WESTERN FIDELITY FUNDING, INC.
FACILITIES AGREEMENT AND SUBSCRIPTION
THIS FACILITIES AGREEMENT AND SUBSCRIPTION ("Agreement") sets forth certain
agreements of the undersigned ("Subscriber"), Western Fidelity Funding, Inc., a
Colorado corporation ("Company"), and Western International Securities, Inc., a
Colorado corporation ("Selling Agent"), with respect to the issuance by the
Company to the Subscriber of a promissory note, dated July 31, 1996, in the
principal amount of $10,000,000.00 (the "Note").
1. Subscription. The Subscriber hereby subscribes and agrees to purchase,
and the Company hereby agrees to sell to Subscriber, a $10,000,000.00 12%
Subordinated Promissory Note ("Note") of the Company. The Note shall be
substantially in the form of the promissory note attached hereto as Exhibit A
and incorporated herein by reference.
2. Transmission of Funds, Escrow. Upon receipt by Selling Agent of this
Agreement, properly completed and executed, and upon payment of $10,000,000.00
into the Escrow Account (as defined below), the Selling Agent is to give a copy
of this Agreement to the Company for execution by the Company. Thereafter, (a)
the Company and the Selling Agent shall jointly instruct the Escrow Account bank
to disburse the funds in the Escrow Account in the amounts of $600,000.00 to the
Selling Agent pursuant to Section 5 below, and $9,400,000.00 to the Company; and
(b) the Company shall deliver its signed Note to the Selling Agent for immediate
delivery by the Selling Agent to the Subscriber. "Escrow Account" shall mean
that escrow account established at FirstBank, Republic Plaza, Denver, Colorado,
entitled "Western International Securities - Western Fidelity Funding Escrow
Account."
3. Use of Proceeds. The Subscriber acknowledges and agrees that the
proceeds delivered to the Company in consideration of the issuance of the Note
to Subscriber shall be used by the Company as follows:
a. Up to $2 millon for expenses associated with securitization of
pools of Automotive Loan Contract Receivables ("Contracts") and general
working capital; and
b. Up to $8 million for the acquisition of non-prime Contracts and to
hold inventories of vehicles associated with such contracts and other
vehicle inventory ("Vehicles").
4. Subordination. All payments of principal and interest on the Note will
be subordinated to prior payment when due (whether at stated or accelerated
maturity) of the principal of and premium (if any) and interest on all "Superior
Indebtedness" of the Company. The term "Superior Indebtedness" includes all
indebtedness of the Company, whether outstanding on the date of original
issuance of the Note or thereafter created, and all renewals, extensions,
modifications, or refunding of any such indebtedness. The Subscriber
acknowledges that no payment may be made by the Company on the Note until the
Superior Indebtedness is paid in full when due in the normal and ordinary course
of Company's business. In addition, no payment may be made on the Note during
the continuance of an event of default with respect to any Superior Indebtedness
entitling the holders thereof to accelerate its maturity, or if any such payment
would cause such event of default to occur; provided, however, if such default
relates to an event other than the failure to pay interest or other amounts on
any Superior Indebtedness, the Company shall continue to make payments on the
Note. The payment of principal and interest on the Note will be senior to the
payment of any indebtedness which is incurred by the Company and specifically
subordinated to the payments due on the Note.
5. Selling Agent's Commission. In consideration of Selling Agent's services
related to this transaction, the Company agrees to pay the Selling Agent a
commission of 4.5 percent of the face amount of the Notes ($450,000)
("Commission"). In addition to the Commission, the Company will reimburse the
Selling Agent on a nonaccountable basis for the expenses which the Selling Agent
incurred in connection with this transaction, 1.75 percent of the face amount of
the Note ($175,000), of which Selling Agent acknowledges receipt of $25,000
previously paid by the Company. Selling Agent and the Company shall instruct the
Escrow Account bank to deduct the Commission and the portion of the
nonaccountable expenses not previously paid by the Company from the proceeds
paid by the Subscriber into the Escrow Account and pay such amounts to the
Selling Agent, and deliver the remainder of the proceeds in the Escrow Account
to the Company at the Closing (as defined in Section 7 below).
