, the Company shall prepare and file with the Commission a Registration Statement covering the resale of all Registrable Securities not already covered by an existing and effective Registration Statement for an offering to be made on a continuous or delayed basis pursuant to Rule 415.  The Company shall use its reasonable best efforts to cause the Registration Statement to be declared effective under the Securities Act as soon as possible but, in any event, no later than the Initial Effectiveness Deadline, and shall use its reasonable best efforts to keep the Registration Statement continuously effective under the Securities Act until the earliest of (i) the date when all Registrable Securities covered by the Registration Statement have been sold, or (ii) the date when all Registrable Securities have been sold pursuant to Rule 144, or (iii) the date when all Registrable Securities may be sold without volume or manner of sale restrictions under Rule 144 and without the requirement for the Company to be in compliance with the current public information requirements under Rule 144(c)(1) (or Rule 144(i)(2), if applicable), or (iv) the date when all Registrable Securities cease to be outstanding (the “Effectiveness Period”).

 

(b)  Additional Registrations.  If for any reason the Commission does not permit all of the Registrable Securities to be included in the Registration Statement initially filed pursuant to Section 2(a), then the Company shall prepare and file as soon as possible after the date on which the Commission shall indicate as being the first date or time that such filing may be made, but in any event by the 30th day following such date, or, in the event the Commission does not so indicate, no later than six (6) months after the Effective Date of the Registration Statement filed pursuant to Section 2(a), an additional Registration Statement covering the resale of all Registrable Securities not already covered by an existing and effective Registration Statement for an offering to be made on a continuous or delayed basis pursuant to Rule 415.  The Company shall use its reasonable best efforts to cause each such Registration Statement to be declared effective under the Securities Act as soon as possible but, in any event, no later than

 

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30 days following the date on which the Company becomes aware that such Registration Statement is required to be filed under this Agreement (the “Additional Effectiveness Deadline” for such Registration Statement), and shall use its reasonable best efforts to keep such Registration Statement continuously effective under the Securities Act during the Effectiveness Period. To the extent the staff of the Commission does not permit all of the Registrable Securities that have not yet been covered on an effective Registration Statement (the “Unregistered Registrable Securities”) to be registered on such additional Registration Statement, the Company shall file additional Registration Statements successively trying to register on each such Registration Statement the maximum number of Unregistered Registrable Securities until all of the Registrable Securities have been registered with the Commission.

 

(c)  Allocation of Registrable Securities.  The initial number of Registrable Securities included in any Registration Statement and any increase in the number of Registrable Securities included therein shall be allocated pro rata among the Purchasers based on the number of Registrable Securities held by each Purchaser at the time the Registration Statement covering such initial number of Registrable Securities or increase thereof is filed with the Commission. In the event that a Purchaser sells or otherwise transfers any of such Purchaser’s Registrable Securities, each transferee shall be allocated a pro rata portion of the then remaining number of Registrable Securities included in such Registration Statement for such transferor.  Any Registrable Securities included in a Registration Statement which remain allocated to any Person which ceases to hold any Registrable Securities covered by such Registration Statement shall be allocated to the remaining Purchasers, pro rata based on the number of Registrable Securities then held by such Purchasers which are covered by such Registration Statement.  In no event shall the Company include any securities other than Registrable Securities on any Registration Statement without the prior written consent of the Required Holders.

 

(d)  Holders’ Participation and Agreements.  Each Holder (i) agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any Registration Statement hereunder, unless such Purchaser has notified the Company in writing of such Purchaser’s election to exclude all of such Purchaser’s Registrable Securities from such Registration Statement, including by providing to the Company a certified statement as to the number of Securities and shares of Common Stock beneficially owned by such Holder and any Affiliate thereof, the proposed method of sale and other terms of the offering of such securities; (ii) shall comply with the prospectus delivery requirements of the Securities Act, or an exemption therefrom, in connection with the offer or sale of any Registrable Securities pursuant to the Registration Statement; (iii) agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(c), such Holder will forthwith discontinue disposition of such Registrable Securities under the Registration Statement until such Holder’s receipt of the copies of the supplemented Prospectus and/or amended Registration Statement or until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. The Company may provide appropriate stop orders to enforce the provisions of this paragraph.

 

(e)  Form S-3.  In the event that Form S-3 is not available for the registration of the resale of Registrable Securities hereunder, the Company shall (i) register the resale of the Registrable Securities on another appropriate form, and (ii) undertake to register the Registrable Securities on Form S-3 as soon as such form is available, provided that at that time, the Effectiveness Period has not yet expired, and provided further that the Company shall maintain the effectiveness of the Registration Statement then in effect until the earlier of (i) such time as a Registration Statement on Form S-3 covering the Registrable Securities has been declared effective by the Commission and (ii) the expiration of the Effectiveness Period.

 

(f)  Rule 424 Prospectuses.  By 9:30 am, New York City time, on the Business Day following the Effective Date, the Company shall file with the Commission in accordance with Rule 424 under the Securities Act the final prospectus to be used in connection with sales pursuant to such Registration Statement.

 

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3.  Registration Procedures.

