<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 000-23725
BNC MORTGAGE, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0661303
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1063 McGaw Avenue Irvine, California 92614-5532
- -------------------------------------------------------------------------------
(Address of principal executive offices including ZIP Code)
(949) 260-6000
- -------------------------------------------------------------------------------
(Registrants' telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of May 17, 1999, the registrant had 5,092,350 outstanding shares of Common
Stock.
1
<PAGE> 2
BNC MORTGAGE, INC.
TABLE OF CONTENTS
TO FORM 10-Q
FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1999
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheet as of March 31, 1999 and June 30, 1998........................ 3
Consolidated Statement of Income for the Three Months and Nine Months Ended
March 31, 1999 and 1998................................................................ 4
Consolidated Statement of Cash flows for the Nine Months Ended
March 31, 1999 and 1998................................................................ 5
Notes to the Consolidated Financial Statements........................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.... 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................... 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings........................................................................ 17
Item 2. Changes in Securities.................................................................... 17
Item 3. Defaults Upon Senior Securities.......................................................... 17
Item 4. Submission of Matters to a Vote of Securities Holders.................................... 17
Item 5. Other Information........................................................................ 17
Item 6. Exhibits and Reports on Form 8-K......................................................... 17
(a) Exhibits.......................................................................... 17
(b) Reports on Form 8-K............................................................... 18
Signatures........................................................................................... 19
</TABLE>
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
BNC MORTGAGE, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, 1999 June 30, 1998
-------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ............................ $ 28,162,000 $ 25,890,000
Restricted cash ...................................... 1,100,000 638,000
Mortgage loans held for sale ......................... 129,390,000 98,717,000
Property and equipment, net .......................... 2,069,000 1,533,000
Intangible assets, net ............................... 1,492,000 --
Deferred income taxes ................................ 2,132,000 2,131,000
Notes receivable from officers ....................... 100,000 100,000
Other assets ......................................... 1,706,000 1,546,000
------------ ------------
Total assets ............................. $166,151,000 $130,555,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Warehouse lines-of-credit ............................ $125,356,000 $ 96,022,000
Accounts payable and accrued liabilities ............. 5,857,000 2,880,000
Income taxes payable ................................. 1,739,000 802,000
------------ ------------
Total liabilities ........................ 132,952,000 99,704,000
------------ ------------
Stockholders' equity:
Preferred stock, $0.001 par value:
Authorized shares -- 5,000,000
Issued and outstanding shares -- none at
March 31, 1999 and June 30, 1998 ..................... -- --
Series A Junior Participating Preferred Stock,
$0.001 par value:
Authorized Shares -- 570,000
Issued and outstanding shares -- none at
March 31, 1999 and June 30, 1998 ..................... -- --
Common stock, voting $0.001 par value:
Authorized Shares -- 50,000,000
Issued and outstanding shares 5,359,250 at
March 31, 1999 and 5,875,979 at June 30, 1998 ........ 6,000 6,000
Additional paid in capital ........................... 13,234,000 16,193,000
Retained earnings .................................... 19,959,000 14,652,000
------------ ------------
Total stockholders' equity ............... 33,199,000 30,851,000
------------ ------------
Total liabilities and stockholders' equity $166,151,000 $130,555,000
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
BNC MORTGAGE, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------------- -----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Gain on sale of mortgage loans .................... $ 5,498,000 $ 7,598,000 $27,738,000 $21,141,000
Loan origination income ........................... 1,927,000 887,000 5,615,000 3,654,000
Interest income ................................... 2,494,000 2,145,000 5,893,000 5,592,000
Other income ...................................... 353,000 129,000 1,122,000 349,000
----------- ----------- ----------- -----------
Total revenues ........................ 10,272,000 10,759,000 40,368,000 30,736,000
----------- ----------- ----------- -----------
Expenses:
Employees' salaries and commissions ............... 5,221,000 4,825,000 18,363,000 13,151,000
General and administrative expenses ............... 2,452,000 1,968,000 9,430,000 5,225,000
Interest expense .................................. 1,547,000 1,443,000 3,755,000 3,914,000
----------- ----------- ----------- -----------
Total expenses ........................ 9,220,000 8,236,000 31,548,000 22,290,000
----------- ----------- ----------- -----------
Income before income taxes ........................ 1,052,000 2,523,000 8,820,000 8,446,000
Income tax expense ................................ 410,000 997,000 3,513,000 3,389,000
----------- ----------- ----------- -----------
Net income ............................ $ 642,000 $ 1,526,000 $ 5,307,000 $ 5,057,000
=========== ----------- =========== ===========
Net income per share basic ........................ $ 0.12 $ 0.34 $ 0.94 $ 1.20
=========== =========== =========== ===========
Net income per share diluted ...................... $ 0.12 $ 0.33 $ 0.94 $ 1.16
=========== =========== =========== ===========
Weighted average number of shares used in computing
Net income per share:
Basic Shares .......................... 5,418,000 4,486,000 5,613,000 4,229,000
=========== ----------- =========== ===========
Diluted Shares ........................ 5,418,000 4,635,000 5,613,000 4,378,000
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
4
<PAGE> 5
BNC MORTGAGE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
----------------------------------
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ......................................................... $ 5,307,000 $ 5,057,000
Adjustment to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation ............................................. 662,000 309,000
Amortization ............................................. 8,000 --
Origination of mortgage loans held for sale .............. (877,100,000) (536,216,000)
Sales and principal repayments of mortgage loans
held for sale ........................................... 846,032,000 512,531,000
Deferred loan origination fees ........................... 395,000 --
Change in accounts payable and accrued liability ......... 2,977,000 1,201,000
Change in income taxes payable ........................... 937,000 (117,000)
Change in deferred income taxes .......................... (1,000) (165,000)
Change in notes receivable from officers ................. -- (250,000)
Change in other assets ................................... (160,000) (604,000)
------------- -------------
Total adjustments .................................................... (26,250,000) (23,311,000)
------------- -------------
Net cash used in operating activities ................................ (20,943,000) (18,254,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ................................................. (654,000) (766,000)
Purchase of America's Lender, Inc. ................................... (2,044,000) --
------------- -------------
Net cash used in investing activities ................................ (2,698,000) (766,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in warehouse lines of credit .............................. 29,334,000 16,959,000
Payment of dividends on preferred stock .............................. -- (74,000)
Repurchase of common stock ........................................... (2,959,000) (132,000)
Repurchase of preferred stock ........................................ -- (1,575,000)
Net proceeds from initial public offering ............................ -- 16,188,000
Increase in restricted cash .......................................... (462,000) (623,000)
------------- -------------
Net cash provided by financing activities ............................ 25,913,000 30,743,000
------------- -------------
Net increase in cash and cash equivalents ............................ 2,272,000 11,723,000
Cash and cash equivalents, beginning of the period ................... 25,890,000 8,268,000
------------- -------------
Cash and cash equivalents, end of the period ......................... $ 28,162,000 $ 19,991,000
============= =============
</TABLE>
See accompanying notes.
5
<PAGE> 6
BNC MORTGAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
* * * * *
DESCRIPTION OF THE BUSINESS
BNC Mortgage, Inc. ("BNC" or the "Company"), is a specialty finance company
engaged in the business of originating, purchasing and selling, on a whole loan
basis for cash, non-conforming and, to a lessor extent, conforming, residential
mortgage loans secured by one-to-four family residences. The term
"non-conforming loans" as used herein means (i) subprime loans, which are loans
made to borrowers who are unable or unwilling to obtain mortgage financing from
conventional mortgage sources, whether for reasons of credit impairment, income
qualification, credit history or a desire to receive funding on an expedited
basis and (ii) non-conforming loan products for primarily high credit borrowers
whose credit scores equal or exceed levels required for the sale or exchange of
their mortgage loans through the Federal National Mortgage Association ("FNMA")
and Federal Home Loan Mortgage Corporation ("FHLMC"), but where the loan itself
fails to meet conventional mortgage guidelines, such as the principal balance
exceeds the maximum loan limit of $240,000 or the loan structure documentation
does not conform to agency requirements. The Company's loans are made primarily
to refinance existing mortgages, consolidate other debt, finance home
improvements, education and other similar needs, and, to a lesser extent, to
purchase single family residences. The Company has two divisions: (i) a
wholesale subprime division which has relationships with approximately 4,593
approved independent loan brokers and which to date has accounted for the
substantial portion of the Company's total loan originations, (ii) a wholesale
prime division which originates non-conforming loan products and which are not
subprime loans.
Mortgage Logic.com, Inc. ("ML.COM"), a wholly owned subsidiary of BNC, is
engaged in the business of originating, purchasing and selling, on a whole loan
basis for cash, primarily conforming loans that meet FNMA, FHLMC and other
conventional mortgage guidelines and non-conforming loan products which are not
subprime loans.
The Company currently sells all of its mortgage loans to institutional
purchasers such as investment banks, real estate investment trusts and other
large mortgage bankers for cash through whole loan sales.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and in accordance with the instructions to Form 10-Q and Regulation S-X. In the
opinion of management, all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the results for the interim
periods have been included. The results of operations for the interim periods
are not necessarily indicative of the results to be expected for the full year.
In addition, this document should be read in conjunction with the financial
statements and footnotes included in the Company's Form 10-K for the fiscal year
ended June 30, 1998.
The preparation of the financial statements of the Company requires management
to make estimates and assumptions that affect reported amounts. These estimates
are based on information available as of the date of the financial statements.
Therefore, actual results could differ from those estimates.
6
<PAGE> 7
BNC MORTGAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are collateralized by first and second trust deeds
on underlying real properties and are used as collateral for the Company's
borrowings. Approximately 49.8% of these properties are located in California
as of March 31, 1999. Mortgage loans held for sale include net deferred fees of
$373,000 and $769,000 at March 31, 1999 and June 30, 1998, respectively.
3. WAREHOUSE LINES OF CREDIT
The Company has entered into a Warehouse Line of Credit Agreement with DLJ
Mortgage Capital, Inc. ("DLJ"), which provides for borrowings up to $150.0
million and terminates on March 16, 2000. Borrowings under this line of credit
are collateralized by mortgage loans held for sale. Up until March 16, 1999,
interest was payable monthly at the Federal Funds rate plus 50 basis points and
thereafter at the Federal Funds rate plus 100 basis points. As of March 31,
1999, the outstanding borrowings were $93.0 million and the interest rate was
6.125%.
In February 1999, the Company entered into a warehouse line of credit agreement
with Bank United, which provides for borrowings up to $50.0 million and expires
on February 1, 2000. The facility bears interest at a floating rate based on the
London Interbank Offered Rate ("LIBOR") and has a commitment fee of $125,000.
The facility contains a number of financial covenants including: (i) the Company
maintain tangible net worth equal to at least $25.0 million, (ii) the ratio of
total liabilities to adjusted tangible net worth may not exceed 15:1, and (iii)
other affirmative, negative and financial covenants typical of similar credit
facilities. As of March 31, 1999, the outstanding borrowings were $7.5 million,
and the interest rate was 6.440%.
In March 1999, the Company entered into a warehouse line of credit agreement
with Residential Funding Corporation ("RFC"), which provides for borrowings up
to $50.0 million and expires on March 1, 2000. The facility bears interest at a
floating rate based on LIBOR and has a commitment fee of $67,500. The facility
contains a number of financial covenants including: (i) the Company maintain a
tangible net worth equal to at least $25.0 million, (ii) the ratio of total
liabilities to adjusted tangible net worth may not exceed 15:1, (iii) net income
per quarter must exceed $1.00, and (iv) other affirmative, negative and
financial covenants typical of similar credit facilities. As of March 31, 1999,
outstanding borrowings were $23.1 million and the interest rate was 6.439%.
In March 1999, the Company entered into a $50.0 million uncommitted master
repurchase credit facility agreement with Paine Webber Real Estate Securities,
Inc. ("PWRS"). The facility bears interest at a floating rate based on LIBOR. As
of March 31, 1999, the outstanding borrowings were $1.8 million, and the
interest rate was 6.086%.
4. COMMITMENTS AND CONTINGENCIES
FORWARD LOAN SALES COMMITMENTS
The Company has entered into a forward loan sale contract with an investment
bank under which it can deliver up to $361.8 million in subprime loans. As of
March 31, 1999, the Company had sold $115.6 million in loans under this
commitment which expires in July 1999.
In June 1998, the Company entered into a $50.0 million optional delivery master
commitment to sell certain nonconforming mortgage loans at current market rates
to Impac Funding Corporation. The forward sales commitment is for a 12 month
period and provides an option to increase the commitment to $100.0 million. The
Company paid a commitment fee of $63,000 which was recorded as an asset and will
be amortized as the loans are sold into the commitment. At March 31, 1999, $14.6
million in loans had been sold under this commitment. Joseph R. Tomkinson, a
Director of BNC Mortgage, Inc., is also the Chairman and Chief Executive Officer
of Impac Funding Corporation.
REPURCHASE OBLIGATION
The Company engages in bulk loan sales pursuant to agreements that generally
require the Company to repurchase or substitute loans in the event of a breach
of a representation or warranty made by the Company to the loan purchaser, any
misrepresentation during the mortgage loan origination process or, in some
cases, upon any fraud or first payment default on such mortgage loans. A reserve
for potential repurchases of $1.5 million and $500,000 at March 31, 1999 and
June 30, 1998, respectively, is included in accounts payable and accrued
liabilities.
7
<PAGE> 8
BNC MORTGAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ACQUISITION
The Company acquired the origination platform and certain assets and liabilities
of America's Lender, Inc. on February 26, 1999. The Company paid $2.0 million in
cash and has agreed to pay up to an additional $1.0 million based upon net loan
originations achieved during the 12 month period after the closing. The Company
deposited $500,000 into an interest bearing escrow account to collateralize the
future obligation. The acquisition was accounted for using purchase accounting.
Accordingly, the purchase price was allocated to the assets acquired by the
Company based on the fair market value. The excess of the purchase price over
the fair value of the assets acquired of $1.5 million is recorded as goodwill
and is being amortized over 15 years on a straight line basis.
5. SUBSEQUENT EVENTS
COMMON STOCK REPURCHASE PLAN
The Company's Board of Directors has authorized the Company to repurchase up to
$5.0 million of the Company's common stock in open market purchases from time to
time at the discretion of the Company's management. As of March 31, 1999, the
Company had repurchased 516,729 shares of Common Stock at a cost of $3.0
million. Subsequent to March 31, 1999, the Company repurchased 266,900 shares of
common stock at a cost of $1.2 million.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
consolidated financial statements and notes included in Item 1 of this 10-Q.
