Document:

United State Securities and Exchange Commission Edgar Filing

Exhibit 10.1

18% SUBORDINATED NOTE

			
	$325,000

	 
	March 20, 2009

FOR VALUE RECEIVED, Baywood International, Inc., a Nevada corporation (the “Maker”), with its primary offices located at 9380 E. Bahia Dr., Suite A201, Scottsdale, AZ  85260, promises to pay to the order of Eric Skae (the “Payee”), upon the terms set forth below, the principal sum of Three Hundred Twenty-Five Thousand Dollars ($325,000) plus interest on the unpaid principal sum outstanding at the rate of 18% per annum (this “Note”).  For purposes of calculating interest, the effective date of this Note is March 17, 2009.

Notwithstanding anything herein to the contrary, in the event of any liquidation, insolvency, bankruptcy, reorganization, or similar proceedings relating to the Maker, all sums payable on the Senior Notes to Vineyard Bank (“Senior Notes”), shall first be paid in full, with interest, if any, before any cash payment is made upon this Note, and, in any such event, any cash payment which shall be made in respect of this Note shall be paid over to the holders of the Senior Notes for application to the payment thereof, unless and until the obligations under the Senior Notes shall have been paid and satisfied in full.

1.

Payments.

(a)

The full amount of principal and accrued interest under this Note shall be due on April 12, 2009 (the “Maturity Date”), unless due earlier in accordance with the terms of this Note.

(b)

The Maker shall pay interest to the Payee on the aggregate then outstanding principal amount of this Note at the rate of 18% per annum, payable on the Maturity Date.

(c)

All overdue accrued and unpaid principal and interest to be paid hereunder shall entail a late fee at the rate of 22% per annum (or such lower maximum amount of interest permitted to be charged under applicable law) which will accrue daily, from the date such principal and/or interest is due hereunder through and including the date of payment.

(d)

Absent the occurrence of an Event of Default (unless waived in writing by the Payee), the Maker may prepay this Note for 100% of the full principal amount of this Note, together with all accrued interest thereon, at any time prior to the Maturity Date, without penalty.

2.

Events of Default.

(a)

“Event of Default”, wherever used herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

(i)

any default in the payment of the principal of, or the interest on, this Note, as and when the same shall become due and payable;

(ii)

Maker or any of its subsidiaries shall commence, or there shall be commenced against Maker or any subsidiary a case under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or Maker or any subsidiary commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or 

liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to Maker or any subsidiary, or there is commenced against Maker or any subsidiary any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of 60 days; or Maker or any subsidiary is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or Maker or any subsidiary suffers any appointment of any custodian or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of 60 days; or Maker or any subsidiary makes a general assignment for the benefit of creditors; or Maker or any subsidiary shall call a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or Maker or any subsidiary shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate or other action is taken by Maker or any subsidiary for the purpose of effecting any of the foregoing;

(iii)

any monetary judgment, writ or similar final process shall be entered or filed against the Maker, any subsidiary or any of their respective property or other assets for more than $300,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 15 calendar days.

(b)

If any Event of Default occurs (unless waived in writing by the Payee), the full principal amount of this Note, together with all accrued interest thereon, shall become, at the Payee's election, immediately due and payable in cash. Commencing 5 days after the occurrence of any Event of Default that results in the acceleration of this Note, the interest rate on this Note shall accrue at the rate of 22% per annum, or such lower maximum amount of interest permitted to be charged under applicable law. The Payee need not provide and Maker hereby waives any presentment, demand, protest or other notice of any kind, and the Payee may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such declaration may be rescinded and annulled by Payee at any time prior to payment hereunder. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

3.