 

In connection with the Company’s registration obligations hereunder, the Company shall:

 

(a)  Inclusion of Purchaser Information.  If requested by a Purchaser, the Company shall (i) as soon as practicable, incorporate in a prospectus supplement or post-effective amendment such information as a Purchaser reasonably requests to be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being offered or sold, the purchase price being paid therefor and any other terms of the offering of the Registrable Securities to be sold in such offering; (ii) as soon as practicable make all required filings of such prospectus supplement or post-effective amendment after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment; and (iii) as soon as practicable, supplement or make amendments to any Registration Statement if reasonably requested by a Purchaser holding any Registrable Securities.

 

(b)  Advance Copies of Registration Statement and Prospectus.  Not less than four Business Days prior to the filing of a Registration Statement or any related Prospectus or any amendment or supplement thereto, the Company shall furnish to the Holders copies of all such documents proposed to be filed, which documents (other than those incorporated by reference) will be subject to the review of such Holders. The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities shall reasonably object in good faith.  Each Registration Statement, as of its filing and effective dates and each day thereafter (including all amendments or supplements thereto, as of their respective filing and effective dates and each day thereafter), shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein not misleading, and the prospectus contained in such Registration Statement, as of its filing date and each day thereafter (including all amendments and supplements thereto, as of their respective filing dates and each day thereafter), shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading.

 

(c)  Amendments & Compliance.  (i) Prepare and file with the Commission such amendments, including post- effective amendments, to each Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement continuously effective as to the applicable Registrable Securities for its Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required prospectus supplement or “issuer free writing prospectus” (as defined by Rule 405 promulgated by the Commission pursuant to the Securities Act) so that such Prospectus does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein, and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to each Registration Statement or any amendment thereto and, as promptly as reasonably possible provide the Holders true and complete copies of all correspondence from and to the Commission relating to such Registration Statement that pertains to the Holders as selling stockholders but not any comments that would result in the disclosure to the Holders of material and non-public information concerning the Company; (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the Registration Statements and shall otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the Commission in connection with any registration hereunder; and (v) upon the occurrence of any event contemplated by Section 3(d)(v), as promptly as reasonably possible, prepare a supplement or amendment, including a post-effective amendment, to the affected Registration Statements or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, no Registration Statement nor any Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

 

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(d)  Notices to Holders; Grace Periods.  Notify the Holders as promptly as reasonably possible, but in no event later than 5:30 p.m. New York City time, of the following Business Day, (i)(A) when a Registration Statement, Prospectus, any prospectus supplement or post-effective amendment to a Registration Statement is proposed to be filed; (B) when the Commission notifies the Company whether there will be a review of such Registration Statement and whenever the Commission comments in writing on such Registration Statement (the Company shall provide true and complete copies thereof and all written responses thereto to each of the Holders that pertain to the Holders as a Selling Stockholder or to the Plan of Distribution, but not information which the Company believes would constitute material and non-public information); and (C) with respect to each Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information that pertains to the Holders as selling stockholders or the Plan of Distribution; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose, including pursuant to Section 8A of the Securities Act; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in such Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to such Registration Statement, Prospectus or other documents so that, in the case of such Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Notwithstanding anything to the contrary herein, at any time after the Effective Date of the initial Registration Statement, the Company may delay the disclosure of material, non-public information concerning the Company the disclosure of which at the time is not, in the good faith opinion of the board of directors of the Company and its counsel, in the best interest of the Company and, in the opinion of counsel to the Company, otherwise required (such period, a “Grace Period”); provided, that the Company shall promptly (i) notify each Purchaser in writing of the existence of material, non-public information giving rise to a Grace Period (provided that in each notice the Company will not disclose the content of such material, non-public information to the Purchasers) and the date on which the Grace Period will begin, and (ii) notify the Purchasers in writing of the date on which the Grace Period ends; and, provided further, that such Grace Periods shall not exceed an aggregate of 45 days in any 12 month period, (ii) each such Grace Period shall not exceed 15 consecutive days and (iii) that the first day of any Grace Period must be at least five Business Days after the last day of any prior Grace Period. For purposes of determining the length of a Grace Period above, the Grace Period shall begin on and include the date the Purchasers receive the notice referred to in clause (i) and shall end on and include the later of the date the Purchasers receive the notice referred to in clause (ii) and the date referred to in such notice.

 

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(e)  Stop Orders.  Use its reasonable best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any stop order or order suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

 

(f)  Holder Copies; Company Consent to Use of Prospectuses.  Furnish to each Holder, without charge, at least one conformed copy of each Registration Statement and each amendment thereto and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission; provided, that the Company shall have no obligation to provide any document pursuant to this clause that is available on the EDGAR system; and promptly deliver to each Holder, without charge, as many copies of each Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request. The Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto.

 

(g)  Blue Sky.  Prior to any public offering of Registrable Securities, use its best efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities, Blue Sky or other laws of all applicable jurisdictions or governmental authorities or agencies within the United States and to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the Registration Statements; provided, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or subject the Company to any material tax in any such jurisdiction where it is not then so subject. The Company shall promptly notify each Purchaser who holds Registrable Securities of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction in the United States or its receipt of notice of the initiation or threatening of any proceeding for such purpose.