6. Selling Agent Warrants. As additional compensation for the Selling
Agent's services related to this transaction, at the Closing the Company shall
issue to the Selling Agent warrants ("Warrants") to purchase 263,750 shares of
the Company's $0.0001 par value common stock ("Common Stock") at a purchase
price equal to the average of the bid and ask price for the Common Stock for the
five trading days prior the Closing. The Warrants shall be exercisable for a
period of five years after the date of Closing, and shall not be anti-dilutive.
Selling Agent acknowledges that the Warrants and underlying shares of Common
Stock will be restricted securities under the Act and state securities laws, and
the Company shall have the right to place appropriate legends thereof on the
certificates for such Warrants and Common Stock. Notwithstanding the foregoing,
the Warrant certificate shall provide that the Company will use its best efforts
to register the underlying Common Stock under the Securities Act of 1933 ("Act")
with the Securities and Exchange Commission, and register or qualify the said
Common Stock with the Colorado Securities Commission, by December 31, 1996 to
permit their sale to the public. The Warrant certificate shall further provide
that all expenses associated with the registration or qualification of said
underlying Common Stock shall be borne by the Company and that the Company will
use its best efforts to keep the registration statement current for so long as
more than 10 percent of the Warrants are unexercised.
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7. Closing. The date of closing ("Closing") for the purchase of the Note by
the Subscriber shall occur on July 31, 1996. Notwithstanding the foregoing, the
parties hereto may mutually agree to extent the Closing to a later date, but in
no event later than August 31, 1996.
8. Representations, Warranties and Covenants of the Subscriber. Subscriber
hereby represents, warrants and covenants as follows:
a. In making the decision to invest in the Note, the Subscriber is
relying on, and will rely on, as the case may be, investigation of the
Company made by the Subscriber and the Subscriber's representatives. The
Subscriber acknowledges that the Subscriber has made as thorough and
complete an investigation of the Company and its business affairs and
management as the Subscriber considers prudent in the circumstances with
respect to investment in the Note, and that the Company has made available
all information that the undersigned needs in order to make an informed and
intelligent decision to acquire the Note. The Subscriber considers itself
to be an experienced and sophisticated investor not in need of the
protection afforded investors by the Act or applicable state securities
laws. The offer to sell the Note was communicated to the Subscriber in such
a manner that the subscriber was able to ask questions of and receive
answers from the management of the Company concerning the terms and
conditions of the proposed transaction and that at no time was the
Subscriber presented with or solicited by or through any offering circular,
prospectus, leaflet, public promotional meeting, television advertisement,
or any other form of general or public advertising or solicitation.
b. The Subscriber agrees with the Company that the stated interest
rate on the Note of 12% is the appropriate rate for discounting all
payments due on the Note and, accordingly, that the issue price of the Note
is equal to its stated principal amount (the effect of this agreement is
that the Notes will be deemed, for purpose of Section 1273 of the Internal
Revenue Code, to be issued without original issue discount).
c. The person executing this Agreement has requisite power and
authority to do so.
d. The address of the Subscriber set forth at the end of this
Agreement is the true and correct residence address or domicile address of
the Subscriber and the Subscriber has no present intention of becoming a
resident or domiciliary of any other state or jurisdiction.
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e. The Subscriber understands that the Note being purchased has not
been registered under the Act or any state securities laws, the Subscriber
cannot sell such Note unless registered under the Act and any applicable
state securities laws or unless exemptions from such registration
requirements are available; the Note is transferable only on the Note
register maintained by the Company; the Company will not transfer the Note
without first receiving evidence satisfactory to it that any proposed
transfer will comply with the provisions of the Act and any applicable
state securities laws; and the Subscriber agrees not to transfer the Note
without compliance with the provisions of the Act and any applicable state
securities laws.
f. The Subscriber is purchasing the Note for the Subscriber's own
account, for investment, and not for the interest of any other person and
not for the purpose of immediate resale.
g. The Subscriber has such knowledge and experience in financial and
business matters that the Subscriber is capable of evaluating the merits
and risks of an investment in the Note. The Subscriber understands that the
acquisition of the Note is a speculative investment and involves
substantial risk.