Except for the historical information contained herein, this Form 10-Q contains
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ materially. Such risks and uncertainties include, but
are not limited to, changes in the performance of the financial markets, changes
in the demand for and market acceptance of the Company's products, changes in
the mortgage lending industry or changes in general economic conditions,
including interest rates; the impact of competition; changes in the value of
real estate; the ability to maintain and increase sources of funding; and other
risks disclosed from time to time in the Company's SEC reports and filings.
Forward-looking statements used in this report can be identified by the use of
words such as: "could," "may," "will," "expects," "believes," and the negatives
or derivatives thereof, and similar expressions. Investors are encouraged to
fully examine such risks prior to making an investment decision in the Company's
securities.
GENERAL
BNC Mortgage, Inc. ("BNC" or the "Company"), is a specialty finance company
engaged in the business of originating, purchasing and selling, on a whole loan
basis for cash, non-conforming and, to a lessor extent, conforming, residential
mortgage loans secured by one-to-four family residences. The term
"non-conforming loans" as used herein means (i) subprime loans, which are loans
made to borrowers who are unable or unwilling to obtain mortgage financing from
conventional mortgage sources, whether for reasons of credit impairment, income
qualification, credit history or a desire to receive funding on an expedited
basis and (ii) non-conforming loan products for primarily high credit borrowers
whose credit scores equal or exceed levels required for the sale or exchange of
their mortgage loans through the Federal National Mortgage Association ("FNMA")
and Federal Home Loan Mortgage Corporation ("FHLMC"), but where the loan itself
fails to meet conventional mortgage guidelines, such as the principal balance
exceeds the maximum loan limit of $240,000 or the loan structure documentation
does not conform to agency requirements. The Company's loans are made primarily
to refinance existing mortgages, consolidate other debt, finance home
improvements, education and other similar needs, and, to a lesser extent, to
purchase single family residences. The Company has two divisions: (i) a
wholesale subprime division which has relationships with approximately 4,593
approved independent loan brokers and which to date has accounted for the
substantial portion of the Company's total loan originations, (ii) a wholesale
prime division which originates non-conforming loan products which are not
subprime loans.
On February 26, 1999, the Company acquired the origination platform and certain
assets and liabilities of America's Lender, Inc. The America's Lender
origination platform is operated as a wholly owned subsidiary named Mortgage
Logic.com, Inc. ("ML.COM"), and is engaged in the business of originating,
purchasing and selling, on a whole loan basis for cash, primarily conforming
loans that meet FNMA, FHLMC and other conventional mortgage guidelines and
non-conforming loan products which are not subprime loans ("prime mortgage
loans"). ML.COM currently originates loans in California and has one origination
location.
During the quarter ended March 31, 1999, the Company's wholesale prime division
reduced staffing by 50% and discontinued marketing conforming loans in order to
refocus its efforts towards originating non-conforming loan products which are
not subprime loans. The Company also discontinued its retail division marketing
efforts.
Approximately 28.9% of total loan production for the three months ended March
31, 1999 consisted of conforming loans. Substantially all of the Company's
mortgage loan originations are sold in the secondary market through loan sales
in which the Company disposes of its entire economic interest in the loans
including the related servicing rights for cash. As a result of this strategy,
the Company receives cash revenue, rather than recognizing non-cash revenue
attributable to residual interests in future loan payments on the loan, as is
the case with securitizations.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The following table shows the Company's mortgage loan originations including
brokered loans, mortgage loan sales, cash gain on sale of mortgage loans and
origination locations with account executives for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
(Dollars in Thousands) (Dollars in Thousands)
<S> <C> <C> <C> <C>
Mortgage loan originations:
Subprime .............................. $243,835 $176,873 $717,533 $531,446
Prime ................................. 99,352 4,770 163,542 4,770
-------- -------- -------- --------
$343,187 $181,643 $881,075 $536,216
======== ======== ======== ========
Mortgage loan sales:
Subprime .............................. $212,999 $178,607 $705,026 $511,653
Prime ................................. 75,021 -- 141,006 --
-------- -------- -------- --------
$288,020 $178,607 $846,032 $511,653
======== ======== ======== ========
Gain on sale of mortgage loans:
Subprime .............................. $ 5,339 $ 7,596 $ 26,997 $ 21,139
Prime ................................. 159 2 741 2
-------- -------- -------- --------
$ 5,498 $ 7,598 $ 27,738 $ 21,141
======== ======== ======== ========
Origination locations at end of period .. 52 46 52 46
======== ======== ======== ========
</TABLE>
The major components of the Company's revenues are (i) the volume of loans
originated, (ii) the premium over principal amount received in loan sales, (iii)
origination points received or paid, (iv) origination fees received and (v) the
differential between the interest rate on borrowings under revolving warehouse
credit facilities and the interest rate of loans held for sale. Cash gain on
sale of mortgage loans is affected by, among other things, borrower credit risk
classification, loan- to-value ratio, interest rate and margin of the loans.
Total revenues decreased 4.5% to $10.3 million for the three months ended March
31, 1999 as compared to $10.8 million for the three months ended March 31, 1999.
The major components of expenses are employees' salaries and commissions,
general and administrative, and interest. Employees' salaries and commissions,
for the three months ended March 31, 1999 and 1998 accounted for 56.6% and 58.6%
of total expenses, respectively. Employees' salaries and commissions are
primarily related to the loan origination volume because the Company's sales
force is compensated on a commission basis in addition to salaries. Total
expenses increased to $9.2 million for the three months ended March 31, 1999,
compared to $8.2 million for the three months ended March 31, 1999.
The Company's net income decreased to 57.9% to $642,000 for the three months
ended March 31, 1999, compared to $1.5 million for the three months ended March
31, 1998. The decrease in net income resulted primarily from a reduction in the
cash gain on sale of mortgage loans during the period due to secondary marketing
conditions.
Increased competition in the non-conforming mortgage industry could have the
effect of (i) lowering gains that may be realized on loan sales through lower
cash premiums paid for loans or an increase in demand for yield spread premium
paid to the mortgage brokers, (ii) reducing an individual company's volume of
loan originations and sales, (iii) increasing demand for experienced personnel
increasing the likelihood such personnel will be recruited by competitors and
(iv) lowering the industry standard for non-conforming underwriting guidelines
as competitors attempt to increase or maintain market share in the face of
increased competition. In the past, certain of these factors have caused the
revenues and net income of many participants in the non-conforming mortgage
industry, including the Company, to fluctuate from quarter to quarter.
The mortgage loan industry experienced significant turmoil during the nine
months ended March 31, 1999 due to a lack of liquidity in the mortgage and
asset-backed securitization market. These developments in the mortgage and
asset-backed securitization markets have caused a tightening in the pricing of
whole loan sales as many mortgage securitizers have been forced to sell their
loans on a whole loan basis for cash. Average prices offered by third parties
for mortgage loans in the first quarter of 1999 have been less than that which
the Company received in the prior quarter.
In the event that declines in whole loan pricing continue, the Company expects
to see a decrease in its cash gain on sale of mortgage loans in future quarters.
If the Company is unable to increase its mortgage loan origination volume
commensurate with such pricing declines, the Company's net income would be
adversely affected. The Company made certain internal adjustments in response to
market conditions in the mortgage industry. The Company reduced yield spread
premiums paid to brokers and compensation paid to employees. The Company also
reduced its employees, raised interest rates and increased origination fees
charged to borrowers to boost profitability. While the Company would also expect
to receive some benefit from these and other adjustments with regard to
profitability of its mortgage loan originations, the effect of these adjustments
may have an adverse effect on future mortgage loan production.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1998
REVENUES. The following table sets forth the components of the Company's
revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1999 1998
------- -------
(In Thousands)
<S> <C> <C>
Gain on sale of mortgage loans... $ 5,498 $ 7,598
Loan origination income ......... 1,927 887
Interest income ................. 2,494 2,145
Other income .................... 353 129
------- -------
$10,272 $10,759
======= =======
</TABLE>
The increase in revenues was due primarily to increased mortgage loan
originations, loan origination income and cash gain on sales of mortgage loans.
Mortgage loan originations increased $161.6 million to $343.2 million for the
three months ended March 31, 1999 from $181.6 million for the three months ended
March 31, 1998. There can be no assurance that the Company will recognize
comparable levels of revenues and mortgage loan originations in future periods.
Cash gain on sale of mortgage loans decreased $2.1 million to $5.5 million for
the three months ended March 31, 1999 from $7.6 million for the three months
ended March 31, 1998. The decrease was due primarily to a decline in the average
cash premium paid for non-conforming mortgage loans. The weighted average cash
premium paid for non-conforming mortgage loans sold was 3.43% for the three
months ended March 31, 1999 and 5.64% for the three months ended March 31, 1998.
The Company makes yield spread premium payments to its mortgage broker customers
in the ordinary course of business. These payments have decreased in recent
periods, which offset the decline in cash premiums paid for non-conforming
mortgage loans for the three months ended March 31, 1999. The weighted average
yield spread premiums paid as a percentage of non-conforming mortgage loans sold
for the three months ended March 31, 1999 was 0.92% and for the three months
ended March 31, 1998 was 1.39%. The Company received some benefit from recent
reduction in yield spread premiums payable to brokers in the quarter ended March
31, 1999. There can be no assurance that the Company will recognize comparable
levels of cash gain on sale of mortgage loans in future periods or that yield
spread premium payments will continue to decline. The weighted average cash
premiums paid for prime mortgage loans sold was 0.93% and the weighted average
yield spread premium as a percentage of prime mortgage loans sold was 0.71% for
the three months ended March 31, 1999.
Loan origination income increased to $1.9 million for the three months ended
March 31, 1999 from $887,000 for the three months ended March 31, 1998. As a
percentage of total revenues, loan origination income for the three months ended
March 31, 1999 increased to 18.8% as compared to 8.2% for the three months ended
March 31, 1998. This increase was primarily due to a decrease in cash gain on
sale of mortgage loans. Loan originations may be adversely affected in future
periods as a result of a decrease in yield spread premiums payable to brokers
and raised interest rates charged to borrowers.
Interest income increased $400,000 to $2.5 million for the three months ended
March 31, 1999 from $2.1 million for the three months ended March 31, 1998. This
decrease is due to the Company changing its policy of selling its loans on the
secondary market from a monthly basis to a bi-monthly basis.
Other income, which is comprised of investment income, prepayment penalties and
late charges, increased to $353,000 for the three months ended March 31, 1999 as
compared to $129,000 for the three months ended March 31, 1998 largely as a
result of interest earned on the net proceeds from the Offering completed on
March 10, 1998.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
EXPENSES. The following table sets forth the components of the Company's
expenses for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1999 1998
------ ------
(In Thousands)
<S> <C> <C>
Employees' salaries and commissions... $5,221 $4,825
General and administrative expenses... 2,452 1,968
Interest expense ..................... 1,547 1,443
------ ------
$9,220 $8,236
====== ======
</TABLE>
Total expenses increased to $9.2 million for the three months ended March 31,
1999 from $8.2 million for the three months ended March 31, 1998. This increase
is primarily related to an increase in mortgage loan originations.
Employee salaries and commissions increased $400,000 to $5.2 million during the
three months ended March 31, 1999 from $4.8 million for the three months ended
March 31, 1998. The primary reason for the increase was due to an increase in
mortgage loan originations.
General and administrative expenses increased $500,000 to $2.5 million for the
three months ended March 31, 1999 from $2.0 million for the three months ended
March 31, 1998. The primary reason for the increase was due to an increase in
mortgage loan originating.
Interest expense increased $100,000 to $1.5 million for the three months ended
March 31, 1999 from $1.4 million for the three months ended March 31, 1998. This
decrease is due to the increase in mortgage loan originations.
NINE MONTHS ENDED MARCH 31, 1999 COMPARED TO NINE MONTHS ENDED MARCH 31, 1998
REVENUES. The following table sets forth the components of the Company's
revenues for the periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
---------------------
1999 1998
------- -------
(In Thousands)
<S> <C> <C>
Gain on sale of mortgage loans... $27,738 $21,141
Loan origination income ......... 5,615 3,654
Interest income ................. 5,893 5,592
Other income .................... 1,122 349
------- -------
$40,368 $30,736
======= =======
</TABLE>
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The increase in revenues was due primarily to increased mortgage loan
originations and cash gain on sales of mortgage loans. Mortgage loan
originations increased $344.9 million to $881.1 million for the nine months
ended March 31, 1999 from $536.2 million for the nine months ended March 31,
1998. There can be no assurance that the Company will recognize comparable
levels of revenues and mortgage loan originations in future periods.
Cash gain on sale of mortgage loans increased $6.6 million to $27.7 million for
the nine months ended March 31, 1999 from $21.1 million for the nine months
ended March 31, 1998. The increase was due primarily to a $334.3 million
increase in mortgage loan sales to $846.0 from $511.7 million for the nine
months ended March 31, 1999 and 1998, respectively. The weighted average cash
premium paid for non-conforming mortgage loans sold was 4.86% for the nine
months ended March 31, 1999 and 5.58% for the nine months ended March 31, 1998.
There can be no assurance that the Company will recognize comparable levels of
cash gain on sale of mortgage loans in future periods. The Company makes yield
spread premium payments to its mortgage broker customers in the ordinary course
of business. Due to competitive conditions, these payments have decreased in
recent periods, which offset the decline in cash premiums paid for
non-conforming mortgage loans for the nine months ended March 31, 1999. The
weighted average yield spread premiums paid as a percentage of non-conforming
mortgage loans sold was 1.03% and 1.45% for the nine months ended March 31, 1999
and 1998, respectively. The Company expects to receive some benefit from recent
reduction in yield spread premiums payable to brokers. However, this may be
offset in part by decreases in prices paid for the Company's loans by third
parties. The weighted average cash premium paid for prime mortgage loans sold
was 1.02% and the weighted average yield spread premium paid as a percentage of
prime mortgage loans sold was 0.49% for the nine months ended March 31, 1999.
Loan origination income increased to $5.6 million for the nine months ended
March 31, 1999 from $3.7 million for the nine months ended March 31, 1998. As a
percentage of total revenues, loan origination income for the nine months ended
March 31, 1999 increased to 13.9% as compared to 11.9% for the nine months ended
March 31, 1998. This increase was primarily a result of an increase in loan
originations and a result of competitive conditions as management was required
to lower the amount of origination points and fees charged on its loan products
to satisfy mortgage broker and consumer demands. Loan originations may be
adversely affected in future periods as a result of a decrease in yield spread
premiums payable to brokers and raised interest rates charged to borrowers.