 

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(h)  Delivery of Opinion to Transfer Agent. Within two Business Days after a Registration Statement which covers Registrable Securities is declared effective by the Commission, the Company shall deliver confirmation that such Registration Statement has been declared effective by the Commission and shall cause legal counsel for the Company to deliver an opinion of counsel to such effect in form and substance reasonably satisfactory to the transfer agent.

 

(i)  Certificates.  Cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by applicable law and the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holders may request; provided that any such transfer shall have occurred  prior to the Purchaser’s receipt of the notice of a Grace Period and for which the Purchaser has not yet settled.

 

(j)  SEC Reports.  Until the expiration of the Effectiveness Period, the Company shall timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to Section 13 (a) or 15(d) of the Exchange Act. Until the expiration of the Effectiveness Period, if the Company is not required to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the Holders and make publicly available in accordance with Rule 144(c) promulgated under the Securities Act annual and quarterly financial statements, together with a discussion and analysis of such financial statements in form and substance similar to those that would otherwise be required to be included in reports required by Section 13 (a) or 15(d) of the Exchange Act, as well as any other information required thereby, in the time period that such filings would have been required to have been made under the Exchange Act. The Company will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Person to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 promulgated under the Securities Act.

 

(k)           Listing.  The Company shall promptly secure the listing of all of the Registrable Securities upon each national securities exchange and automated quotation system, if any, upon which the Common Stock is then listed (subject to official notice of issuance) and shall maintain, in accordance with the Securities, such listing of all Registrable Securities from time to time issuable under the terms of the Transaction Documents.  The Company shall maintain the Common Stocks' authorization for quotation on one or more Trading Market.  Neither the Company nor any of its Subsidiaries shall take any action which would be reasonably expected to result in the delisting or suspension of the Common Stock on each applicable Trading Market.  The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section.

 

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(l)           Naming Purchasers as Underwriters.  Neither the Company nor any Subsidiary or affiliate thereof shall identify any Purchaser as an underwriter in any public disclosure or filing with the Commission or any Trading Market without the prior written consent of such Purchaser.  If the Company is required by law to identify a Purchaser as an underwriter in any public disclosure or filing with the Commission or any Trading Market, it must notify such Purchaser in advance and such Purchaser shall have the option, in its sole discretion, to consent to such identification as an underwriter within five Business Days or such Purchaser shall be deemed to have consented to have its Registrable Securities removed from the applicable Registration Statement.

 

(m)           Other Governmental Approvals.  The Company shall use its reasonable best efforts to cause the Registrable Securities covered by a Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities in the United States.

 

(n)           Rule 158 Earnings Statement.   Unless available on the EDGAR system, the Company shall make generally available to its security holders as soon as practical, but in any event not later than ninety days after the close of the period covered thereby, an earnings statement (in form complying with, and in the manner provided by, the provisions of Rule 158 under the 1933 Act) covering a twelve-month period beginning not later than the first day of the Company’s fiscal quarter next following the effective date of a Registration Statement.

 

4.  Registration Expenses.  All fees and expenses incident to the Company’s performance of its obligations under this Agreement (excluding any underwriting discounts and selling commissions) shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the Trading Market on which the Common Stock is then listed for trading, and (B) in compliance with applicable state securities or Blue Sky laws), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is reasonably requested by the holders of a majority of the Registrable Securities included in the Registration Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, and (v) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement.

 

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5.  Indemnification.

 

(a)  Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, agents, investment advisors, partners, members, shareholders, trustees and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents, trustees and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable costs of preparation and reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or relating to (i) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement or any other certificate, instrument or document contemplated hereby, (ii) any breach of any covenant, agreement or obligation of the Company contained in this Agreement or any other certificate, instrument or document contemplated hereby, or (iii) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or any issuer free writing prospectus or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto or any issuer free writing prospectus, in light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that (1) such untrue statements or omissions are based solely upon information regarding such Holder or its intended method of distribution furnished in writing to the Company by such Holder expressly for use therein, or (2) in the case of an occurrence of an event of the type specified in Section 3(d)(ii)-(v), the use by such Holder of an outdated or defective Prospectus after such Holder has received actual notice in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of an Advice or an amended or supplemented Prospectus. The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement.

 

(b)  Indemnification by Holders. Each Holder shall, notwithstanding any termination of this Agreement, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, arising solely out of or based solely upon any untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto, or arising solely out of or based solely upon any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading to the extent, but only to the extent that, (1) such untrue statements or omissions are based solely upon information regarding such Holder or its intended method of distribution furnished in writing to the Company by such Holder expressly for use therein, or (2) in the case of an occurrence of an event of the type specified in Section 3(d)(ii)-(v), the use by such Holder of an outdated or defective Prospectus after such Holder has received actual notice in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of an Advice or an amended or supplemented Prospectus. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company and shall survive the transfer of the Registrable Securities by the Purchasers pursuant to Section 6(e).

 

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(c)  Conduct of Indemnification Proceedings.  If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party.