Negative Covenants. So long as any portion of this Note is outstanding, the Maker will not and will not permit any of its Subsidiaries to directly or indirectly, unless consented to in writing by the Payee:

(a)

other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

(b)

other than Permitted Liens, enter into, create, incur, assume or suffer to exist any liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

(c)

amend its certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of the Payee other than to increase the number of authorized common shares;

(d)

except as contractually required by the Maker as of the date of issuance of this Note, repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of securities;

(e)

enter into any agreement with respect to any of the foregoing; or

“Permitted Indebtedness” shall mean (a) the indebtedness of the Maker existing on the date of issuance of this Note, (b) lease obligations and purchase money indebtedness incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets (c) indebtedness incurred by the Maker that does not mature or require payments of principal prior to the Maturity Date of this Note and is made expressly subordinate in right of payment to the indebtedness evidenced by this Note, as reflected in a written agreement acceptable to the Payee and approved by the Payee in writing, and (d) trade receivables in the ordinary course of business.

“Permitted Lien” shall mean the individual and collective reference to the following: (a) liens for taxes, assessments and other governmental charges or levies not yet due or liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Maker) have been established in accordance with generally accepted accounting procedures, (b) liens imposed by law which were incurred in the ordinary course of business, such as carriers’, warehousemen’s and mechanics’ liens, statutory landlords’ liens, and other similar liens arising in the ordinary course of business, and (x) which do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Maker and its consolidated subsidiaries or (y) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or asset subject to such lien and (c) liens of the Maker existing on the date of issuance of this Note, including liens incurred in connection with the Permitted Indebtedness.

4.

No Waiver of Payee’s Rights. All payments of principal and interest shall be made without setoff, deduction or counterclaim. No delay or failure on the part of the Payee in exercising any of its options, powers or rights, nor any partial or single exercise of its options, powers or rights shall constitute a waiver thereof or of any other option, power or right, and no waiver on the part of the Payee of any of its options, powers or rights shall constitute a waiver of any other option, power or right. Maker hereby waives presentment of payment, protest, and all notices or demands in connection with the delivery, acceptance, performance, default or endorsement of this Note. Acceptance by the Payee of less than the full amount due and payable hereunder shall in no way limit the right of the Payee to require full payment of all sums due and payable hereunder in accordance with the terms hereof.

5.

Modifications. No term or provision contained herein may be modified, amended or waived except by written agreement or consent signed by the party to be bound thereby.

6.

Cumulative Rights and Remedies; Usury. The rights and remedies of Payee expressed herein are cumulative and not exclusive of any rights and remedies otherwise available under this Note or applicable law (including at equity). The election of Payee to avail itself of any one or more remedies shall not be a bar to any other available remedies, which Maker agrees Payee may take from time to time. If it shall be found that any interest due hereunder shall violate applicable laws governing usury, the applicable rate of interest due hereunder shall be reduced to the maximum permitted rate of interest under such law.

7.

Use of Proceeds. Maker shall use the proceeds from this Note hereunder for working capital purposes and not for the satisfaction of any portion of Maker’s or subsidiary’s debt (other than payment of trade payables in the ordinary course of Maker's business and prior practices), to redeem any of Maker’s or subsidiary’s equity or equity-equivalent securities or to settle any outstanding litigation.

8.

Collection Expenses. If Payee shall commence an action or proceeding to enforce this Note, then Maker shall reimburse Payee for its costs of collection and reasonable attorneys fees incurred with the investigation, preparation and prosecution of such action or proceeding.

9.

Severability. If any provision of this Note is declared by a court of competent jurisdiction to be in any way invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder shall violate applicable laws governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum permitted rate of interest.

10.

Successors and Assigns. This Note shall be binding upon Maker and its successors and shall inure to the benefit of the Payee and its successors and assigns. The term "Payee" as used herein, shall also include any endorsee, assignee or other holder of this Note.

11.

Lost or Stolen Promissory Note. If this Note is lost, stolen, mutilated or otherwise destroyed, Maker shall execute and deliver to the Payee a new promissory note containing the same terms, and in the same form, as this Note. In such event, Maker may require the Payee to deliver to Maker an affidavit of lost instrument and customary indemnity in respect thereof as a condition to the delivery of any such new promissory note.

12.