Interest income increased $300,000 to $5.9 million for the nine months ended
March 31, 1999.
Other income, which is comprised of investment income, prepayment penalties and
late charges, increased to $1.1 million for the nine months ended March 31, 1999
as compared to $349,000 for the nine months ended March 31, 1998 largely as a
result of interest earned on the net proceeds from the Offering completed on
March 10, 1998.
EXPENSES. The following table sets forth the components of the Company's
expenses for the periods indicated:
<TABLE>
<CAPTION>
Nine months ended
March 31,
---------------------
1999 1998
------- -------
(In Thousands)
<S> <C> <C>
Employees' salaries and commissions... $18,363 $13,151
General and administrative expenses... 9,430 5,225
Interest expense ..................... 3,755 3,914
------- -------
$31,548 $22,290
======= =======
</TABLE>
Total expenses increased to $31.5 million for the nine months ended March 31,
1999 from $22.3 million for the nine months ended March 31, 1998. This increase
is related to geographical expansion to 52 origination locations at March 31,
1999 from 46 at March 31, 1998, and to an increase in mortgage loan
originations.
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Employee salaries and commissions increased $5.2 million to $18.4 million during
the nine months ended March 31, 1999 from $13.2 million for the nine months
ended March 31, 1998. The primary reason for the increase was due to an increase
in mortgage loan originations and a higher level of geographical expansion for
the nine months ended March 31, 1999.
General and administrative expenses increased $4.2 million to $9.4 million for
the nine months ended March 31, 1999 from $5.2 million for the nine months ended
March 31, 1998. This increase is due primarily to an increase in the number of
origination locations and the related increase in mortgage loan originations.
Interest expense decreased $100,000 to $3.8 million for the nine months ended
March 31, 1999 from $3.9 million for the nine months ended March 31, 1998. This
decrease is due to the Company changing its policy of selling its loans on the
secondary market from a monthly basis to a bi-monthly basis.
YEAR 2000
The Company has performed a review of its internal systems to identify and
resolve the effect of Year 2000 software issues on the integrity and reliability
of the Company's financial and operational systems. Based on this review,
management believes that its internal systems are substantially compliant with
the Year 2000 issues. In addition, the Company is also communicating with its
principal service providers to ensure Year 2000 issues will not have an adverse
impact on the Company. Service providers which the Company is reviewing for year
2000 compliance includes payroll, loan servicing and telecommunications. The
Company however, cannot be assured that these third party
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
providers won't have other problems internally, which could have an adverse
impact on the Company. Presently, the Company does not have a contingency plan
to handle the worst case scenarios, but it intends to create one by the end of
fiscal year 1999. Based upon its internal review and communications with
external service providers, the Company believes that the costs of achieving
Year 2000 compliance will not have a material adverse impact on the Company's
business, operations or financial condition.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of cash flow include cash gain on sale of mortgage loans,
origination income, net interest income and borrowings. The Company sells its
mortgage loans generally on a monthly basis to generate cash for operations. The
Company's uses of cash in the short-term include the funding of mortgage loan
originations, payment of interest, repayment of amounts borrowed under warehouse
lines of credit, operating and administrative expenses, start-up costs for new
origination locations, income taxes and capital expenditures. Long-term uses of
cash may also include the funding of securitization activities and selective
acquisitions of other specialty finance companies or portfolios of loan assets.
The Company acquired certain assets and liabilities of America's Lender, Inc. on
February 26, 1999. In connection with the acquisition, the Company paid $2.0
million and agreed to pay up to an additional $1.0 million due 12 months after
the date of closing. There can be no assurance that any future acquisitions will
be consummated.
Capital expenditures totaled $654,000 and $766,000 for the nine months ended
March 31, 1999 and 1998, respectively. Capital expenditures were primarily
comprising furniture, fixtures and equipment software and leasehold
improvements.
Cash and cash equivalents were $28.2 million at March 31, 1999. The Company
invests its cash in short-term investments maintaining flexibility for funding
of loan originations and strategic opportunities. In March 1998 the Company
concluded its initial public offering and received net proceeds of $16.2 million
from the Offering. As of March 31, 1999, of these proceeds, approximately $9.5
million was used to fund loan originations, acquire Americas Lender, Inc., and
the remaining balance has been invested in short-term investments.
The Company funds its operations through cash reserves, loan sales, net earnings
and a revolving warehouse credit facility with DLJ, under which it borrows money
to finance the origination of mortgage loans. As of March 31, 1999, the
Company's facility with DLJ ("the DLJ Facility") provide borrowings up to $150.0
million and terminates on March 16, 2000. The DLJ Facility bears interest at the
Federal Funds rate plus 50 basis points through March 16, 1999 and thereafter,
the Federal Funds rate plus 100 basis points. It is expected that the DLJ
Facility will not be extended beyond the term. The Company has entered into a
LIBOR-based warehouse credit agreement with Bank United, which provides for
borrowings up to $50.0 million and expires on February 1, 2000. The Company has
entered into a LIBOR-based warehouse credit agreement with Residential Funding
Corporation which provides for borrowings up to $50.0 million and expires on
March 1, 2000. The Company has entered into a $50.0 million uncommitted
repurchase credit facility agreement with Paine Webber Real Estate Securities,
Inc. The Company is currently negotiating with other lenders to obtain
additional warehouse lines of credit with interest rates and terms that are
consistent with management's objectives. The Company repays borrowings with
proceeds from its loan sales. As of March 31, 1999 the balanced owing under all
of the Company's warehouse lines of credits was $125.4 million.
During the nine months ended March 31, 1999 and 1998, the Company used cash of
$877.1 million and $536.2 million, respectively, for new loan originations.
During the same periods, the Company received cash proceeds from the sale of
loans of $846.0 million and $512.5 million, respectively, representing the
principal balance of loans sold. The Company received cash proceeds from the
premiums on such sale of loans of $27.7 million and $21.1 million, for the nine
months ended March 31, 1999 and 1998, respectively.
The Company's ability to continue to originate loans is dependent in large part
upon its ability to sell the mortgage loans at par or for a premium in the
secondary market in order to generate cash proceeds to repay borrowings under
the warehouse facility, thereby creating borrowing capacity to fund new
originations. The value of and market for the Company's loans are dependent upon
a number of factors, including the borrower credit risk classification,
loan-to-value ratios and interest rates, general economic conditions, warehouse
facility interest rates and governmental regulations.
The Company's forward loan sale contract with an investment bank under which it
can deliver up to $246.2 million in loans expires in July 1999.
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Turmoil in the mortgage and asset-backed securitization market has caused a
tightening in the pricing of whole loan sales as many mortgage securitizers have
been forced to sell their loans on a whole loan basis for cash. Prices paid for
the Company's loans in the first quarter of 1999 have been less than that which
the Company received under that forward sales commitment which expired on
December 31, 1999. In the event that declines in the whole loan pricing
continue, the Company would expect to see a decrease in cash gain on sale of
mortgage loans in future quarters. If the Company is unable to increase its
mortgage loan origination volume commensurate with such pricing guidelines, the
Company's net income would be adversely affected. The Company would also expect
to see some benefit from adjustments made to the yield spread premiums paid to
brokers, employee compensation, interest rates charged to borrowers and other
adjustments. However, the effect of these adjustments may have an adverse effect
on mortgage loan production in future periods.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DISCLOSURE ABOUT MARKET RISK
The Company's earnings can be affected significantly by the movement of interest
rates, which is the primary component of market risk to the Company. The
interest rate risk affects the value of the mortgage loans held for sale, net
interest income earned on its mortgage inventory, interest income earned on idle
cash, interest expense and cash gain on sale of mortgage loans, as well as
consumer demand for mortgage loan production.
As it relates to lending activities, the Company originates mortgage loans,
which are generally presold through forward loan sales commitments. However,
between the time that the loan is originated and sold to the ultimate investor,
the Company earns interest income. The loans are funded through the use of the
warehouse lines of credit, and the interest charged by the lenders is generally
based upon short-term interest rates. Therefore, the net interest income that is
earned by the Company is generally dependent upon the spread between long-term
mortgage rates and short-term mortgage rates.
The Company currently does not maintain a trading portfolio. As a result, the
Company is not exposed to market risk as it relates to trading activities. The
majority of the Company's loan portfolio is held for sale which requires the
Company to perform quarterly market valuations of its portfolio in order to
properly record the portfolio at the lower of cost or market. Therefore, the
Company continually monitors the interest rates of its loan portfolio as
compared to prevalent interest rates in the market.
The Company currently does not enter into any hedging activities as it currently
sells its loan production on a monthly basis.
Based on the information available and the interest environment as of March 31,
1999, the Company believes that a 100 basis point increase in long-term interest
rates over a twelve month period, with all else being constant, would have an
adverse effect on the pricing for the Company's whole loan sales. Therefore, the
Company believes that its net income could be adversely affected in the range of
$1.3 to $2.5 million. However, the Company believes that a 100 basis point
decrease in long-term interest rates over a twelve-month period may not result
in a similar increase of its net income. These estimates are limited by the fact
that they are performed at a particular point in time and incorporate many other
factors and thus should not be used as a forecast. Therefore, there can be no
assurance that the amount of such decrease would not substantially vary from
these estimates.
16
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings - The Company is a party to various routine legal
proceedings arising out of the ordinary course of its business.
Management believes that none of these actions, individually or in the
aggregate, will have a material adverse effect on the consolidated
financial condition or results of operations of the Company.
ITEM 2. Changes in Securities - See Management Discussion and Analysis of
Financial Condition and Results of Operation Liquidity and Capital
Resources for a discussion of the use of proceeds from the Company's
initial public offering.
ITEM 3. Defaults upon Senior Securities - Not Applicable
ITEM 4. Submission of Matters to a Vote of Security Holders - Not Applicable
ITEM 5. Other Information - Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Warehouse Credit and Security Agreement (Single Family
Mortgage Loans), dated March 1, 1999 between BNC
Mortgage, Inc., a Delaware corporation and Mortgage
Logic.com, Inc., a California corporation and
Residential Funding Corporation, a Delaware corporation.
10.2 Purchase Agreement dated as of December 21, 1998 by and
between the Registrant, Mortgage Logic.com, Inc. and the
America's Lender, Inc., Keith Guy and SHL Holdings, Inc.
10.3 Non-Competition Agreement dated as of February 26, 1999,
by and between the Registrant, Mortgage Logic.com, Inc.
and the America's Lender, Inc., Keith Guy and SHL
Holdings, Inc.
10.4 Licensing and Web Site Hosting Agreement dated as of
February 26, 1999, by and between the Mortgage
Logic.com, Inc. and TrueLink, Inc.
10.5 Credit Bureau Services Agreement dated as of February
26, 1999, by and between the Registrant, Mortgage
Logic.com, Inc. and TrueLink, Inc.
17
<PAGE> 18
PART II - OTHER INFORMATION CONTINUED
11.1 Statement regarding computation of per share earnings
21.1 Subsidiaries of the Registrant
27.1 Financial Statement Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
Form 8-A/A filed on January 6, 1999 reporting items 5 and 7
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf of the undersigned
thereunto duly authorized, in the City of Irvine, State of California.
BNC MORTGAGE, INC.
(Registrant)
By: /s/ EVAN R. BUCKLEY May 17, 1999
--------------------------- ------------
Evan R. Buckley Date
Chief Executive Officer and
Secretary
By: /s/ KELLY W. MONAHAN May 17, 1999
--------------------------- ------------
Kelly W. Monahan Date
President
By: /s/ PETER R. EVANS May 17, 1999
------------------------------------- ------------
Peter R. Evans Date
Vice President and
Chief Financial Officer
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
10.1 Warehouse Credit and Security Agreement (Single Family Mortgage Loans),
dated March 1, 1999 between BNC Mortgage, Inc., a Delaware corporation
and Mortgage Logic.com, Inc., a California corporation and Residential
Funding Corporation, a Delaware corporation.
10.2 Purchase Agreement dated as of December 21, 1998 by and between the
Registrant, Mortgage Logic.com, Inc. and the America's Lender, Inc.,
Keith Guy and SHL Holdings, Inc.
10.3 Non-Competition Agreement dated as of February 26, 1999, by and between
the Registrant, Mortgage Logic.com, Inc. and the America's Lender, Inc.,
Keith Guy and SHL Holdings, Inc.
10.4 Licensing and Web Site Hosting Agreement dated as of February 26, 1999,
by and between the Mortgage Logic.com, Inc. and TrueLink, Inc.
10.5 Credit Bureau Services Agreement dated as of February 26, 1999, by and
between the Registrant, Mortgage Logic.com, Inc. and TrueLink, Inc.