 

An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party), provided, that the Indemnifying Party shall not be liable for the fees and expenses of more than one separate firm of attorneys at any time for all Indemnified Parties (in addition to any local counsel). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding and does not contain any admission of wrongdoing by such Indemnified Party.

 

All fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within fifteen Business Days of written notice thereof to the Indemnifying Party (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided, that the Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder).

 

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(d)  Contribution.  If a claim for indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and Indemnified Party on the other hand in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 5(c), any reasonable attorneys’ or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.

 

The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section, no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.

 

The indemnity and contribution agreements contained in this Section are in addition to any other liability that the Indemnifying Parties may have to the Indemnified Parties.

 

6.  Miscellaneous.

 

(a)  Amendment of Registration Rights. Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Required Holders.  No such amendment shall be effective to the extent that it applies to less than all of the holders of the Registrable Securities.

 

(b)  Consents. All consents and other determinations required to be made by the Purchasers pursuant to this Agreement shall be made, unless otherwise specified in this Agreement, by the Required Holders.

 

(c)  Remedies.  In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement.  The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.

 

12

  

  

  

(d)  Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 5:00 p.m., New York City time, on a Business Day, (ii) the Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Agreement later than 5:00 p.m., New York City time, on any date and earlier than 11:59 p.m., New York City time, on such date, (iii) the Business Day following the date of deposit, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as follows:

 

	
If to the Company:

	
Gold Resource Corporation

222 Milwaukee Street, Suite 301

Denver, CO 80206

Attn:  William W. Reid, Chief Executive Officer

Facsimile:  (303) 320-7835

 

	
With a copy to:

	
Dufford & Brown, P.C.

1700 Broadway, Suite 2100

Denver, CO  80290

Attn:  David J. Babiarz, Esq.

Facsimile:  (303) 832-3804

	  	  
	
If to a Purchaser

	
To the address set forth under such Purchaser’s name on the signature pages hereof;

	  	  
	
If to a registered Holder:

	
To the address of such Holder as it appears in the stock transfer books of the Company;

or such other address as may be designated in writing hereafter, in the same manner, by such Person.

 

(e)  Successors and Assigns.  This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of each Holder. Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement.

 

(f)  Execution and Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

 

13

  

  

  

(g)  Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.  Each party agrees that all Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective Affiliates, employees or agents) may be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan, State of New York (the “New York” Courts”).  Each party hereto hereby irrevocably submits to the non-exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any such New York Court, or that such Proceeding has been commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  EACH PARTY HERETO 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 CONTEMPLATED HEREBY.

 

(h)  Cumulative Remedies.  The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

 

(i)  Severability.  If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

(j)  Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

 

(k)  Limitation on Obligations. The obligations of each Purchaser hereunder are several and not joint with the obligations of any other Purchaser, and no provision of this Agreement is intended to confer any obligations on any Purchaser vis-a-vis any other Purchaser. Nothing contained herein, and no action taken by any Purchaser pursuant hereto, shall be deemed to constitute the Purchaser as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchaser are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated herein.

 

 

 

14

  

  

  

[SIGNATURE PAGES ON NEXT PAGE]

 

 

 

 

 

  

  

 

  

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

 

 

	 	GOLD RESOURCE CORPORATION	 
	 	 	 	 
	
 

	
By: 

	 	 
	 	 	[_______]	 
	 	 	[_______]	 
	 	 	 	 

                                                                   

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above. The Purchaser, intending to be legally bound, hereby executes and delivers to the Company this signature page to the Registration Rights Agreement and authorizes the Company to attach it to the counterpart of the Registration Rights Agreement executed or to be executed by the Company, which when so attached shall be considered effective and one and the same agreement.

 

	 	

PURCHASER

	 
	 	 	 	 
	
[

	 	]
	 	(Insert full legal name that the Purchaser desires to appear on the Securities. If the registered holder is a nominee, state "as nominee for" and insert the full legal name of the Purchaser.)	 
	 	 	 	 
	 	By:	 	 
	 	Name: 	 	 
	 	Title:	 	 
	 	 	 	 

 

	 	

Address for Notice:

	 
	 	 	 	 
	
 

	 	 
	 	
 

	 
	 	 	 	 
	 	Facsimile No:	 	 
	 	Attention:	 	 
	 	 	 	 
	 	 	 	 

 

	 	

With a copy to:

	 
	 	 	 	 
	
 

	 	 
	 	
 

	 
	 	 	 	 
	 	Facsimile No:	 	 
	 	Attention:Exhibit 10.1

 

FEDERAL DEPOSIT INSURANCE
CORPORATION

 

WASHINGTON, D.C.

 

 

CALIFORNIA DEPARTMENT OF
FINANCIAL INSTITUTIONS

 

SAN FRANCISCO, CALIFORNIA

 

	
   

  	
  )

  	
   

  
	
  In the Matter of

  	
  )

  	
   

  
	
   

  	
  )

  	
  CONSENT ORDER

  
	
  MONTEREY COUNTY BANK 

  	
  )

  	
   

  
	
  MONTEREY, CALIFORNIA

  	
  )

  	
  FDIC-10-633b

  
	
   

  	
  )

  	
   

  
	
  (INSURED STATE NONMEMBER BANK)

  	
  )

  	
   

  
	
   

  	
  )

  	
   

  

 

The Federal Deposit Insurance Corporation (“FDIC”)
is the appropriate Federal banking agency for Monterey County Bank, Monterey,
California (“Bank”) under Section 3(q) of the Federal Deposit
Insurance Act (“FDI Act”), 12 U.S.C. § 1813(q)(3). The California Department of
Financial Institutions (“CDFI”) is the appropriate State banking agency for the
Bank under Division 1 of the California Financial Code.