Due Authorization. This Note has been duly authorized, executed and delivered by Maker and is the legal obligation of Maker, enforceable against Maker in accordance with its terms except as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally. No consent of any other party and no consent, license, approval or authorization of, or registration or declaration with, any governmental authority, bureau or agency is required in connection with the execution, delivery or performance by the Maker, or the validity or enforceability of this Note other than such as have been met or obtained. The execution, delivery and performance of this Note and all other agreements and instruments executed and delivered or to be executed and delivered pursuant hereto or thereto or the securities issuable upon conversion of this Note will not violate any provision of any existing law or regulation or any order or decree of any court, regulatory body or administrative agency or the certificate of incorporation or by-laws of the Maker or any mortgage, indenture, contract or other agreement to which the Maker is a party or by which the Maker or any property or assets of the Maker may be bound.

13.

Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed and enforced in accordance with the internal laws of the State of Arizona, without regard to the principles of conflicts of law thereof.  Each of Maker and Payee agree that all legal proceedings concerning the interpretations, enforcement and defense of this Note shall be commenced in the state and federal courts sitting in the City of Phoenix (the "Phoenix Courts").  Each of Maker and Payee hereby irrevocably submit to the exclusive jurisdiction of the Phoenix Courts for the adjudication of any dispute hereunder (including with respect to the enforcement of this Note), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. Each of Maker and Payee hereby irrevocably waive personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to the other at the address in effect for notices to it under this Note 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 of Maker and Payee hereby 

irrevocably waive, 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 Note or the transactions contemplated hereby.

14.

Notice. Any and all notices or other communications or deliveries to be provided by the Payee hereunder, including, without limitation, any conversion notice, shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier service or sent by certified or registered mail, postage prepaid, addressed to the Maker, or such other address or facsimile number as the Maker may specify for such purposes by notice to the Payee delivered in accordance with this paragraph. Any and all notices or other communications or deliveries to be provided by the Maker hereunder shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier service or sent by certified or registered mail, postage prepaid, addressed to the Payee at the address of the Payee appearing on the books of the Maker, or if no such address appears, at the principal place of business of the Payee. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission if delivered by hand or by telecopy that has been confirmed as received by 5:00 P.M. on a business day, (ii) one business day after being sent by nationally recognized overnight courier or received by telecopy after 5:00 P.M. on any day, or (iii) five business days after being sent by certified or registered mail, postage and charges prepaid, return receipt requested.

[signature page follows]

The undersigned signs this Note as a maker and not as a surety or guarantor or in any other capacity.

			
	BAYWOOD INTERNATIONAL, INC.

	 

	 
	 
	 

	 
	 
	 

	By:

	/s/ Neil Reithinger

	 

	Name:

	Neil Reithinger

	 

	Title:

	Chief Financial OfficerExhibit 4.1

Exhibit 4.1

WARRANT TO PURCHASE PREFERRED STOCK

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE
DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR
SUCH LAWS. THIS INSTRUMENT IS ISSUED SUBJECT TO THE RESTRICTIONS ON TRANSFER AND OTHER PROVISIONS
OF A SECURITIES PURCHASE AGREEMENT BETWEEN THE ISSUER OF THESE SECURITIES AND THE INVESTOR REFERRED
TO THEREIN, A COPY OF WHICH IS ON FILE WITH THE ISSUER. THE SECURITIES REPRESENTED BY THIS
INSTRUMENT MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH SAID AGREEMENT. ANY
SALE OR OTHER TRANSFER NOT IN COMPLIANCE WITH SAID AGREEMENT WILL BE VOID.

WARRANT

to purchase

254.44444

Shares of Preferred Stock

of First Priority Financial Corp.

Issue Date: February 20, 2009

1. Definitions. Unless the context otherwise requires, when used herein the following
terms shall have the meanings indicated.

“Board of Directors” means the board of directors of the Company, including any duly
authorized committee thereof.