11.1 Statement regarding computation of per share earnings
21.1 Subsidiaries of the Registrant
27.1 Financial Statement Data Schedule (EDGAR filing only)
</TABLE>
<PAGE> 1
EXHIBIT 10.1
================================================================================
WAREHOUSING CREDIT AND SECURITY AGREEMENT
(SINGLE FAMILY MORTGAGE LOANS)
BETWEEN
BNC MORTGAGE, INC., a Delaware corporation
and
MORTGAGE LOGIC.COM, INC., a California corporation
AND
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
-------------------
Dated as of March 1, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. DEFINITIONS............................................................... 1
1.1 Defined Terms................................................. 1
1.2 Other Definitional Provisions................................. 11
2. THE CREDIT................................................................ 11
2.1 The Commitment................................................ 11
2.2 Procedures for Obtaining Advances............................. 12
2.3 Note.......................................................... 14
2.4 Interest...................................................... 14
2.5 Principal Payments............................................ 16
2.6 Expiration of Commitment...................................... 19
2.7 Method of Making Payments..................................... 19
2.8 Commitment Fees and Non-Usage Fees............................ 19
2.9 Warehousing Fees.............................................. 20
2.10 Miscellaneous Charges......................................... 20
2.11 Interest Limitation........................................... 20
2.12 Increased Costs; Capital Requirements......................... 21
3. COLLATERAL................................................................ 22
3.1 Grant of Security Interest.................................... 22
3.2 Release of Security Interest in Collateral.................... 24
3.3 Mark-to-Market................................................ 25
3.4 Delivery of Additional Collateral or Mandatory Prepayment..... 26
3.5 Release of Collateral......................................... 27
3.6 Collection and Servicing Rights............................... 27
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
3.7 Return of Collateral at End of Commitment..................... 27
4. CONDITIONS PRECEDENT...................................................... 28
4.1 Initial Advance............................................... 28
4.2 Each Advance.................................................. 31
5. REPRESENTATIONS AND WARRANTIES............................................ 32
5.1 Organization; Good Standing; Subsidiaries..................... 32
5.2 Authorization and Enforceability.............................. 32
5.3 Approvals..................................................... 33
5.4 Financial Condition........................................... 33
5.5 Litigation.................................................... 33
5.6 Compliance with Laws.......................................... 34
5.7 Regulation U.................................................. 34
5.8 Investment Company Act........................................ 34
5.9 Payment of Taxes.............................................. 34
5.10 Agreements.................................................... 35
5.11 Title to Properties........................................... 35
5.12 ERISA......................................................... 35
5.13 Eligibility................................................... 36
5.14 Place of Business............................................. 36
5.15 Special Representations Concerning Collateral................. 36
5.16 Servicing..................................................... 38
5.17 No Adverse Selection.......................................... 38
5.18 Year 2000 Compliance.......................................... 38
6. AFFIRMATIVE COVENANTS..................................................... 39
6.1 Payment of Note............................................... 39
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
6.2 Financial Statements and Other Reports........................ 39
6.3 Maintenance of Existence; Conduct of Business................. 42
6.4 Compliance with Applicable Laws............................... 42
6.5 Inspection of Properties and Books............................ 42
6.6 Notice........................................................ 43
6.7 Payment of Debt, Taxes, etc................................... 43
6.8 Insurance..................................................... 44
6.9 Closing Instructions.......................................... 44
6.10 Subordination of Certain Indebtedness......................... 44
6.11 Other Loan Obligations........................................ 44
6.12 Use of Proceeds of Advances................................... 45
6.13 Special Affirmative Covenants Concerning Collateral........... 45
7. NEG COVENANTS............................................................. 46
7.1 Contingent Liabilities........................................ 46
7.2 Sale or Pledge of Servicing Contracts......................... 46
7.3 Merger; Sale of Assets; Acquisitions.......................... 46
7.4 Deferral of Subordinated Debt................................. 47
7.5 Loss of Eligibility........................................... 47
7.6 Debt to Tangible Net Worth Ratio.............................. 47
7.7 Minimum Tangible Net Worth.................................... 47
7.8 Liquidity..................................................... 47
7.9 Transactions with Affiliates.................................. 47
7.10 Quarterly Net Income.......................................... 47
7.11 Acquisition of Recourse Servicing Contracts................... 47
7.12 Special Negative Covenants Concerning Collateral.............. 48
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
8. DEFAULTS; REMEDIES........................................................ 48
8.1 Events of Default............................................. 48
8.2 Remedies...................................................... 51
8.3 Application of Proceeds....................................... 55
8.4 Lender Appointed Attorney-in-Fact............................. 56
8.5 Right of Set-Off.............................................. 56
9. NOTICES................................................................... 57
10. REIMBURSEMENT OF EXPENSES; INDEMNITY...................................... 57
11. FINANCIAL INFORMATION..................................................... 58
12. MISCELLANEOUS............................................................. 58
12.1 Terms Binding Upon Successors; Survival of Representations.... 58
12.2 Assignment.................................................... 59
12.3 Amendments.................................................... 59
12.4 Governing Law................................................. 59
12.5 Participations................................................ 59
12.6 Relationship of the Parties................................... 59
12.7 Severability.................................................. 60
12.8 Operational Reviews........................................... 60
12.9 Consent to Credit References.................................. 60
12.10 Consent to Jurisdiction....................................... 60
12.11 Counterparts.................................................. 61
12.12 Entire Agreement.............................................. 61
12.13 WAIVER OF JURY TRIAL.......................................... 61
</TABLE>
iv
<PAGE> 6
EXHIBITS
--------
Exhibit A Promissory Note
Exhibit B [INTENTIONALLY OMITTED]
Exhibit C-SF Request for Advance Against Single
Family Mortgage Loans
Exhibit D-SF Procedures and Documentation for
Warehousing Single Family Mortgage
Loans
Exhibit E Schedule of Servicing Contracts
Exhibit F Subordination of Debt Agreement
Exhibit G Subsidiaries
Exhibit H Legal Opinion
Exhibit I-SF Officer's Certificate
Exhibit J Schedule of Existing Warehouse Lines
Exhibit K Funding Bank Agreement (Wire)
Exhibit L Commitment Summary Report
Exhibit M Terms Applicable to Advances Against
Eligible Loans
Exhibit N Terms of Guaranteed Obligations
v
<PAGE> 7
THIS WAREHOUSING CREDIT AND SECURITY AGREEMENT, dated as of March 1,
1999, between BNC MORTGAGE, INC., a Delaware corporation ("BNC"), MORTGAGE
LOGIC.COM, INC., a California corporation ("Mortgage Logic") (BNC and Mortgage
Logic, collectively referred to as the "Borrowers"), having their principal
office at 1063 McGaw Avenue, Irvine, CA 92614 and RESIDENTIAL FUNDING
CORPORATION, a Delaware corporation (the "Lender"), having its principal office
at 8400 Normandale Lake Blvd., Suite 600, Minneapolis, Minnesota 55437.
WHEREAS, the Borrowers and the Lender desire to set forth herein the
terms and conditions upon which the Lender shall provide warehouse financing to
the Borrowers;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINITIONS.
1.1 Defined Terms. Capitalized terms defined below or
elsewhere in this Agreement (including the Exhibits hereto) shall
have the following meanings:
"Adjusted Servicing Portfolio" means, for any Person,
the Servicing Portfolio of such Person, but excluding the principal
balance of Mortgage Loans included in the Servicing Portfolio at
such date (a) which are past due for principal or interest for sixty
(60) days or more, (b) with respect to which such Person is
obligated to repurchase or indemnify the holder of the Mortgage
Loans as a result of defaults on the Mortgage Loans at any time
during the term of such Mortgage Loans, (c) for which the Servicing
Contracts are not owned by such Person free and clear of all Liens
(other than in favor of the Lender), or (d) which are serviced by
the Borrowers for others under subservicing arrangements.
"Adjusted Tangible Net Worth" means with respect to any
Person at any date, the Tangible Net Worth of such Person at such
date, excluding capitalized excess servicing fees and capitalized
servicing rights, plus one percent (1%) of the Adjusted Servicing
Portfolio, and plus deferred taxes arising from capitalized excess
servicing fees and capitalized servicing rights.
"Advance" means a disbursement by the Lender under the
Commitment pursuant to Section 2.1 of this Agreement.
"Advance Request" has the meaning set forth in Section
2.2(a) hereof.
"Affiliate" has the meaning set forth in Rule 12b-2 of
the General Rules and Regulations under the Exchange Act.
1
<PAGE> 8
"Agency Security" means a Mortgage-backed Security
issued or guarantied by Fannie Mae, Freddie Mac or Ginnie Mae.
"Agreement" means this Warehousing Credit and Security
Agreement (Single Family Mortgage Loans), either as originally
executed or as it may from time to time be supplemented, modified or
amended.
"Approved Custodian" means a pool custodian or other
Person which is deemed acceptable to the Lender from time to time in
its sole discretion to hold a Mortgage Loan for inclusion in a
Mortgage Pool or to hold a Mortgage Loan as agent for an Investor
who has issued a Purchase Commitment for such Mortgage Loan.
"Borrowers" has the meaning set forth in the first
paragraph of this Agreement.
"Business Day" means any day excluding Saturday or
Sunday and excluding any day on which national banking associations
are closed for business.
"Cash Collateral Account" means a demand deposit account
maintained at the Funding Bank in the name of the Lender and
designated for receipt of the proceeds of the sale or other
disposition of the Collateral.
"Check Disbursement Account" means a demand deposit
account maintained at the Funding Bank in the name of the Borrowers
and under the control of the Lender for the clearing of checks
written by the Borrowers to fund Advances.
"Closing Date" means March 1, 1999.
"Collateral" has the meaning set forth in Section 3.1
hereof.
"Collateral Documents" has the meaning set forth in
Section 2.2(a) hereof.
"Collateral Value" means (a) with respect to any
Eligible Loan as of the date of determination, the lesser of (i) the
amount of any Advance made against such Eligible Loan under Section
2.1(c) hereof or (ii) the Fair Market Value of such Eligible Loan;
(b) in the event Pledged Mortgages have been exchanged for Agency
Securities, the lesser of (i) the amount of any Advances outstanding
against the Eligible Loans backing such Agency Securities or (ii)
the Fair Market Value of such Pledged Securities; and (c) with
respect to cash, the amount of such cash.
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<PAGE> 9
"Commitment" has the meaning set forth in Section 2.1(a)
hereof.
"Commitment Amount" means Fifty Million Dollars
($50,000,000).
"Commitment Fee" means a fee payable by the Borrowers in
consideration of the Lender's issuance of the Commitment. The amount
of the Commitment Fee, if any, is set forth in Section 2.8(a)
hereof.
"Committed Purchase Price" means for an Eligible Loan
the product of the Mortgage Note Amount multiplied by (a) the price
(expressed as a percentage) as set forth in a Purchase Commitment
for such Eligible Loan or (b) in the event such Eligible Loan is to
be used to back an Agency Security, the price (expressed as a
percentage) as set forth in a Purchase Commitment for such Agency
Security.
"Credit Score" means a mortgagor's overall consumer
credit rating, represented by a single numeric credit score
calculated using the Fair, Isaac consumer credit scoring system, as
provided by a credit repository acceptable to the Lender and the
Investor that issued the Purchase Commitment covering the related
Mortgage Loan.
"Debt" means, with respect to any Person at any date,
(a) all indebtedness or other obligations of such Person which, in
accordance with GAAP, would be included in determining total
liabilities as shown on the liabilities side of a balance sheet of
such Person at such date, and (b) all indebtedness or other
obligations of such Person for borrowed money or for the deferred
purchase price of property or services; provided that for purposes
of this Agreement, there shall be excluded from Debt at any date
Subordinated Debt not due within one year of such date, loan loss
reserves and deferred taxes arising from capitalized excess
servicing fees and capitalized servicing rights.
"Default" means the occurrence of any event or existence
of any condition which, but for the giving of Notice, the lapse of
time, or both, would constitute an Event of Default.
"Depository Benefit" shall mean the compensation
received by the Lender, directly or indirectly, as a result of the
Borrowers' maintenance of Eligible Balances with a Designated Bank.
"Designated Bank" means any bank(s) designated from time
to time by the Lender as a Designated Bank, but only for as long as
the Lender has an agreement under which the Lender can receive a
Depository Benefit.
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<PAGE> 10
"Designated Bank Charges" means any fees, interest or
other charges that would otherwise be payable to a Designated Bank
in connection with Eligible Balances maintained at a Designated
Bank, including Federal Deposit Insurance Corporation insurance
premiums, service charges and such other charges as may be imposed
by governmental authorities from time to time.
"Eligible Balances" means all funds of or maintained by
the Borrowers and their Subsidiaries in accounts at a Designated
Bank, less balances to support float, reserve requirements, and such
other reductions as may be imposed by governmental authorities from
time to time.
"Eligible Loan" means a Single Family Mortgage Loan
secured by a Mortgage on owner occupied real property located in one
of the states of the United States or the District of Columbia that
is designated as such on Exhibit M attached hereto and made a part
hereof.
"Eligible Mortgage Pool" means a Mortgage Pool for which
(a) an Approved Custodian has issued its initial certification (on
the basis of which an Agency Security is to be issued), (b) there
exists a Purchase Commitment covering such Agency Security, and (c)
such Agency Security will be delivered to the Lender.
"ERISA" means the Employee Retirement Income Security
Act of 1974 and all rules and regulations promulgated thereunder, as
amended from time to time and any successor statute.
"Event of Default" means any of the conditions or events
set forth in Section 8.1 hereof.
"Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time, and any successor statute.
"Fair Market Value" means at any time for an Eligible
Loan or the related Agency Security (if such Eligible Loan is to be
used to back an Agency Security), (a) if such Eligible Loan or the
related Agency Security is covered by a Purchase Commitment, the
Committed Purchase Price, or (b) otherwise, the market price for
such Eligible Loan or Agency Security, determined by the Lender
based on market data for similar Mortgage Loans or Agency Securities
and such other criteria as the Lender deems appropriate.
"Fannie Mae" means Fannie Mae, a corporation created
under the laws of the United States, and any successor thereto.
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<PAGE> 11
"Federal Funds Rate" mean, as of any date of
determination, the effective federal funds rate (per annum) of
interest in effect on such date (or, if such date is not a Business
Day, the preceding Business Day) as published by Bridge Information
Services in its MoneyCenter System. If this federal funds rate is
not so offered or published per any Business Day, then the Federal
Funds Rate for any applicable date should mean the highest offered
federal funds rate (per annum) published for such Business Day
published in The Wall Street Journal in its regular column entitled
"Money Rates." [For use where the Lender owes funds to another
Lender and does not pay on the Business Day above.]
"FHA" means the Federal Housing Administration and any
successor thereto.
"FICA" means the Federal Insurance Contributions Act.
"FIRREA" means the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, as amended from time to time,
and the regulations promulgated and rulings issued thereunder.
"First Mortgage" means a Mortgage which constitutes a
first Lien on the property covered thereby.
"First Mortgage Loan" means a Mortgage Loan secured by a
First Mortgage.
"Freddie Mac" means Freddie Mac, a corporation created
under the laws of the United States, and any successor thereto.
"Funding Bank" means The First National Bank of Chicago
or any other bank designated from time to time by the Lender.
"Funding Bank Agreement" means the letter agreement
substantially in the form of Exhibit K hereto.
"GAAP" means generally accepted accounting principles
set forth in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other
entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the date
of determination.
"Gestation Agreement" means an agreement under which the
Borrowers agree to sell or finance (a) a Pledged Mortgage prior to
the date of purchase by an Investor, or (b) a
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<PAGE> 12
Mortgage Pool prior to the date an Agency Security backed by such
Mortgage Pool is issued.
"Ginnie Mae" means the Government National Mortgage
Association, an agency of the United States government, and any
successor thereto.
"Hedging Arrangements" means, with respect to any
Person, any agreements or other arrangement (including, without
limitation, interest rate swap agreements, interest rate cap
agreements and forward sale agreements) entered into by such Person
to protect itself against changes in interest rates or the market
value of assets.
"HUD" means the Department of Housing and Urban
Development and any successor thereto.
"Indemnified Liabilities" has the meaning set forth in
Article 10 hereof.
"Internal Revenue Code" means the Internal Revenue Code
of 1986, or any subsequent federal income tax law or laws, as any of
the foregoing have been or may from time to time be amended.