h. The undersigned hereby represents and warrants to the Company that
the undersigned is (i) an "accredited investor" (as defined in the Act)
because it is an "insurance company" (as defined in Section 2(13) of the
Act), and (ii) a "qualified institutional buyer" (as defined in Rule 144A
of the Act) because it is an "insurance company" (as defined in Section
2(13) of the Act) acting for its own account or the account of other
"qualified institutional buyers" that in the aggregate own and invest on a
discretionary basis at least $100 million in securities of issuers that are
not affiliated with the undersigned. At the Closing, Subscriber shall
provide to the Company such evidence as is requested by the Company to
establish that the Subscriber is a qualified institutional buyer under Rule
144A of the Act.
i. The Subscriber understands that there is no established market for
the Note and that such public markets will not develop.
9. Representations, Warranties and Covenants of the Company. The Company
hereby represents, warrants and covenants to the undersigned as follows:
a. The Company is duly incorporated, validly existing and in good
standing under the laws of the State of Colorado.
b. The Company has duly authorized the issuance and sale of the Note
in accordance with the terms of this Agreement by all requisite corporate
action.
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c. The Company shall not permit the placement of any lien on any
Contract or Vehicle acquired by the Company with the $8 million of the
purchase price of the Note, as set forth in Section 3(b) above.
10. Indemnification. The Subscriber and the Company (each as the
"Indemnitor" as applicable) each hereby agrees to indemnify and hold harmless
the other parties hereto, and each person who controls the other parties hereto,
against any and all loss, liability, claim, damage, and expense whatsoever
(including, but not limited to, any and all expenses whatsoever reasonably
incurred in investigating, preparing or defending against any litigation
commenced or threatened or any claim whatsoever) arising out of or based upon
any false representation or warranty or breach or failure by the Indemnitor to
comply with any covenant or agreement made by the Indemnitor herein or in any
other document furnished by the Indemnitor to the other in connection with this
transaction.
11. Form W-9 Certification. Under penalties of perjury, the Subscriber
hereby certifies that:
a. The Taxpayer Identification Number set forth below is its correct
number, and
b. It is not subject to backup withholding because (i) it is exempt
from backup withholding, or (ii) it has not been notified by the Internal
Revenue Service ("IRS") that it is subject to backup withholding as a
result of a failure to report all interest or dividends, or (iii) the IRS
has notified it that it is not longer subject to backup withholding.
12. Miscellaneous.
a. Acceptance of this Agreement by the Company is strictly subject to,
and shall be deemed invalid unless, the Company has obtained the waiver of
R A F Financial Corporation of its right of first refusal to underwrite
unsecured debt placement for the Company.
b. It is acknowledged by all of the parties hereto that the Selling
Agent is the agent of the Subscriber, not the Company, notwithstanding the
payment arrangement set forth in Section 4 above.
c. This Agreement shall be governed by and construed in accordance
with the laws of the State of Colorado.
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d. This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof, and may be amended only
by a writing executed by all parties hereto.
e. This Agreement and the representations and warranties contained
herein shall be binding upon, and inure to the benefit of, the successors
and permitted assigns of the undersigned.
Date: July 31, 1996.
SUBSCRIBER:
LAMAR LIFE INSURANCE COMPANY,
a Mississippi corporation
By: /s/ Jane L. Klingensmith
-----------------------------
Title: Jane L. Klingensmith
Second Vice President and
Cash Manager
SELLING AGENT:
WESTERN INTERNATIONAL SECURITIES,
INC., a Colorado corporation
By: /s/ Curtis A. Roberts
------------------------------
Curtis A. Roberts, President
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The Note is to be registered in
the following names at the
following address:
Lamar Life Insurance Company, Inc.
- -------------------------------
(Type or print name of Subscriber
in exact form to be used on the
records of the Company)
7887 E. Belleview Avenue
- ------------------------------
(Street Address)
Englewood, CO 80111
- -------------------------------
(City) (State) (Zip Code)
64-0188260
- ------------------------------
(Tax Identification Number or
Social Security Number of
Subscriber)
ACCEPTED this 31st day of July. 1996.
WESTERN FIDELITY FUNDING,
INC., a Colorado corporation
By: /s/ Gene E. Osborn
-------------------------------
Gene E. Osborn, President
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