“business day” means any day except Saturday, Sunday and any day on which banking institutions
in the State of New York generally are authorized or required by law or other governmental actions
to close.

“Charter” means, with respect to any Person, its certificate or articles of incorporation,
articles of association, or similar organizational document.

“Company” means the Person whose name, corporate or other organizational form and jurisdiction
of organization is set forth in Item 1 of Schedule A hereto.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor
statute, and the rules and regulations promulgated thereunder.

 

 

 

“Exercise Price” means the amount set forth in Item 2 of Schedule A hereto.

“Expiration Time” has the meaning set forth in Section 3.

“Issue Date” means the date set forth in Item 3 of Schedule A hereto. “Liquidation Amount”
means the amount set forth in Item 4 of Schedule A hereto.

“Original Warrantholder” means the United States Department of the Treasury. Any actions
specified to be taken by the Original Warrantholder hereunder may only be taken by such Person and
not by any other Warrantholder.

“Person” has the meaning given to it in Section 3(a)(9) of the Exchange Act and as used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act.

“Preferred Stock” means the series of perpetual preferred stock set forth in Item 5 of
Schedule A hereto.

“Purchase Agreement” means the Securities Purchase Agreement — Standard Terms incorporated
into the Letter Agreement, dated as of the date set forth in Item 6 of Schedule A hereto, as
amended from time to time, between the Company and the United States Department of the Treasury
(the “Letter Agreement”), including all annexes and schedules thereto.

“Regulatory Approvals” with respect to the Warrantholder, means, to the extent applicable and
required to permit the Warrantholder to exercise this Warrant for shares of Preferred Stock and to
own such Preferred Stock without the Warrantholder being in violation of applicable law, rule or
regulation, the receipt of any necessary approvals and authorizations of, filings and registrations
with, notifications to, or expiration or termination of any applicable waiting period under, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations
thereunder.

“SEC” means the U.S. Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended, or any successor statute, and
the rules and regulations promulgated thereunder.

“Shares” has the meaning set forth in Section 2. “Warrantholder” has the meaning set forth in
Section 2.

“Warrant” means this Warrant, issued pursuant to the Purchase Agreement.

2. Number of Shares; Exercise Price. This certifies that, for value received, the
United States Department of the Treasury or its permitted assigns (the “Warrantholder”) is
entitled, upon the terms and subject to the conditions hereinafter set forth, to acquire from the
Company, in whole or in part, after the receipt of all applicable Regulatory Approvals, if any, up
to an aggregate of the number of fully paid and nonassessable shares of Preferred Stock set forth
in Item 7 of Schedule A hereto (the “Shares”), at a purchase price per share of Preferred Stock
equal to the Exercise Price.

 

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3. Exercise of Warrant; Term. Subject to Section 2, to the extent permitted by
applicable laws and regulations, the right to purchase the Shares represented by this Warrant is
exercisable, in whole or in part by the Warrantholder, at any time or from time to time after the
execution and delivery of this Warrant by the Company on the date hereof, but in no event later
than 5:00 p.m., New York City time on the tenth anniversary of the Issue Date (the “Expiration
Time”), by (A) the surrender of this Warrant and Notice of Exercise annexed hereto, duly completed
and executed on behalf of the Warrantholder, at the principal executive office of the Company
located at the address set forth in Item 8 of Schedule A hereto (or such other office or agency of
the Company in the United States as it may designate by notice in writing to the Warrantholder at
the address of the Warrantholder appearing on the books of the Company), and (B) payment of the
Exercise Price for the Shares thereby purchased, by having the Company withhold, from the shares of
Preferred Stock that would otherwise be delivered to the Warrantholder upon such exercise, shares
of Preferred Stock issuable upon exercise of the Warrant with an aggregate Liquidation Amount equal
in value to the aggregate Exercise Price as to which this Warrant is so exercised.