"Investor" means Fannie Mae, Freddie Mac or a
financially responsible private institution which is deemed
acceptable by the Lender from time to time in its sole discretion
with respect to a particular category of Pledged Mortgages.
"Lender" has the meaning set forth in the first
paragraph of this Agreement.
"LIBOR" means, for each 30-day period, the rate of
interest per annum which is equal to the arithmetic mean of the U.S.
Dollar London Interbank Offered Rates for one (1) month periods of
certain U.S. banks as of 11:00 a.m. London time on the first
Business Day of each 30-day period on which the London Interbank
market is open, as published by Bridge Information Services on its
MoneyCenter system. LIBOR shall be rounded, if necessary, to the
next higher one sixteenth of one percent (1/16%). If such U.S.
dollar LIBOR rates are not so offered or published for any period,
then during such period LIBOR shall mean the London Interbank
Offered Rate for one (1) month periods published on the first
Business Day of each 30-day period on which the London Interbank
market is open, in the Wall Street Journal in its regular column
entitled "Money Rates."
"Lien" means any lien, mortgage, deed of trust, pledge,
security interest, charge or encumbrance of any kind (including any
conditional sale or other title retention
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<PAGE> 13
agreement, any lease in the nature thereof, and any agreement
to give any security interest).
"Liquid Assets" means, with respect to any Person at any
date, the following unrestricted and unencumbered assets owned by
such Person on such date: cash, funds on deposit in any bank located
in the United States, investment grade commercial paper, money
market funds, and the excess, if any, of Mortgage Loans and
Mortgage-backed Securities held for sale (valued in accordance with
GAAP) excluding Mortgage Loans that are more than 30 days delinquent
(determined pursuant to a Mortgage Bankers Association of America
method for determining delinquency status as in effect on the date
hereof) over the outstanding aggregate principal amount of notes or
other debt instruments against which such Mortgage Loans or
Mortgage- backed Securities are pledged as Collateral.
"Loan Documents" means this Agreement, the Note, any
agreement of the Borrowers relating to Subordinated Debt, and each
other document, instrument or agreement executed by the Borrowers in
connection herewith or therewith, as any of the same may be amended,
restated, renewed or replaced from time to time.
"Manufactured Home" means a structure that is built on a
permanent chassis (steel frame) with the wheel assembly necessary
for transportation in one or more sections to a permanent site or
semi-permanent site and which has been built in compliance with the
National Manufactured Housing Construction and Safety Standards
established by HUD.
"Margin Stock" has the meaning assigned to that term in
Regulation U of the Board of Governors of the Federal Reserve System
as in effect from time to time.
"Maturity Date" shall mean the earlier of: (a) the close
of business on March 1, 2000, as such date may be extended from time
to time in writing by the Lender, in its sole discretion, on which
date the Commitment shall expire of its own term and without the
necessity of action by the Lender, and (b) the date the Advances
become due and payable pursuant to Section 8.2 below.
"Miscellaneous Charges" has the meaning set forth in
Section 2.10 hereof.
"Mortgage" means a mortgage or deed of trust on improved
and substantially completed real property (including, without
limitation, real property to which a Manufactured Home has been
affixed in a manner such that the Lien of a mortgage or deed of
trust would attach to such manufactured home under applicable real
property law).
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<PAGE> 14
"Mortgage-backed Securities" means securities that are
secured or otherwise backed by Mortgage Loans.
"Mortgage Loan" means any loan evidenced by a Mortgage
Note and secured by a Mortgage.
"Mortgage Note" means a promissory note secured by a
Mortgage.
"Mortgage Note Amount" means, as of the date of
determination, the then outstanding unpaid principal amount of a
Mortgage Note [or other note evidencing an Eligible Loan] (whether
or not an additional amount is available to be drawn thereunder).
"Mortgage Pool" means a pool of one or more Pledged
Mortgages on the basis of which there is to be issued a
Mortgage-backed Security.
"Multiemployer Plan" means a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA which is maintained for
employees of the Borrowers or a Subsidiary of the Borrowers.
"Non-Usage Fee" has the meaning set forth in
Section 2.8(b) hereof.
"Note" has the meaning set forth in Section 2.3 hereof.
"Notices" has the meaning set forth in Article 9 hereof.
"Obligations" means any and all indebtedness,
obligations and liabilities of the Borrowers to the Lender (whether
now existing or hereafter arising, voluntary or involuntary, whether
or not jointly owed with others, direct or indirect, absolute or
contingent, liquidated or unliquidated, and whether or not from time
to time decreased or extinguished and later increased, created or
incurred), whether or not arising out of or related to the Loan
Documents.
"Officer's Certificate" means a certificate executed on
behalf of BNC by its chief financial officer or its treasurer or by
such other officer as may be designated herein and substantially in
the form of Exhibit I-SF attached hereto.
"Operating Account" means a demand deposit account
maintained at the Funding Bank in the name of the Borrowers and
designated for funding that portion of each Eligible Loan not funded
by an Advance made against such Eligible Loan and for returning any
excess payment from an Investor for a Pledged Mortgage or Pledged
Security.
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<PAGE> 15
"Participant" has the meaning set forth in Section 12.5
hereof.
"Person" means and includes natural persons,
corporations, limited liability companies, limited partnerships,
general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land
trusts, business trusts or other organizations, whether or not legal
entities, and governments and agencies and political subdivisions
thereof.
"Plans" has the meaning set forth in Section 5.12
hereof.
"Pledged Mortgages" has the meaning set forth in Section
3.1(a) hereof.
"Pledged Securities" has the meaning set forth in
Section 3.1(b) hereof.
"Purchase Commitment" means a written commitment, in
form and substance satisfactory to the Lender, issued in favor of
the Borrowers by an Investor pursuant to which that Investor commits
to purchase Mortgage Loans or Mortgage-backed Securities.
"Release Amount" has the meaning set forth in Section
3.2(g) hereof.
"RFC" means Residential Funding Corporation, a Delaware
corporation, and any successor thereto.
"Second Mortgage" means a Mortgage which constitutes a
second Lien on the property covered thereby.
"Second Mortgage Loan" means a Mortgage Loan secured by
a Second Mortgage.
"Servicing Contract" means, with respect to any Person,
the arrangement, whether or not in writing, pursuant to which such
Person has the right to service Mortgage Loans.
"Servicing Portfolio" means, as to any Person, the
unpaid principal balance of Mortgage Loans serviced by such Person
under Servicing Contracts.
"Single Family Mortgage Loan" means a Mortgage Loan
secured by a Mortgage covering improved real property containing one
to four family residences.
"Statement Date" means the date of the most recent
financial statements of the Borrowers (and, if applicable, its
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<PAGE> 16
Subsidiaries, on a consolidated basis) delivered to the Lender under
the terms of this Agreement.
"Subordinated Debt" means (a) all indebtedness of the
Borrowers for borrowed money which is effectively subordinated in
right of payment to all other present and future Obligations either
(i) pursuant to a Subordination of Debt Agreement in the form of
Exhibit F hereto or (ii) otherwise on terms acceptable to the
Lender, and (b) solely for purposes of Section 7.4 hereof, all
indebtedness of the Borrowers which is required to be subordinated
by Section 4.1(b) or Section 6.10 hereof.
"Subsidiary" means any corporation, association or other
business entity in which more than fifty percent (50%) of the total
voting power or shares of stock entitled to vote in the election of
directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more of
the other Subsidiaries of that Person or a combination thereof.
"Tangible Net Worth" means with respect to any Person at
any date, the excess of the total assets of such Person over total
liabilities of such Person on such date, each to be determined in
accordance with GAAP consistent with those applied in the
preparation of the financial statements referred to in Section
4.1(a)(5) hereof, plus that portion of Subordinated Debt not due
within one year of such date; provided that, for purposes of
calculating Tangible Net Worth, there shall be excluded from total
assets advances or loans to shareholders, officers, employees or
Affiliates, investments in Affiliates, assets pledged to secure any
liabilities not included in the Debt of such Person, intangible
assets, those other assets which would be deemed by HUD to be
non-acceptable in calculating adjusted net worth in accordance with
its requirements in effect as of such date, as such requirements
appear in the "Audit Guide for Audit of Approved Non-Supervised
Mortgagees," and other assets deemed unacceptable by the Lender in
its sole discretion.
"Trust Receipt" means a trust receipt in a form approved
by and pursuant to which the Lender may deliver any document
relating to the Collateral to the Borrowers for correction or
completion.
"Unused Portion" has the meaning set forth in Section
2.8(b) hereof.
"Used Portion" has the meaning set forth in Section
2.8(b) hereof.
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<PAGE> 17
"VA" means the U.S. Department of Veterans Affairs and
any successor thereto.
"Warehousing Fee" has the meaning set forth in Section
2.9 hereof.
"Wet Settlement Advance" means an Advance pursuant to
Section 2.2(b) of this Agreement in respect of the closing or
settlement of a Mortgage Loan, from the time of such Advance until
the time of subsequent delivery of the Collateral Documents as
provided in such Section and the Exhibit referenced therein.
"Wire Disbursement Account" means a demand deposit
account maintained at the Funding Bank in the name of the Lender for
the clearing of wire transfers requested by the Borrowers to fund
Advances.
"Year 2000 Problem" means the risk that computer
applications may not be able to properly perform date- sensitive
functions after December 31, 1999.
1.2 Other Definitional Provisions.
1.2(a) Accounting terms not otherwise defined
herein shall have the meanings given the terms under
GAAP.
1.2(b) Defined terms may be used in the singular
or the plural, as the context requires.
1.2(c) All references to time of day shall mean
the then applicable time in Chicago, Illinois, unless
expressly provided to the contrary.
2. THE CREDIT.
2.1 The Commitment.
2.1(a) Subject to the terms and conditions
of this Agreement and provided no Default or Event of
Default has occurred and is continuing, the Lender
agrees from time to time during the period from the
Closing Date to, but not including, the Maturity Date,
to make Advances to the Borrowers, provided the total
aggregate principal amount outstanding at any one time
of all such Advances shall not exceed the Commitment
Amount. The obligation of the Lender to make Advances
hereunder up to the Commitment Amount is hereinafter
referred to as the "Commitment." Within the Commitment,
the Borrowers may borrow, repay and reborrow. All
Advances under this
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<PAGE> 18
Agreement shall constitute a single indebtedness, and
all of the Collateral shall be security for the Note and
for the performance of all the Obligations. Advances
shall be made either to BNC or to Mortgage Logic, as
shall be requested by BNC or Mortgage Logic, but each
Advance, whether made to BNC or to Mortgage Logic shall
be deemed made to or for the benefit of BNC and Mortgage
Logic, and BNC and Mortgage Logic, jointly and
severally, shall be obligated to repay any Advances made
to BNC or Mortgage Logic under the Commitment. With
respect to its obligation to repay Advances made to the
other Borrower, each Borrower agrees to the terms set
forth in Exhibit N attached hereto and made a part
hereof.
2.1(b) Advances shall be used by the
Borrowers solely for the purpose of funding the
acquisition or origination of Eligible Loans and shall
be made at the request of the Borrowers, in the manner
hereinafter provided in Section 2.2 hereof, against the
pledge of such Eligible Loans as Collateral therefor.
The limitations on the use of Advances set forth on
Exhibit M attached hereto and made a part hereof shall
be applicable. In addition, the following limitations on
the use of Advances shall be applicable:
(1) No Advance shall be made
against any Mortgage Loan which was closed
more than ninety (90) days prior to the date
of the requested Advance.
(2) No Advance shall be made
against a Mortgage Loan other than a
Mortgage Loan secured by a Mortgage on real
property located in one of the states of the
United States or the District of Columbia.
2.1(c) No Advance shall exceed the following
amount applicable to the type of Eligible Loan at the
time it is pledged to secure an Advance hereunder:
(1) For an Eligible Loan pledged
hereunder, the amount set forth on Exhibit M
attached hereto and made a part hereof.
2.2 Procedures for Obtaining Advances.
2.2(a) The Borrowers may obtain an Advance
hereunder, subject to the satisfaction of the conditions
set forth in Sections 4.1 and 4.2 hereof, upon
compliance with the procedures set forth in this Section
2.2 and in Exhibit D-SF with respect to Advances,
attached hereto and made a part hereof including the
delivery of all
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<PAGE> 19
documents listed in Exhibit D-SF, as applicable (the
"Collateral Documents") to the Lender. Requests for
Advances shall be initiated by the Borrowers by
delivering to the Lender, no later than one (1) Business
Day prior to any Business Day that the Borrowers desire
to borrow hereunder, a completed and signed request for
an Advance (an "Advance Request") on the then current
form approved by the Lender. The current form in use by
the Lender is Exhibit C-SF for Advances, attached hereto
and made a part hereof. The Lender shall have the right,
on not less than three (3) Business Days' prior Notice
to the Borrowers, to modify any of said Exhibits to
conform to current legal requirements or Lender
practices, and, as so modified, said Exhibits shall be
deemed a part hereof.
2.2(b) In the case of a Wet Settlement
Advance, the Borrowers shall follow the procedures and,
at or prior to the Lender's making of such Wet
Settlement Advance, shall deliver to the Lender the
documents set forth in Exhibit D-SF hereto. In the case
of a Mortgage Loan financed through a Wet Settlement
Advance, the Borrowers shall cause all Collateral
Documents required to be delivered to the Lender
pursuant to Exhibit D-SF within seven (7) Business Days
after the date of the Wet Settlement Advance relating
thereto.
2.2(c) Before funding, the Lender shall have
a reasonable time (one (1) Business Day under ordinary
circumstances) to examine such Advance Request and the
Collateral Documents to be delivered prior to such
requested Advance, as set forth in the applicable
Exhibit hereto, and may reject such of them as do not
meet the requirements of this Agreement or of the
related Purchase Commitment.
2.2(d) The Borrowers shall hold in trust for
the Lender, and the Borrowers shall deliver to the
Lender promptly upon request, or if the recorded
Collateral Documents have not yet been returned from the
recording office, immediately upon receipt by the
Borrowers of such recorded Collateral Documents, and the
Pledged Mortgage is not being held by an Investor for
purchase or has not been redeemed from pledge, the
following: (1) the originals of the Collateral Documents
for which copies are required to be delivered to the
Lender pursuant to Exhibit D-SF, (2) the original
lender's ALTA Policy of Title Insurance or an equivalent
thereto, and (3) any other documents relating to a
Pledged Mortgage which the Lender may request,
including, without limitation, documentation evidencing
the FHA Commitment to Insure or the VA Guaranty of any
Pledged Mortgage which is either
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<PAGE> 20
FHA insured or VA guaranteed, the appraisal, Private
Mortgage Insurance Certificate, if applicable, the
Regulation Z Statement, certificates of casualty or
hazard insurance, credit information on the maker of
each such Mortgage Note, a copy of a HUD-1 or
corresponding purchase advice and other documents of all
kinds which are customarily desired for inspection or
transfer incidental to the purchase of any Mortgage Note
by an Investor and any additional documents which are
customarily executed by the seller of a Mortgage Note to
an Investor.