 

The Bank, by and through its duly elected and acting
Board of Directors (“Board”), has executed a Stipulation to the Issuance of a
Consent Order (“Stipulation”), dated August 23, 2010, that is accepted by
the FDIC and the CDFI. With the Stipulation, the Bank has consented, without
admitting or denying any charges of unsafe or unsound banking practices
relating to management, asset quality, and liquidity, to the issuance of this
Consent Order (“Order”) by the FDIC and the CDFI pursuant to
Section 8(b)(1) of the FDI Act, and Section 1913 of the California
Financial Code.

 

 

Having determined that the requirements for issuance
of an order under Section 8(b) of the FDI Act, 12 U.S.C. § 1818(b),
and Section 1913 of the California Financial Code have been satisfied, the
FDIC and the CDFI hereby order that:

 

1.             The Bank shall
have and retain qualified management.

 

(a)           Each member of management shall have qualifications
and experience commensurate with his or her duties and responsibilities at the
Bank. Management shall include the following: (i) a chief executive
officer with proven ability in managing a bank of comparable size and risk
profile; (ii) a chief financial officer with proven ability in all aspects
of financial management; and (iii) a senior lending officer with
significant lending, collection, and loan supervision experience and experience
in upgrading a low quality loan portfolio. Each member of management shall be
provided appropriate written authority from the Board to implement the
provisions of this Order.

 

(b)           The qualifications of management shall be assessed
on its ability to:

 

(i)            comply with the requirements
of this Order;

 

(ii)           operate the Bank in a safe
and sound manner;

 

(iii)          comply with applicable laws
and regulations; and

 

(iv)          restore all aspects of the
Bank to a safe and sound condition, including asset quality, capital adequacy,
earnings, management effectiveness, liquidity, and sensitivity to market risk.

 

(c)           During the life of this Order, the Bank shall notify
the Regional Director of the FDIC’s San Francisco Regional Office (“Regional
Director”) and the Commissioner of the California Department of Financial
Institutions (“Commissioner”) in writing when it proposes to add or replace any
individual on the Board, or employ any individual to serve as a senior

 

2

 

executive officer, or change the responsibilities of any existing
senior executive officer to include the responsibilities of another senior
executive officer position. The term “senior executive officer” shall have the
same meaning ascribed to it in Part 303 of the FDIC’s Rules and
Regulations, 12 C.F.R. § 303.101. The notification shall include a completed
Interagency Biographical and Financial Report and Interagency Change in
Director or Senior Executive Officer and must be received at least 30 days
before the addition, employment or change of responsibilities is intended to
become effective. The Regional Director and the Commissioner shall have the
power under the authority of this Order to disapprove the addition, employment
or change of responsibilities of any proposed officer or director.

 

(d)           The requirement to submit information and the prior
disapproval provisions of this paragraph are based upon the authority of 12
U.S.C. § 1818(b) and do not require the Regional Director and the
Commissioner to complete their review and act on any such information or
authority within 30 days, or any other timeframe. The Bank shall not add,
employ or change the responsibilities of any proposed director or senior
executive officer until such time as the Regional Director and the Commissioner
have completed their review.

 

2.             (a)           Within 120 days of the
effective date of this Order, the Bank shall achieve and maintain its Tier 1
capital in such an amount to ensure that the Bank’s leverage ratio equals or
exceeds 9 percent.

 

(b)           Within 120 days of the effective date of this Order,
the Bank shall maintain its total risk-based capital ratio in such an amount as
to equal or exceed 12 percent.

 

(c)           Within 60 days from the effective date of this
Order, the Bank shall develop and adopt a plan to maintain the capital
requirements of this Order and to comply with the FDIC’s Statement of Policy on
Risk-Based Capital contained in Appendix A to Part 325 of

 

3

 

the FDIC’s Rules and Regulations, 12 C.F.R. Part 325,
Appendix A. Such plan and its implementation shall be in a form and manner
acceptable to the Regional Director and the Commissioner as determined at
subsequent examinations and/or visitations. The capital plan must include a
contingency plan in the event that the Bank has (i) failed to maintain the
minimum capital ratios required by subparagraph 2(a) and 2(b);
(ii) failed to submit an acceptable capital plan as required by this
subparagraph; or (iii) failed to implement or adhere to a capital plan to
which the Regional Director and the Commissioner have taken no written
objection pursuant to this subparagraph. The contingency plan shall address
other strategic alternatives, including but not limited to the sale of control
or merger of the Bank. The Bank shall implement the contingency plan upon
written notice from the Regional Director and the Commissioner.