If the Warrantholder does not exercise this Warrant in its entirety, the Warrantholder will be
entitled to receive from the Company within a reasonable time, and in any event not exceeding three
business days, a new warrant in substantially identical form for the purchase of that number of
Shares equal to the difference between the number of Shares subject to this Warrant and the number
of Shares as to which this Warrant is so exercised. Notwithstanding anything in this Warrant to
the contrary, the Warrantholder hereby acknowledges and agrees that its exercise of this Warrant
for Shares is subject to the condition that the Warrantholder will have first received any
applicable Regulatory Approvals.

4. Issuance of Shares; Authorization. Certificates for Shares issued upon exercise of
this Warrant will be issued in such name or names as the Warrantholder may designate and will be
delivered to such named Person or Persons within a reasonable time, not to exceed three business
days after the date on which this Warrant has been duly exercised in accordance with the terms of
this Warrant. The Company hereby represents and warrants that any Shares issued upon the exercise
of this Warrant in accordance with the provisions of Section 3 will be duly and validly authorized
and issued, fully paid and nonassessable and free from all taxes, liens and charges (other than
liens or charges created by the Warrantholder, income and franchise taxes incurred in connection
with the exercise of the Warrant or taxes in respect of any transfer occurring contemporaneously
therewith). The Company agrees that the Shares so issued will be deemed to have been issued to the
Warrantholder as of the close of business on the date on which this Warrant and payment of the
Exercise Price are delivered to the Company in accordance with the terms of this Warrant,
notwithstanding that the stock transfer books of the Company may then be closed or certificates
representing such Shares may not be actually delivered on such date. The Company will at all times
reserve and keep available, out of its authorized but unissued preferred stock, solely for the
purpose of providing for the exercise of this Warrant, the aggregate number of shares of Preferred
Stock then issuable upon exercise of this Warrant at any time. The Company will use reasonable
best efforts to ensure that the Shares may be issued without violation of any applicable law or
regulation or of any requirement of any securities exchange on which the Shares are listed or
traded.

5. No Rights as Stockholders; Transfer Books. This Warrant does not entitle the
Warrantholder to any voting rights or other rights as a stockholder of the Company prior to the
date of exercise hereof. The Company will at no time close its transfer books against
transfer of this Warrant in any manner which interferes with the timely exercise of this Warrant.

 

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6. Charges, Taxes and Expenses. Issuance of certificates for Shares to the
Warrantholder upon the exercise of this Warrant shall be made without charge to the Warrantholder
for any issue or transfer tax or other incidental expense in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the Company.

7. Transfer/Assignment.

(A) Subject to compliance with clause (B) of this Section 7, this Warrant and all rights
hereunder are transferable, in whole or in part, upon the books of the Company by the registered
holder hereof in person or by duly authorized attorney, and a new warrant shall be made and
delivered by the Company, of the same tenor and date as this Warrant but registered in the name of
one or more transferees, upon surrender of this Warrant, duly endorsed, to the office or agency of
the Company described in Section 3. All expenses (other than stock transfer taxes) and other
charges payable in connection with the preparation, execution and delivery of the new warrants
pursuant to this Section 7 shall be paid by the Company.

(B) The transfer of the Warrant and the Shares issued upon exercise of the Warrant are subject
to the restrictions set forth in Section 4.4 of the Purchase Agreement. If and for so long as
required by the Purchase Agreement, this Warrant shall contain the legends as set forth in Section
4.2(a) of the Purchase Agreement.

8. Exchange and Registry of Warrant. This Warrant is exchangeable, upon the surrender
hereof by the Warrantholder to the Company, for a new warrant or warrants of like tenor and
representing the right to purchase the same aggregate number of Shares. The Company shall maintain
a registry showing the name and address of the Warrantholder as the registered holder of this
Warrant. This Warrant may be surrendered for exchange or exercise in accordance with its terms, at
the office of the Company, and the Company shall be entitled to rely in all respects, prior to
written notice to the contrary, upon such registry.

9. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and in the case of any such loss, theft or destruction, upon receipt of a bond, indemnity
or security reasonably satisfactory to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company shall make and deliver, in lieu of such
lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the
right to purchase the same aggregate number of Shares as provided for in such lost, stolen,
destroyed or mutilated Warrant.