2.2(e) To make an Advance, the Lender shall
cause the Funding Bank to credit either the Wire
Disbursement Account or the Check Disbursement Account
upon compliance by the Borrowers with the terms of the
Loan Documents. The Lender shall determine in its sole
discretion the method by which Advances and other
amounts on deposit in the Wire Disbursement Account are
disbursed by the Funding Bank to or for the account of
the Borrowers.
2.2(f) If, pursuant to the authorization
given by the Borrowers in the Funding Bank Agreement,
for the purpose of funding a Mortgage Loan against which
the Lender has made an Advance in accordance with a
Request for Advance (i) the Lender debits the Borrowers'
Operating Account at the Funding Bank to the extent
necessary to cover a wire to be initiated by the Lender,
or (ii) the Lender directs the Funding Bank to honor a
check drawn by the Borrowers on their Check Disbursement
Account at the Funding Bank, and such debit or direction
results in an overdraft, the Lender may make an
additional Advance to fund such overdraft.
2.3 Note. The Borrowers' Obligations shall be evidenced
by the promissory note (the "Note") dated as of the date hereof
substantially in the form of Exhibit A attached hereto. The term
"Note" shall include all extensions, renewals and modifications of
the Note and all substitutions therefor. All terms and provisions of
the Note are hereby incorporated herein.
2.4 Interest.
2.4(a) Except as otherwise provided in
Section 2.4(e) hereof, the unpaid amount of each Advance
against an Eligible Loan shall bear interest at the
rate(s) per annum set forth on Exhibit M attached hereto
and made a part hereof.
2.4(b) The Borrowers are entitled to receive
a benefit in the form of an "Earnings Credit" on the
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<PAGE> 21
portion of the Eligible Balances maintained in time
deposit accounts with a Designated Bank, and the
Borrowers are entitled to receive a benefit in the form
of an "Earnings Allowance" on the portion of the
Eligible Balances maintained in demand deposit accounts
with a Designated Bank. Any Earnings Allowance shall be
used first and any Earnings Credit shall be used second
as a credit against accrued Designated Bank Charges, any
other Miscellaneous Charges and fees, including, but not
limited to Commitment Fees, Non-Usage Fees and
Warehousing Fees, and may be used, at the Lender's
option, to reduce accrued interest. Any Earnings
Allowance not used during the month in which the benefit
was received shall be accumulated for use and must be
used within six (6) months of the month in which the
benefit was received. Any Earnings Credit not used
during the month in which the benefit was received shall
be used to provide a cash benefit to the Borrowers. The
Lender's determination of the Earnings Credit and the
Earnings Allowance for any month shall be determined by
the Lender in its sole discretion and shall be
conclusive and binding absent manifest error. In no
event shall the benefit received by the Borrowers exceed
the Depository Benefit.
Either party hereto may terminate the
benefits provided for in this Section effective
immediately upon Notice to the other party, if the
terminating party shall have determined (which
determination shall be conclusive and binding absent
manifest error) at any time that any applicable law,
rule, regulation, order or decree or any interpretation
or administration thereof by any governmental authority
charged with the interpretation or administration
thereof, or compliance by such party with any request or
directive (whether or not having the force of law) of
any such authority, shall make it unlawful or impossible
for such party to continue to offer or receive the
benefits provided for in this Section.
2.4(c) Interest shall be computed on the
basis of a 360-day year and applied to the actual number
of days elapsed in each interest calculation period and
shall be payable monthly in arrears, on the first day of
each month, commencing with the first month following
the Closing Date and on the Maturity Date.
2.4(d) If, for any reason, no interest is
due on an Advance, the Borrowers agree to pay to the
Lender an administrative fee equal to one day of
interest on such Advance at the rate of interest
applicable to such Advance, as in effect on the date of
such Advance.
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Administrative and other fees shall be due and payable
in the same manner as interest is due and payable
hereunder.
2.4(e) Upon Notice to the Borrowers, after
the occurrence and during the continuation of an Event
of Default, the unpaid amount of each Advance shall bear
interest until paid in full at a per annum rate of
interest (the "Default Rate") equal to four percent (4%)
in excess of the rate of interest otherwise applicable
to such Advance pursuant to any other subsection of this
Section 2.4 or, if no rate is applicable, the highest
rate then applicable to any outstanding Advances.
2.4(f) The floating rates of interest
provided for in this Section 2.4 will be adjusted as of
the effective date of each change in the applicable
index. The Lender's determination of such rates as of
any date of determination shall be conclusive and
binding, absent manifest error.
2.5 Principal Payments.
2.5(a) The outstanding principal amount of
all Advances shall be payable in full on the Maturity
Date.
2.5(b) The Borrowers shall have the right to
prepay the outstanding Advances in whole or in part,
from time to time, without premium or penalty.
2.5(c) The Borrowers shall pay the Lender,
without the necessity of prior demand or notice from the
Lender, and the Borrowers authorize the Lender to cause
the Funding Bank to charge the Borrowers' Operating
Account for, the amount of any outstanding Advance
against a specific Pledged Mortgage, upon the earliest
occurrence of any of the following events:
(1) One (1) Business Day elapses
from the date an Advance was made and the
Pledged Mortgage which was to have been
funded by such Advance is not closed and
funded.
(2) Ten (10) Business Days
elapse from the date a Collateral Document
was delivered to the Borrowers for
correction or completion under a Trust
Receipt, if such Collateral Document has not
been returned to the Lender.
(3) On the date on which a
Pledged Mortgage is determined to have been
originated based on untrue, incomplete or
inaccurate information, whether or not the
Borrowers had knowledge of such
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misrepresentation or incorrect information,
or the Pledged Mortgage is defaulted and
remains in default for a period of sixty
(60) days or more.
(4) If the outstanding Advances
against Pledged Mortgages of a specific
Mortgage Loan type exceed the aggregate
Purchase Commitments for such Mortgage Loan
type.
(5) For a Mortgage Loan covered
by a Purchase Commitment at the time pledged
hereunder three (3) Business Days after the
mandatory delivery date of the related
Purchase Commitment and the specific Pledged
Mortgage or the Pledged Security backed
thereby was not delivered under the Purchase
Commitment prior to such mandatory delivery
date, or the Purchase Commitment is
terminated; unless in each case, such
Pledged Mortgage or Pledged Security is
eligible for delivery to an Investor under a
comparable Purchase Commitment acceptable to
the Lender.
(6) Upon sale or other
disposition of the Pledged Mortgage or, if a
Pledged Mortgage is included in an Eligible
Mortgage Pool, upon sale or other
disposition of the related Agency
Securities.
(7) On the date on which the
Borrowers know, or receive notice from the
Lender, that one or more of the
representations and warranties set forth in
Section 5.15 were inaccurate or incomplete
in any material respect on any date when
made or deemed made.
2.5(d) Upon Notice to the Borrowers by the
Lender, the Borrowers shall pay to the Lender, and the
Borrowers authorize the Lender to cause the Funding Bank
to charge the Borrowers' Operating Account for, the
amount of any outstanding Advance against a specific
Pledged Mortgage upon the earliest occurrence of any of
the following events:
(1) For any Pledged Mortgage,
the number of days set forth for the
applicable type of Eligible Loan on Exhibit
M attached hereto and made a part hereof as
the "Warehouse Period" elapse from the date
of the initial Advance made by the Lender
against such Pledged Mortgage.
(2) For any Pledged Mortgage
secured by a Second Mortgage, payment of any
Lien prior to such
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Pledged Mortgage is delinquent, and remains
delinquent for a period of sixty (60) days
or more.
(3) Forty-five (45) days elapse
from the date the Pledged Mortgage was
delivered to an Investor or an Approved
Custodian for examination and purchase or
inclusion in a Mortgage Pool, without the
purchase being made or an Eligible Mortgage
Pool being initially certified, or upon
rejection of the Pledged Mortgage as
unsatisfactory by an Investor or an Approved
Custodian.
(4) Seven (7) Business Days
elapse from the date a Wet Settlement
Advance was made without receipt by the
Lender of all Collateral Documents relating
to such Pledged Mortgage, or such Collateral
Documents, upon examination by the Lender,
are found not to be in compliance with the
requirements of this Agreement or the
related Purchase Commitment.
(5) With respect to any Pledged
Mortgage, any of the items described in
Section 2.2(d), upon examination by the
Lender, are found not to be in compliance
with the requirements of this Agreement or
the related Purchase Commitment.
2.5(e) The outstanding amount of any Advance
made pursuant to Section 2.2(f) shall be payable in full
within one (1) Business Day after the date of such
Advance.
2.5(f) In addition to the payments required
pursuant to Sections 2.5(d) and 2.5(e), if the principal
amount of any Pledged Mortgage is prepaid in whole or in
part while an Advance is outstanding against such
Pledged Mortgage, the Borrowers shall be obligated to
pay to the Lender, without the necessity of prior demand
or notice from the Lender, and the Borrowers authorizes
the Lender to cause the Funding Bank to charge the
Borrowers' Operating Account for the amount of such
prepayment, to be applied to such Advance.
2.5(g) The proceeds of the sale or other
disposition of Pledged Mortgages and Pledged Securities
shall be paid directly by the Investor to the Cash
Collateral Account. The Borrowers shall give Notice to
the Lender (telephonically, to be followed by written
notice) of the Pledged Mortgages or Pledged Securities
for which proceeds have been received. Upon receipt of
such Notice the Advances against such Pledged Mortgages
or Pledged Securities shall be repaid from such proceeds
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and such Pledged Mortgages or Pledged Securities shall
be considered to have been redeemed from pledge. The
Lender is entitled to rely upon the Borrowers'
affirmation that deposits in the Cash Collateral Account
represent payment from Investors for the purchase of
Pledged Mortgages or Pledged Securities as specified by
the Borrowers. In the event that the payment from an
Investor for the purchase of Pledged Mortgages or
Pledged Securities is less than the outstanding Advances
against such Pledged Mortgages or the Mortgage Loans
backing Pledged Securities, the Lender is authorized to
cause the Funding Bank to charge the Borrowers'
Operating Account for an amount equal to such
deficiency. Provided no Default or Event of Default
exists, the Lender shall return any excess payment from
an Investor for Pledged Mortgages or Pledged Securities
to the Borrowers.
2.6 Expiration of Commitment. The Commitment shall
expire on the Maturity Date.
2.7 Method of Making Payments.
2.7(a) Except as otherwise specifically
provided herein, all payments hereunder shall be made to
the Lender not later than the close of business on the
date when due unless such date is a non-Business Day, in
which case, such payment shall be due on the first
Business Day thereafter, and shall be made in lawful
money of the United States of America in immediately
available funds transferred via wire to accounts
designated by the Lender from time to time.
2.7(b) After the occurrence and during the
continuance of an Event of Default, and without the
necessity of prior demand or notice from the Lender, the
Borrowers authorize the Lender to cause the Funding Bank
to charge the Borrowers' Operating Account for any
Obligations due and owing the Lender.
2.8 Commitment Fees and Non-Usage Fees.
2.8(a) The Borrowers agree to pay to the
Lender a Commitment Fee in the amount of 0.125% per
annum of the Commitment Amount which Commitment Fee
shall be paid in advance on the Closing Date.
2.8(b) At the end of each calendar quarter,
during the term hereof, the Lender shall determine the
average usage of the Commitment by calculating the
arithmetic daily average of the Advances outstanding
during such calendar quarter (or, during the first such
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calendar quarter, from the Closing Date through the end
of such calendar quarter). The Lender shall then
subtract such quarterly average usage (the "Used
Portion") from the Commitment Amount (and the result
thereof shall be known as the "Unused Portion"). If the
Unused Portion is greater than 50% of the Commitment
Amount, the Borrowers shall pay in arrears, within
thirty (30) days after the end of each calendar quarter,
a Non-Usage Fee (the "Non-Usage Fee") equal to 0.125%
per annum on the total amount of the Unused Portion of
the Commitment Amount during such calendar quarter. If
the Maturity Date of the Commitment is other than the
last day of a quarter, the Borrowers shall pay the
prorated portion of the quarterly Non-Usage Fee due from
the beginning of the then current calendar quarter to
and including the Maturity Date. For the purposes
hereof, quarters shall be defined as beginning April 1,
July 1, October 1 and January 1. In the absence of
manifest error, the calculation by the Lender of the
amount of any Non-Usage Fee shall be conclusive. If the
Commitment terminates at the request of the Borrowers or
as a result of an Event of Default, the Non-Usage Fee
shall be due and owing through the last day of the
current quarter.
2.9 Warehousing Fees. The Borrowers agree, at the time
of each Advance, to pay to the Lender a Warehousing Fee in the
amount of Twenty-Two Dollars ($22.00) for each Mortgage Loan pledged
as Collateral for such Advance. Warehousing Fees are due when
incurred, but shall not be delinquent if paid within fifteen (15)
days after receipt of an invoice or an account analysis statement
from the Lender.
2.10 Miscellaneous Charges. The Borrowers agree to
reimburse the Lender for miscellaneous charges and expenses
(collectively, "Miscellaneous Charges") incurred by or on behalf of
the Lender in connection with the handling and administration of
Advances, and to reimburse the Lender for Miscellaneous Charges
incurred by or on behalf of the Lender in connection with the
handling and administration of the Collateral. For the purposes
hereof, Miscellaneous Charges shall include, but not be limited to,
costs for UCC, tax lien and judgment searches conducted by the
Lender, filing fees, charges for wire transfers, check processing
charges, charges for security delivery fees, charges for overnight
delivery of Collateral to Investors, the Funding Bank's service
charges and Designated Bank Charges. Miscellaneous Charges are due
when incurred, but shall not be delinquent if paid within fifteen
(15) days after receipt of an invoice or an account analysis
statement from the Lender.
2.11 Interest Limitation. All agreements between the
Borrowers and the Lender are hereby expressly limited so that
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in no contingency or event whatsoever, whether by reason of
acceleration of maturity of this Agreement or the Note or otherwise,
shall the amount paid or agreed to be paid to the Lender for the
use, forbearance, loaning or retention of the Advances secured by
this Agreement exceed the maximum permissible under applicable law.