 

(d)           The level of capital to be maintained during the
life of this Order shall be in addition to a fully funded allowance for loan
and lease losses (“ALLL”), the adequacy of which shall be satisfactory to the
Regional Director and the Commissioner as determined at subsequent examinations
and/or visitations. Any increase in Tier 1 capital necessary to meet the requirements
of this paragraph may not be accomplished through a deduction from the Bank’s
ALLL.

 

(e)           If all or part of the increase in capital required
by this Order is accomplished by the sale of new Bank securities, the Board
shall adopt and implement a plan for the sale of such additional securities,
including the voting of any shares owned or proxies held or controlled by them
in favor of the plan. Should the implementation of the plan involve a public
distribution of the Bank’s securities (including a distribution limited only to
the Bank’s existing shareholders), the Bank shall prepare offering materials
fully describing the securities being

 

4

 

offered, including an accurate description of the financial condition
of the Bank and the circumstances giving rise to the offering, and any other
material disclosures necessary to comply with all applicable State and Federal
securities laws. Prior to the implementation of the plan and, in any event, not
less than 20 days prior to the dissemination of such materials, the plan and
any materials used in the sale of the securities shall be submitted to the
FDIC, Registration, Disclosure and Securities Unit, 550 17th St. N.W., Washington, D.C. 20429, for review,
and to the Commissioner to obtain any and all necessary securities permits or
other approvals. Any changes requested by the FDIC or the Commissioner shall be
made prior to dissemination. If the increase in capital is provided by the sale
of noncumulative perpetual preferred stock, then all terms and conditions of
the issue, including but not limited to those terms and conditions relative to
interest rate and convertibility factor, shall be presented to the Regional
Director and the Commissioner for prior approval.

 

(f)            Subject to obtaining all required prior
authorizations, permits or other approvals from the Commissioner, the Bank
shall promptly revise or supplement the offering materials it is using in
connection with the offer and sale of its securities to fully and fairly
disclose every material change or development regarding the Bank and its
operation, including every planned change that would be material, that occurs
during the offering of the securities. The Bank shall provide the revised
offering materials or supplement, along with a notice that the subscriber may
rescind its subscription, to each subscriber that has submitted a subscription
for the Bank’s securities before receiving the revised offering materials or
supplement for at least ten (10) days before accepting the subscriber’s
subscription.

 

(g)           In complying with the provisions of this paragraph,
the Bank shall provide to any subscriber and/or purchaser of the Bank’s
securities, a written notice of any planned or

 

5

 

existing development or other changes which are materially different
from the information reflected in any offering materials used in connection
with the sale of Bank securities. The written notice required by this paragraph
shall be furnished within 10 days from the date such material development or
change was planned or occurred, whichever is earlier, and shall be furnished to
every subscriber and/or purchaser of the Bank’s securities who received or was
tendered the information contained in the Bank’s original offering materials.

 

(h)           For the purposes of this Order, the terms “leverage
ratio”, “Tier 1 capital” and “total risk-based capital ratio” shall have, the
meanings ascribed to them in Part 325 of the FDIC’s Rules and
Regulations, 12 C.F.R. §§ 325.2(m), 325.2(v), 325.2(y), and Appendix A.

 

3.             The Bank shall
not pay cash dividends or make any other payments to its shareholders without
the prior written consent of the Regional Director and the Commissioner.

 

4.             As of the
effective date of this Order, the Bank shall eliminate from its books, by
charge-off or collection, all assets classified “Loss” in the February 16,
2010 joint Report of Examination (“ROE”) that have not been previously
collected or charged off. Elimination of these assets through proceeds of other
loans made by the Bank is not considered collection for the purpose of this
paragraph.

 

5.             (a)           Within 90 days from the
effective date of this Order, the Bank shall formulate a written plan to reduce
the Bank’s risk exposure in each asset adversely classified “Substandard” or
“Doubtful” in the ROE. For purposes of this provision, “reduce” means to
collect, charge off, or improve the quality of an asset so as to warrant its
removal from adverse classification by the Regional Director and the
Commissioner. In developing the plan mandated by this paragraph, the Bank
shall, at a minimum, and with respect to each such adversely classified loan or
lease, review, analyze, and document the financial position of the borrower,

 

6

 

including source of repayment, repayment ability, and alternative
repayment sources, as well as the value and accessibility of any pledged or
assigned collateral, and any possible actions to improve the Bank’s collateral
position.

 

(b)           The plan mandated by this provision shall also
include, but not be limited to, the following:

 

(i)            A schedule for reducing the outstanding dollar
amount of each such adversely classified asset, including timeframes for
achieving the reduced dollar amounts (at a minimum, the schedule for each such
adversely classified asset must show its expected dollar balance on a quarterly
basis);

 

(ii)           Specific action plans intended to reduce the Bank’s
risk exposure in each such classified asset;

 

(iii)          A schedule showing, on a quarterly basis, the
expected consolidated balance of all such adversely classified assets, and the
ratio of the consolidated balance to the Bank’s projected Tier 1 capital plus
the ALLL;

 

(iv)          A provision for the Bank’s submission of monthly
written progress reports to its Board; and

 

(v)           A provision mandating Board review of the progress
reports, with a notation of the review recorded in the minutes of the meeting
of the Board.