10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of
any action or the expiration of any right required or granted herein shall not be a business day,
then such action may be taken or such right may be exercised on the next succeeding day that is a
business day.

 

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11. Rule 144 Information. The Company covenants that it will use its reasonable best
efforts to timely file all reports and other documents required to be filed by it under the
Securities Act and the Exchange Act and the rules and regulations promulgated by the SEC
thereunder (or, if the Company is not required to file such reports, it will, upon the request
of any Warrantholder, make publicly available such information as necessary to permit sales
pursuant to Rule 144 under the Securities Act), and it will use reasonable best efforts to take
such further action as any Warrantholder may reasonably request, in each case to the extent
required from time to time to enable such holder to, if permitted by the terms of this Warrant and
the Purchase Agreement, sell this Warrant without registration under the Securities Act within the
limitation of the exemptions provided by (A) Rule 144 under the Securities Act, as such rule may be
amended from time to time, or (B) any successor rule or regulation hereafter adopted by the SEC.
Upon the written request of any Warrantholder, the Company will deliver to such Warrantholder a
written statement that it has complied with such requirements.

12. Adjustments and Other Rights. For so long as the Original Warrantholder holds
this Warrant or any portion thereof, if any event occurs that, in the good faith judgment of the
Board of Directors of the Company, would require adjustment of the Exercise Price or number of
Shares into which this Warrant is exercisable in order to fairly and adequately protect the
purchase rights of the Warrants in accordance with the essential intent and principles of the
Purchase Agreement and this Warrant, then the Board of Directors shall make such adjustments in the
application of such provisions, in accordance with such essential intent and principles, as shall
be reasonably necessary, in the good faith opinion of the Board of Directors, to protect such
purchase rights as aforesaid.

Whenever the Exercise Price or the number of Shares into which this Warrant is exercisable
shall be adjusted as provided in this Section 12, the Company shall forthwith file at the principal
office of the Company a statement showing in reasonable detail the facts requiring such adjustment
and the Exercise Price that shall be in effect and the number of Shares into which this Warrant
shall be exercisable after such adjustment, and the Company shall also cause a copy of such
statement to be sent by mail, first class postage prepaid, to each Warrantholder at the address
appearing in the Company’s records.

13. No Impairment. The Company will not, by amendment of its Charter 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 hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in taking of all such action
as may be necessary or appropriate in order to protect the rights of the Warrantholder.

14. Governing Law. This Warrant will be governed by and construed in accordance with
the federal law of the United States if and to the extent such law is applicable, and otherwise in
accordance with the laws of the State of New York applicable to contracts made and to be performed
entirely within such State. Each of the Company and the Warrantholder agrees (a) to submit to the
exclusive jurisdiction and venue of the United States District Court for the District of Columbia
for any civil action, suit or proceeding arising out of or relating to this Warrant or the
transactions contemplated hereby, and (b) that notice may be served upon the Company at the address
in Section 17 below and upon the Warrantholder at the address for the Warrantholder set forth in
the registry maintained by the Company pursuant to Section 8 hereof. To the extent permitted by
applicable law, each of the Company and the Warrantholder hereby unconditionally waives trial by
jury in any civil legal action or proceeding relating to the Warrant or the transactions
contemplated hereby or thereby.

 

5

 

15. Binding Effect. This Warrant shall be binding upon any successors or assigns of
the Company.

16. Amendments. This Warrant may be amended and the observance of any term of this
Warrant may be waived only with the written consent of the Company and the Warrantholder.

17. Notices. Any notice, request, instruction or other document to be given hereunder
by any party to the other will be in writing and will be deemed to have been duly given (a) on the
date of delivery if delivered personally, or by facsimile, upon confirmation of receipt, or (b) on
the second business day following the date of dispatch if delivered by a recognized next day
courier service. All notices hereunder shall be delivered as set forth in Item 9 of Schedule A
hereto, or pursuant to such other instructions as may be designated in writing by the party to
receive such notice.