If from any circumstances whatsoever, fulfillment of any provisions
hereof or of the Note, or any other document securing this Agreement
at any time given shall involve transcending the limit of validity
prescribed by law, then, the obligation to be fulfilled shall
automatically be reduced to the limit of such validity, and if from
any circumstances the Lender should ever receive as interest an
amount which would exceed the highest lawful rate of interest, such
amount which would be in excess of interest shall be applied to the
reduction of the principal balance secured by the Note and not to
the payment of interest thereunder. This provision shall control
every other provision of all agreements between the Borrowers and
Lender and shall also be binding upon and available to any
subsequent holder of the Note.
2.12 Increased Costs; Capital Requirements. In the event
any applicable law, order, regulation or directive issued by any
governmental or monetary authority, or any change therein or in the
governmental or judicial interpretation or application thereof, or
compliance by the Lender with any request or directive (whether or
not having the force of law) by any governmental or monetary
authority:
2.12(a) Does or shall subject the Lender to
any tax of any kind whatsoever with respect to this
Agreement or any Advances made hereunder, or change the
basis of taxation on payments to the Lender of
principal, fees, interest or any other amount payable
hereunder (except for change in the rate of tax on the
overall gross or net income of the Lender by the
jurisdiction in which the Lender's principal office is
located);
2.12(b) Does or shall impose, modify or hold
applicable any reserve, capital requirement, special
deposit, compulsory loan or similar requirement against
assets held by, or deposits or other liabilities in or
for the account of, advances or loans by, or other
credit extended by, or any other acquisition of funds
by, any office of the Lender which are not otherwise
included in the determination of the interest rate as
calculated hereunder;
and the result of any of the foregoing is to increase the cost to
the Lender of making, renewing or maintaining any Advance or to
reduce any amount receivable in respect thereof or to reduce the
rate of return on the capital of the Lender or any
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Person controlling the Lender as it relates to credit facilities in
the nature of that evidenced by this Agreement, then, in any such
case, the Borrowers shall promptly pay any additional amounts
necessary to compensate the Lender for such additional cost or
reduced amounts receivable or reduced rate of return as determined
by the Lender with respect to this Agreement or Advances made
hereunder. If the Lender becomes entitled to claim any additional
amounts pursuant to this Section, it shall notify the Borrowers in
writing of the event by reason of which it has become so entitled
and the Borrowers shall pay such amount within fifteen (15) days
thereafter. A certificate as to any additional amount payable
pursuant to the foregoing sentence containing the calculation
thereof in reasonable detail submitted by the Lender to the
Borrowers shall be conclusive in the absence of manifest error. The
obligations of the Borrowers under this Section shall survive the
payment of all other Obligations and the termination of this
Agreement.
3. COLLATERAL.
3.1 Grant of Security Interest. As security for the
payment of the Note and for the performance of all of the Borrowers'
Obligations, the Borrowers hereby assign and transfer to the Lender
all right, title and interest in and to and grants a security
interest to the Lender in the following described property (the
"Collateral"):
3.1(a) All Mortgage Loans, including all
Mortgage Notes and Mortgages evidencing or securing such
Mortgage Loans, which from time to time are delivered or
caused to be delivered to the Lender (including delivery
to a third party on behalf of the Lender), come into the
possession, custody or control of the Lender for the
purpose of assignment or pledge or in respect of which
an Advance has been made by the Lender hereunder,
including without limitation all Mortgage Loans in
respect of which Wet Settlement Advances have been made
by the Lender (the "Pledged Mortgages").
3.1(b) All Mortgage-backed Securities which
are from time to time created in whole or in part on the
basis of the Pledged Mortgages or are delivered or
caused to be delivered to, or are otherwise in the
possession of the Lender or its agent, bailee or
custodian as assignee, or pledged to the Lender, or for
such purpose are registered by book-entry in the name of
the Lender (including delivery to or registration in the
name of a third party on behalf of the Lender) hereunder
or in respect of which from time to time an Advance has
been made by the Lender hereunder (the "Pledged
Securities").
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3.1(c) All private mortgage insurance and
all commitments issued by the FHA or VA to insure or
guarantee any Mortgage Loans included in the Pledged
Mortgages; all Purchase Commitments held by the
Borrowers covering the Pledged Mortgages or the Pledged
Securities and all proceeds resulting from the sale
thereof to Investors pursuant thereto; and all personal
property, contract rights, servicing and servicing fees
and income or other proceeds, amounts and payments
payable to the Borrowers as compensation or
reimbursement, accounts and general intangibles of
whatsoever kind relating to the Pledged Mortgages, the
Pledged Securities, said FHA commitments or VA
commitments and the Purchase Commitments, and all other
documents or instruments relating to the Pledged
Mortgages and the Pledged Securities, including, without
limitation, any interest of the Borrowers in any fire,
casualty or hazard insurance policies and any awards
made by any public body or decreed by any court of
competent jurisdiction for a taking or for degradation
of value in any eminent domain proceeding as the same
relate to the Pledged Mortgages.
3.1(d) All right, title and interest of the
Borrowers in and to all escrow accounts, documents,
instruments, files, surveys, certificates,
correspondence, appraisals, computer programs, tapes,
discs, cards, accounting records (including all
information, records, tapes, data, programs, discs and
cards necessary or helpful in the administration or
servicing of the Collateral) and other information and
data of the Borrowers relating to the Collateral.
3.1(e) All right, title and interest of the
Borrowers in and to any Hedging Arrangements entered
into to protect the Borrowers against changes in the
value of Pledged Mortgages or Pledged Securities,
including, without limitation, all rights to payment
arising under such Hedging Arrangements.
3.1(f) All now existing or hereafter
acquired cash delivered to or otherwise in the
possession of the Lender or its agent, bailee or
custodian or designated on the books and records of the
Borrowers as assigned and pledged to the Lender.
3.1(g) All cash and non-cash proceeds of the
Collateral, including all dividends, distributions and
other rights in connection with, and all additions to,
modifications of and replacements for, the Collateral,
and all products and proceeds of the Collateral,
together with whatever is receivable or received when
the Collateral or proceeds thereof are sold, collected,
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exchanged or otherwise disposed of, whether such
disposition is voluntary or involuntary, including,
without limitation, all rights to payment with respect
to any cause of action affecting or relating to the
Collateral or proceeds thereof.
3.2 Release of Security Interest in Collateral.
3.2(a) Pledged Mortgages shall be released
from the Lender's security interest only against payment
to the Lender of the Release Amount in connection with
such Pledged Mortgages.
3.2(b) If Pledged Mortgages are to be
transferred to a pool custodian or to Freddie Mac or
Fannie Mae for inclusion in a Mortgage Pool, the
Lender's security interest in such Pledged Mortgages
shall be released only against payment to the Lender of
the Release Amount in connection with such Pledged
Mortgages. If the Lender's security interest in the
Pledged Mortgages comprising the Mortgage Pool is not
released prior to the issuance of the Mortgage-backed
Security, then the Mortgage-backed Security, when
issued, shall be a Pledged Security. The Lender's
security interest shall continue in such Pledged
Mortgages and the Pledged Security. The Lender shall be
entitled to possession of such Pledged Security in the
manner provided below.
3.2(c) If Pledged Mortgages are transferred
to an Approved Custodian and included in an Eligible
Mortgage Pool, the Lender's security interest in the
Pledged Mortgages comprising the Eligible Mortgage Pool
shall be released upon the issuance of the Agency
Security, which shall be a Pledged Security. The
Lender's security interest in such Pledged Security
shall be released only against payment to the Lender of
the Release Amount in connection with the Pledged
Mortgages backing such Pledged Security. The Lender
shall be entitled to possession of such Pledged Security
in the manner provided below.
3.2(d) The Lender shall have the exclusive
right to the possession of the Pledged Securities or, if
the Pledged Securities are issued in book-entry form or
issued in certificated form and delivered to a clearing
corporation (as such term is defined in the Uniform
Commercial Code of Minnesota) or its nominee, the Lender
shall have the right to have the Pledged Securities
registered in the name of a securities intermediary (as
such term is defined in the Uniform Commercial Code of
Minnesota) in an account containing only customer
securities and credited to an account of the Lender. The
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Lender shall have the right to cause delivery of the
Pledged Securities to be made to the Investor or the
Pledged Securities credited to the account of the
Investor or the Investor's designee only against payment
therefor. The Borrowers acknowledge that the Lender may
enter into one or more standing arrangements with other
financial institutions with respect to Pledged
Securities issued in book entry form or issued in
certificated form and delivered to a clearing
corporation, pursuant to which such Pledged Securities
are registered in the name of such financial
institution, as agent or securities intermediary for the
Lender, and the Borrowers agree upon request of the
Lender to execute and deliver to such other financial
institutions the Borrowers' written concurrence in any
such standing arrangements.
3.2(e) Prior to the occurrence of an Event
of Default, the Borrowers may redeem a Pledged Mortgage
or Pledged Security from the Lender's security interest
by notifying the Lender of its intention to redeem such
Pledged Mortgage or Pledged Security from pledge and
either (a) paying, or causing an Investor to pay, to the
Lender, for application to prepayment of the principal
balance of the Note, the Release Amount in connection
with such Pledged Mortgage or Pledged Security, or (b)
delivering substitute Collateral which, in addition to
being acceptable to the Lender in its sole discretion
will, when included with the Collateral, result in a
Collateral Value of all Collateral held by the Lender
which is at least equal to the aggregate outstanding
Advances.
3.2(f) Following the occurrence of a Default
or Event of Default, the Lender may, with no liability
to the Borrowers or any Person, continue to release its
security interest in any Pledged Mortgage or Pledged
Security against payment of the Release Amount in
connection with such Pledged Mortgage or Pledged
Security.
3.2(g) The amount (the "Release Amount") to
be paid by the Borrowers to obtain the release of the
Lender's security interest in a Pledged Mortgage shall
be (i) prior to the occurrence of an Event of Default,
the principal amount of the Advances made against such
Pledged Mortgage, and (ii) from and after the occurrence
and during the continuance of an Event of Default, the
Committed Purchase Price of such Pledged Mortgage or, if
there is no Purchase Commitment therefor, the amount
paid to the Lender in a commercially reasonable
disposition thereof.
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3.3 Mark-to-Market. If at any time the aggregate
outstanding principal balance of Advances made against uncommitted
Subprime First Mortgage Loans exceeds ninety-eight percent (98%) of
the Fair Market Value or Advances made against uncommitted Subprime
Second Mortgage Loans exceeds ninety-five percent (95%) of the Fair
Market Value of the Pledged Mortgages and Pledged Securities, then
pledged hereunder, the Borrowers shall within two (2) Business Days
after Notice by the Lender either (a) repay the Advances made
against uncommitted Subprime First Mortgage Loans and uncommitted
Subprime Second Mortgage Loans in an amount sufficient to reduce the
aggregate principal balance thereof to or below ninety-eight percent
(98%) and ninety-five percent (95%), respectively, of the Fair
Market Value of such Pledged Mortgages and Pledged Securities or (b)
pledge to the Lender additional Mortgage Loans owned by the
Borrowers, or other property of a type and with a value satisfactory
to the Lender in its sole discretion, with a Fair Market Value
sufficient to increase the Fair Market Value of the Pledged
Mortgages, the Pledged Securities and such other assets to any
amount such that ninety-eight percent (98%) and ninety-five percent
(95%), of the aggregate principal balance of Advances made against
uncommitted Subprime First Mortgage Loans and uncommitted Subprime
Second Mortgage Loans, respectively, does not exceed such Fair
Market Value. The Borrowers authorize the Lender, without the
requirement of prior demand or notice from the Lender, to cause the
Funding Bank to charge the Borrowers' accounts for the amount of any
prepayment required under this Section 3.3. Such prepayments shall
be applied first, to the Advances made against uncommitted Subprime
Second Mortgage Loans, and second, to the Advances made against
uncommitted Subprime First Mortgage Loans, ratably in accordance
with the outstanding principal balance of each Advance made against
uncommitted Subprime First Mortgage Loans. The Lender may at any
time, and shall no less frequently than once each month, calculate
the Fair Market Value of the Pledged Mortgages and Pledged
Securities, and the Borrowers shall provide to the Lender such
information concerning the Pledged Mortgages and the Pledged
Securities as the Lender may request in connection with such
calculation.
3.4 Delivery of Additional Collateral or Mandatory
Prepayment. At any time that the aggregate Collateral Value of the
Pledged Mortgages and Pledged Securities then pledged hereunder is
less than the aggregate amount of the Advances then outstanding
hereunder, the Lender may request, and the Borrowers shall within
two (2) Business Days after Notice by the Lender (a) deliver to the
Lender for pledge hereunder additional Mortgage Loans, and/or cash,
at the Borrower's option, with a Collateral Value sufficient to
cover the difference between the Collateral Value of the Pledged
Mortgages and Pledged Securities pledged and the aggregate
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amount of Advances outstanding hereunder, and/or (b) repay the
Advances in an amount sufficient to reduce the aggregate balance
thereof outstanding to or below the Collateral Value of the Pledged
Mortgages and Pledged Securities pledged hereunder.
3.5 Release of Collateral.
3.5(a) The Lender may deliver documents
relating to the Collateral to the Borrowers for
correction or completion pursuant to a Trust Receipt.
3.5(b) Prior to the occurrence of a Default
or Event of Default, upon delivery by the Borrowers to
the Lender of shipping instructions pursuant to Exhibit
D-SF, the Lender will promptly transmit Pledged
Mortgages or Pledged Securities and all related loan
documents or pool documents to the applicable Investor,
Approved Custodian or other party.
3.5(c) Upon receipt of Notice from the
Borrowers under Section 2.5(g) hereof, and repayment of
the Release Amount with respect to a Pledged Mortgage
identified by the Borrowers, any Collateral Documents
relating to the redeemed Pledged Mortgage or Mortgage
Loan backing a Pledged Security which have not been
delivered to an Investor or Approved Custodian shall
promptly be released by the Lender to the Borrowers.