 

(c)           The Bank shall, immediately upon completion, submit
the plan to the Regional Director and the Commissioner for review and comment.
Within 30 days from receipt of any comment from the Regional Director and the
Commissioner, and after due consideration of any recommended changes, the Board
shall approve the plan, which approval shall be 

 

7

 

recorded in the minutes of the Board meeting.
Thereafter, the Bank shall implement and fully comply with the plan.

 

6.             (a)           Beginning with the effective
date of this Order, the Bank shall not extend, directly or indirectly, any
additional credit to, or for the benefit of, any borrower who has a loan or
other extension of credit from the Bank that has been charged off or
classified, in whole or in part, “Loss” and is uncollected. This paragraph
shall not prohibit the Bank from renewing or extending the maturity of any
credit in accordance with the Financial Accounting Standards Board Statement
Number 15 (“FASB 15”).

 

(b)           Beginning with the effective date of this Order, the
Bank shall not extend, directly or indirectly, any additional credit to, or for
the benefit of, any borrower who has a loan or other extension of credit from
the Bank that has been classified, in whole or part, “Doubtful” or
“Substandard” without the prior approval of a majority of the Board or loan
committee of the Bank.

 

7.             Within 45 days
from the effective date of this Order, the Board shall review the
appropriateness of the Bank’s allowance for loan and lease losses (“ALLL”) and
establish a comprehensive policy for determining an appropriate level of the
ALLL, including documenting its analysis according to the standards set forth
in the July 25, 2001 Interagency Policy Statement on Allowance for Loan
and Lease Losses Methodologies and Documentation for Banks and Savings
Associations. For the purpose of this determination, an appropriate ALLL shall
be determined after the charge-off of all loans or other items classified
“Loss.” The policy shall provide for a review of the ALLL at least once each
calendar quarter. Said review shall be completed in order that the findings of
the Board with respect to the ALLL are properly reported in the quarterly
Reports of Condition and Income. The review shall focus on the accounting

 

8

 

standards set forth in FAS 5 and FAS 114, the results of the Bank’s
internal loan review, loan and lease loss experience, trends of delinquent and
non-accrual loans, an estimate of potential loss exposure of significant
credits, concentrations of credit, and present and prospective economic
conditions. A deficiency in the ALLL shall be remedied in the calendar quarter
it is discovered, prior to submitting the Report of Condition, by a charge to
current operating earnings. The minutes of the Board meeting at which such
review is undertaken shall indicate the results of the review. The Bank’s
policy for determining the adequacy of the Bank’s ALLL and its implementation
shall be satisfactory to the Regional Director and the Commissioner as
determined at subsequent examinations and/or visitations.

 

8.             (a)           Within 60 days from the
effective date of this Order, the Bank shall develop or revise, adopt, and
implement written lending and collection policies to provide effective guidance
and control over the Bank’s lending function. Such policies and their
implementation shall be satisfactory to the Regional Director and the
Commissioner as determined at subsequent examinations and/or visitations.

 

(b)           The policies required by this paragraph shall, at a
minimum, include the following:

 

(i)            provisions that require complete loan documentation,
realistic repayment terms, and current credit information adequate to support
the outstanding indebtedness of the borrower. Such documentation shall include
current financial information, profit and loss statements or copies of tax
returns and cash flow projections;

 

(ii)           provisions that establish standards for unsecured
credit;

 

(iii)          provisions that establish officer lending limits;

 

9

 

(iv)          provisions that require the preparation of a loan
“watch list” that shall include relevant information on all loans in excess of
$500,000, which are classified “Substandard” and “Doubtful” in the ROE, or by
the FDIC or CDFI in subsequent Reports of Examination and all other loans in
excess of $500,000, which warrant individual review and consideration by the
Board as determined by the loan committee or active management. The loan “watch
list” shall be presented to the Board for review at least monthly with such
review noted in the minutes;

 

(v)           provisions that require an accurate internal grading
system;

 

(vi)          provisions that require independent loan review; and

 

(vii)         the Board shall adopt procedures whereby officer
compliance with the revised loan policy is monitored and responsibility for
exceptions thereto assigned. The procedures adopted shall be reflected in
minutes of a Board meeting at which a quorum is present and the vote of each
Director is noted.

 

9.             Within 60 days
from the effective date of this Order, the Bank shall develop or revise, adopt,
and implement a written liquidity and funds management policy that adequately
addresses liquidity needs and contingency funding, appropriately reduces its
reliance on non-core funding sources, and complies with the Guidance on
Liquidity Risk Management, FIL-84-2008, dated August 26, 2008. Such policy
and its implementation shall be satisfactory to the Regional Director and the
Commissioner as determined at subsequent examinations and/or visitations.

 

10.          (a)           During the life of this Order, the Bank shall comply
with the provisions of section 337.6 of the FDIC’s Rules and Regulations,
12 C.F.R. § 337.6.