18. Entire Agreement. This Warrant, the forms attached hereto and Schedule A hereto
(the terms of which are incorporated by reference herein), and the Letter Agreement (including all
documents incorporated therein), contain the entire agreement between the parties with respect to
the subject matter hereof and supersede all prior and contemporaneous arrangements or undertakings
with respect thereto.

[Remainder of page intentionally left blank]

 

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Form of Notice of Exercise

Date:                                         

TO: First Priority Financial Corp.

RE: Election to Purchase Preferred Stock

The undersigned, pursuant to the provisions set forth in the attached Warrant, hereby agrees
to subscribe for and purchase such number of shares of Preferred Stock covered by the Warrant such
that after giving effect to an exercise pursuant to Section 3(B) of the Warrant, the undersigned
will receive the net number of shares of Preferred Stock set forth below. The undersigned, in
accordance with Section 3 of the Warrant, hereby agrees to pay the aggregate Exercise Price for
such shares of Preferred Stock in the manner set forth in Section 3(B) of the Warrant.

Number of Shares of Preferred Stock:1                                         

The undersigned agrees that it is exercising the attached Warrant in full and that, upon
receipt by the undersigned of the number of shares of Preferred Stock set forth above, such Warrant
shall be deemed to be cancelled and surrendered to the Company.

	 	 	 	 	 	 	 
	 

	 	Holder:	 	 	 	 
	 

	 	 	 	 

	 	 

									
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 	 	 
	 

	 	 	 	Title:
	 	 

	 	 
	 

	 	 	 	 	 	 

	 	 

 

	 	 	 
	1.	 	Number of shares to be received by the undersigned upon
exercise of the attached Warrant pursuant to
Section 3(B) thereof.

 

7

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by a duly
authorized officer.

Dated: February 20, 2009

	 	 	 	 	 
	 	COMPANY: FIRST PRIORITY FINANCIAL CORP.

 	 
	 	By:  	/s/ David E. Sparks
 	 
	 	 	Name:  	David E. Sparks 	 
	 	 	Title:  	Chairman, President and Chief Executive Officer 	 
	 
	 	Attest:

 	 
	 	By:  	/s/ Lawrence E. Donato
 	 
	 	 	Name:  	Lawrence E. Donato 	 
	 	 	Title:  	Chief Financial Officer 	 

[Signature Page to Warrant]

 

8

 

SCHEDULE A

Item 1 

Name: First Priority Financial Corp.

Corporate or other organizational form: Business corporation

Jurisdiction of organization: Commonwealth of Pennsylvania

Item 2 

Exercise Price: $100.00

Item 3 

Issue Date: February 20, 2009

Item 4

Liquidation Amount: $1,000.00 per share

Item 5

Series of Perpetual Preferred Stock: Fixed Rate Cumulative Perpetual Preferred Stock, Series B

Item 6

Date of Letter Agreement between the Company and the United States Department of the Treasury:
February 20, 2009

Item 7

Number of shares of Preferred Stock: 254.44444

Item 8

Company’s address:

First Priority Financial Corp.

2 West Liberty Boulevard, Suite 104

Malvern, Pennsylvania 19355

Item 9

Notice information:

If to the Company:

First Priority Financial Corp.

2 West Liberty Boulevard, Suite 104

Malvern, Pennsylvania 19355

Attn: Lawrence E. Donato, Chief Financial Officer

Facsimile: (484) 527-4037

 

 

 

with a copy to:

Stevens & Lee

111 North Sixth Street

Reading, Pennsylvania 19603

Attention: Sunjeet S. Gill, Esquire

Facsimile: (610) 371-1228

If to the Warrantholder:

United States Department of the Treasury

1500 Pennsylvania Avenue, NW, Room 2312

Washington, D.C. 20220

Attention: Assistant General Counsel (Banking and Finance)

Facsimile: (202) 622-1974

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