 

(b)           Within 60 days from the effective date of this Order
the Bank shall submit to the Regional Director and the Commissioner a written
plan for eliminating its reliance on

 

10

 

brokered deposits. The plan shall contain
details as to the current composition of brokered deposits by maturity and
explain the means by which such deposits will be reduced. For purposes of this
Order, brokered deposits are defined as described in section 337.6(a)(2) of the
FDIC’s Rules and Regulations, 12 C.F.R. § 337.6(a)(2). Such plan and its
implementation shall be satisfactory to the Regional Director and the
Commissioner as determined at subsequent examinations and/or visitations.

 

11.          Within 120 days from the effective date of this
Order, the Bank shall develop or revise, adopt, and implement a written plan
addressing retention of profits, reducing overhead expenses, and setting forth
a comprehensive budget covering the period January 1, 2011, to
December 31, 2013. The plan required by this Paragraph shall contain
formal goals, strategies and benchmarks which are consistent with sound banking
practices to improve the Bank’s net interest margin, increase interest income,
reduce discretionary expenses, and improve and sustain earnings of the Bank. It
shall also contain a thorough description of the operating assumptions that
form the basis for, and adequately support, each major component of the plan.
Such plan and its implementation shall be satisfactory to the Regional Director
and the Commissioner as determined at subsequent examinations and/or
visitations.

 

(b)           Following the end of each calendar quarter, the
Board shall evaluate the Bank’s actual performance in relation to the plan and
shall record the results of the evaluation, and any actions taken by the Bank,
in the minutes of the Board meeting at which such evaluation is undertaken.

 

12.          Within 120 days from the effective date of this
Order, the Bank shall develop or revise, adopt, and implement a written
three-year strategic plan. Such plan shall be submitted to the Regional
Director and the Commissioner and shall include specific goals for the dollar

 

11

 

volume of total loans, total investment securities, and total deposits
as of year-end 2011, 2012, and 2013. For each time frame, the plan will also
specify:

 

(b)           the anticipated average maturity and average yield
on loans and securities;

 

(c)           the average maturity and average cost of deposits;

 

(d)           the level of earning assets as a percentage of total
assets; and

 

(e)           the ratio of net interest income to average earning
assets.

 

Such plan and its implementation shall be
satisfactory to the Regional Director and the Commissioner as determined at
subsequent examinations and/or visitations.

 

13.          The Bank shall not engage in any expansionary
activities, including opening any branches, without the prior written consent
of the Regional Director and the Commissioner.

 

14.          The Bank shall notify the Regional Director and the
Commissioner no less than one business day in advance of making a planned
public announcement or notification regarding changes in the Bank’s financial
condition, executive management or Board.

 

15.          Within 30 days of the end of the first quarter
following the effective date of this Order, and within 30 days of the end of
each quarter thereafter, the Bank shall furnish written progress reports to the
Regional Director and the Commissioner detailing the form and manner of any
actions taken to secure compliance with this Order and the results thereof.
Such reports may be discontinued when the corrections required by this Order
have been accomplished and the Regional Director and the Commissioner have
released the Bank in writing from making further reports.

 

16.          Following the effective date of this Order, the Bank
shall provide a copy of the Order or otherwise furnish a description of the
Order to its shareholder(s) in conjunction with:

 

(a)           the Bank’s next shareholder communication; and

 

12

 

(b)           the notice or proxy statement preceding the Bank’s
next shareholder meeting.

 

The description shall fully describe the Order in
all material respects. The description and any accompanying communication,
statement, or notice shall be sent to the FDIC, Division of Supervision and
Consumer Protection, Accounting and Securities Disclosure Section, 550 17th Street, N.W., Washington, D.C. 20429, at least
20 days prior to dissemination to shareholders. Any changes requested to be
made by the FDIC shall be made prior to dissemination of the description,
communication, notice, or statement.

 

The provisions of this Order shall not bar, estop,
or otherwise prevent the FDIC, the CDFI, or any other federal or state agency
or department from taking any other action against the Bank or any of the
Bank’s current or former institution-affiliated parties, as that term is
defined in Section 3(u) of the FDI Act, 12 U.S.C. § 1813(u).

 

This Order will become effective upon its issuance
by the FDIC and the CDFI.

 

The provisions of this Order shall be binding upon
the Bank, its institution-affiliated parties, and any successors and assigns
thereof.

 

The provisions of this Order shall remain effective
and enforceable except to the extent that and until such time as any provision
has been modified, terminated, suspended, or set aside by the FDIC and the
CDFI.

 

Violation of any provisions of this Order, will be
deemed to be conducting business in an unsafe or unsound manner, and will
subject the Bank to further regulatory enforcement action.

 

13

 

Issued pursuant to delegated
authority

 

Dated at San Francisco,
California, this 1st day of September, 2010.

 

 

	
  /s/ Kathy Moe for

  	
   

  	
  /s/ Scott D. Cameron

  
	
  J. George Doerr

  	
   

  	
  Scott D. Cameron

  
	
  Deputy Regional Director

  	
   

  	
  Chief Examiner

  
	
  Risk Management

  	
   

  	
  California Department of

  
	
  Division of Supervision and Consumer Protection

  	
   

  	
  Financial Institutions

  
	
  San Francisco Region

  	
   

  	
   

  
	
  Federal Deposit Insurance Corporation

  	
   

  	
   

  

 

14

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