3.6 Collection and Servicing Rights. So long as no Event
of Default shall have occurred and be continuing, the Borrowers
shall be entitled to service and receive and collect directly all
sums payable to the Borrowers in respect of the Collateral other
than proceeds of any Purchase Commitment or proceeds of the sale of
any Collateral. Following the occurrence of any Event of Default,
the Lender or its designee shall thereafter be entitled to service
and receive and collect all sums payable to the Borrowers in respect
of the Collateral, and in such case (a) the Lender or its designee
in its discretion may, in its own name, in the name of the Borrowers
or otherwise, demand, sue for, collect or receive any money or
property at any time payable or receivable on account of or in
exchange for any of the Collateral, but shall be under no obligation
to do so, (b) the Borrowers shall, if the Lender so requests, hold
in trust for the benefit of the Lender and forthwith pay to the
Lender at its office designated by Notice hereunder, all amounts
thereafter received by the Borrowers upon or in respect of any of
the Collateral, advising the Lender as to the source of such funds,
and (c) all amounts so received and collected by the Lender shall be
held by it as part of the Collateral.
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3.7 Return of Collateral at End of Commitment. If (a)
the Commitment shall have expired or been terminated, and (b)
no Advances, interest or other Obligations shall be
outstanding and unpaid, the Lender shall deliver or release
its security interest and shall deliver all Collateral in its
possession to the Borrowers at the Borrowers' expense. The
receipt of the Borrowers for any Collateral released or
delivered to the Borrowers pursuant to any provision of this
Agreement shall be a complete and full acquittance for the
Collateral so returned, and the Lender shall thereafter be
discharged from any liability or responsibility therefor.
4. CONDITIONS PRECEDENT.
4.1 Initial Advance. The obligation of the Lender to
make the initial Advance under this Agreement is subject to the
satisfaction, in the sole discretion of the Lender, on or before the
date thereof of the following conditions precedent:
4.1(a) The Lender shall have received the
following, all of which must be satisfactory in form and
content to the Lender, in its sole discretion:
(1) The Note and this Agreement
duly executed by the Borrowers.
(2) BNC's articles of
incorporation as certified by the Secretary
of State of BNC's incorporation, bylaws
certified by the corporate secretary of BNC,
and certificates of good standing dated no
less recently than ninety (90) days prior to
the date of this Agreement and a
certification from the Franchise Tax Board
of the State of California stating that BNC
is in good standing with the Franchise Tax
Board.
(3) A resolution of the board of
directors of BNC, certified as of the date
of this Agreement by its corporate
secretary, authorizing the execution,
delivery and performance of this Agreement
and the other Loan Documents, and all other
instruments or documents to be delivered by
BNC pursuant to this Agreement.
(4) A certificate of BNC's
corporate secretary as to the incumbency and
authenticity of the signatures of the
officers of BNC executing this Agreement and
the other Loan Documents and each Advance
Request and all other instruments or
documents to be delivered pursuant hereto
(the
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Lender being entitled to rely thereon until
a new such certificate has been furnished to
the Lender).
(5) Financial statements of BNC
and its Subsidiaries, on a consolidated and
consolidating basis containing a balance
sheet as of June 30, 1998, and related
statements of income, changes in
stockholders' equity and cash flows for the
period ended on such date, all prepared in
accordance with GAAP applied on a basis
consistent with prior periods and audited by
independent certified public accountants of
recognized standing acceptable to the
Lender.
(6) Financial statements of BNC
and its Subsidiaries, on a consolidated and
consolidating basis containing a balance
sheet as of , related statements of income
and changes in stockholders' equity for the
period ended on such date prepared in
accordance with GAAP applied on a basis
consistent with the BNC's most recent
audited financial statements.
(7) Mortgage Logic's articles of
incorporation as certified by the Secretary
of State of the Mortgage Logic's
incorporation, bylaws certified by the
corporate secretary of Mortgage Logic, and
certificates of good standing dated no less
recently than ninety (90) days prior to the
date of this Agreement and a certification
from the Franchise Tax Board of the State of
California stating that Mortgage Logic is in
good standing with the Franchise Tax Board.
(8) A resolution of the board of
directors of Mortgage Logic, certified as of
the date of this Agreement by its corporate
secretary, authorizing the execution,
delivery and performance of this Agreement
and the other Loan Documents, and all other
instruments or documents to be delivered by
Mortgage Logic pursuant to this Agreement.
(9) A certificate of Mortgage
Logic's corporate secretary as to the
incumbency and authenticity of the
signatures of the officers of Mortgage Logic
executing this Agreement and the other Loan
Documents and each Advance Request and all
other instruments or documents to be
delivered pursuant hereto (the Lender being
entitled to rely thereon until a new such
certificate has been furnished to the
Lender).
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(10) A favorable written opinion
of counsel to BNC and Mortgage Logic (or of
separate counsel at the option of BNC and
Mortgage Logic), dated as of the date of
this Agreement substantially in the form of
Exhibit H attached hereto, addressed to the
Lender.
(11) A Uniform Commercial Code,
tax lien and judgment searches of the
appropriate public records for BNC and
Mortgage Logic, which search shall not have
disclosed the existence of any prior Lien on
the Collateral other than in favor of the
Lender or as permitted hereunder.
(12) Copies of the certificates,
documents or other written instruments which
evidence the Borrowers' eligibility
described in Section 5.13 hereof, all in
form and substance satisfactory to the
Lender.
(13) Copies of the Borrowers'
errors and omissions insurance policy or
mortgage impairment insurance policy and
blanket bond coverage policy, or
certificates in lieu of policies, all in
form and content satisfactory to the Lender,
showing compliance by the Borrowers as of
the date of this Agreement with the related
provisions of Section 6.8 hereof.
(14) Executed financing
statements in recordable form covering the
Collateral and ready for filing in all
jurisdictions required by the Lender.
(15) Receipt by the Lender of
any fees due on the date hereof, including,
but not limited to, Commitment Fees and
document production fees.
(16) Evidence that all accounts
necessary into which Advances will be funded
have been established at the Funding Bank
and receipt of a fully executed Funding Bank
Agreement.
(17) An agreement among the
Borrowers, the Lender and Fannie Mae,
pursuant to which Fannie Mae agrees to send
all cash proceeds of Mortgage Loans sold by
the Borrowers to Fannie Mae to the Cash
Collateral Account.
4.1(b) All directors, officers and
shareholders of the Borrowers, all Affiliates of the
Borrowers or of any Subsidiary of BNC or Mortgage Logic,
to whom or to
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any of whom the Borrowers shall be indebted as of the
date of this Agreement, which indebtedness has a term of
more than one (1) year or is in excess of One Hundred
Thousand Dollars ($100,000) shall have subordinated such
indebtedness to the Obligations, by executing a
Subordination of Debt Agreement, in the form of Exhibit
F hereto; and the Lender shall have received an executed
copy of any such Subordination of Debt Agreement,
certified by the corporate secretary of the each
Borrower to be true and complete and in full force and
effect as of the date of the Advance.
4.2 Each Advance. The obligation of the Lender to make
the initial and each subsequent Advance under this Agreement is
subject to the satisfaction, in the sole discretion of the Lender,
as of the date of each such Advance, of the following additional
conditions precedent:
4.2(a) The Borrowers shall have delivered to
the Lender the Advance Request, Collateral Documents,
and documents relating to Wet Settlement Advances,
called for under, and shall have satisfied the
procedures set forth in, Section 2.2 hereof and the
applicable Exhibits hereto described in that Section,
according to the type of the requested Advance. All
items delivered to the Lender shall be satisfactory to
the Lender in form and content, and the Lender may
reject such of them as do not meet the requirements of
this Agreement or of the related Purchase Commitment.
4.2(b) The Lender shall have received
evidence satisfactory to it as to the making and/or
continuation of any book entry or the due filing and
recording in all appropriate offices of all financing
statements and other instruments as may be necessary to
perfect the security interest of the Lender in the
Collateral under the Uniform Commercial Code or other
applicable law.
4.2(c) The representations and warranties of
the Borrowers contained in Article 5 hereof shall be
accurate and complete in all material respects as if
made on and as of the date of each Advance.
4.2(d) The Borrowers shall have performed
all agreements to be performed by it hereunder, and
after giving effect to the requested Advance, there
shall exist no Default or Event of Default hereunder.
4.2(e) The Borrowers shall not have incurred
any material liabilities, direct or contingent, other
than in the ordinary course of its business, since the
Statement Date.
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4.2(f) The Lender shall have received from
counsel for the Borrowers, if requested by the Lender in
its sole discretion, an updated opinion, in form and
substance satisfactory to the Lender, addressed to the
Lender and dated as of the date of such Advance,
covering such of the matters as the Lender may
reasonably request.
Delivery of an Advance Request by the Borrowers shall be
deemed a representation by the Borrowers that all conditions set
forth in this Section 4.2 shall have been satisfied as of the date
of such Advance.
5. REPRESENTATIONS AND WARRANTIES.
The Borrowers hereby represent and warrant to the
Lender, as of the date of this Agreement and as of the date of each
Advance Request and the making of each Advance, that:
5.1 Organization; Good Standing; Subsidiaries. Each of
the Borrowers and each Subsidiary of the Borrowers is a
corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its
incorporation, has the full legal power and authority to own
its property and to carry on its business as currently
conducted and is duly qualified as a foreign corporation to do
business and is in good standing in each jurisdiction in which
the transaction of its business makes such qualification
necessary, except in jurisdictions, if any, where a failure to
be in good standing has no material adverse effect on the
business, operations, assets or financial condition of the
Borrowers or any such Subsidiary. For the purposes hereof,
good standing shall include qualification for any and all
licenses and payment of any and all taxes required in the
jurisdiction of its incorporation and in each jurisdiction in
which the Borrowers transacts business. The Borrowers have no
Subsidiaries except as set forth on Exhibit G hereto. Exhibit
G sets forth with respect to each such Subsidiary, its name,
address, place of incorporation, each state in which it is
qualified as a foreign corporation, and the percentage
ownership of its capital stock by the Borrowers.
5.2 Authorization and Enforceability. The Borrowers have
the power and authority to execute, deliver and perform this
Agreement, the Note and all other Loan Documents to which the
Borrowers are a party and to make the borrowings hereunder. The
execution, delivery and performance by the Borrowers of this
Agreement, the Note and all other Loan Documents to which the
Borrowers are a party and the making of the borrowings hereunder and
thereunder, have been duly and validly authorized by all necessary
corporate action on the part of the Borrowers (none of which actions
has been modified
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or rescinded, and all of which actions are in full force and effect)
and do not and will not conflict with or violate any provision of
law, of any judgments binding upon the Borrowers, or of the articles
of incorporation or by-laws of the Borrowers, conflict with or
result in a breach of or constitute a default or require any consent
under, or result in the creation of any Lien upon any property or
assets of the Borrowers other than the Lien on the Collateral
granted hereunder, or result in or require the acceleration of any
indebtedness of the Borrowers pursuant to any agreement, instrument
or indenture to which the Borrowers are a party or by which the
Borrowers or their property may be bound or affected. This
Agreement, the Note and all other Loan Documents contemplated hereby
or thereby constitute legal, valid, and binding obligations of the
Borrowers or of the Guarantor, respectively, enforceable in
accordance with their respective terms, except as limited by
bankruptcy, insolvency or other such laws affecting the enforcement
of creditors' rights and by general principles of equity.
5.3 Approvals. The execution and delivery of this
Agreement, the Note and all other Loan Documents and the performance
of the Borrowers' obligations hereunder and thereunder and the
validity and enforceability hereof and thereof do not require any
license, consent, approval or other action of any state or federal
agency or governmental or regulatory authority other than those
which have been obtained and remain in full force and effect.
5.4 Financial Condition. The balance sheet of BNC and
its Subsidiaries, on a consolidated and consolidating basis, as of
the Statement Date, and the related statements of income and changes
in stockholders' equity for the fiscal period ended on the Statement
Date, heretofore furnished to the Lender, fairly present the
financial condition of BNC and its Subsidiaries as of the Statement
Date and the results of its operations for the fiscal period ended
on the Statement Date. The Borrowers had, on the Statement Date, no
known material liabilities, direct or indirect, fixed or contingent,
matured or unmatured, or liabilities for taxes, long-term leases or
unusual forward or long-term commitments not disclosed by, or
reserved against in, said balance sheet and related statements, and
at the present time there are no material unrealized or anticipated
losses from any loans, advances or other commitments of the
Borrowers except as heretofore disclosed to the Lender in writing.
Said financial statements were prepared in accordance with GAAP
applied on a consistent basis throughout the periods involved. Since
the Statement Date, there has been no material adverse change in the
business, operations, assets or financial condition of the Borrowers
(and their Subsidiaries), nor are the Borrowers aware of any state
of facts which (with or without notice or
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lapse of time or both) would or could result in any such material
adverse change.
5.5 Litigation. There are no actions, claims, suits or
proceedings pending or, to the knowledge of the Borrowers,
threatened or reasonably anticipated against or affecting the
Borrowers or any Subsidiary of the Borrowers in any court or before
any arbitrator or before any government commission, board, bureau or
other administrative agency which, if adversely determined, may
reasonably be expected to result in any material and adverse change
in the business, operations, assets or financial condition of the
Borrowers as a whole, or which would affect the validity or
enforceability of this Agreement, the Note or any other Loan
Document.
5.6 Compliance with Laws. Neither of the Borrowers and
none of their Subsidiaries are in violation of any provision of any
law, or of any judgment, award, rule, regulation, order, decree,
writ or injunction of any court or public regulatory body or
authority which might have a material adverse effect on the
business, operations, assets or financial condition of the Borrowers
and their Subsidiaries as a whole or which would affect the validity
or enforceability of this Agreement, the Note or any other Loan
Document.
5.7 Regulation U. The Borrowers are not engaged
principally, or as one of its important activities, in the business
of extending credit for the purpose of purchasing or carrying Margin
Stock, and no part of the proceeds of any Advances made hereunder
will be used to purchase or carry any Margin Stock or to extend
credit to others for the purpose of purchasing or carrying any
Margin Stock.
5.8 Investment Company Act. Neither of the Borrowers are
an "investment company" or controlled by an "investment company"
within the meaning of the Investment Company Act of 1940, as
amended.
5.9 Payment of Taxes. The Borrowers and each of their
Subsidiaries has filed or caused to be filed all federal, state and
local income, excise, property and other tax returns with respect to
the operations of the Borrowers and their Subsidiaries which are
required to be filed, all such returns are true and correct, and the
Borrowers and each of their Subsidiaries have paid or caused to be
paid all taxes as shown on such returns or on any assessment, to the
extent that such taxes have become due, including, but not limited
to, all FICA payments and withholding taxes, if appropriate. The
amounts reserved, as a liability for income and other taxes payable,
in the financial statements described in Section 5.4 hereof are
sufficient for payment of all unpaid federal, state and local
income, excise, property and other taxes, whether or not
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disputed, of the Borrowers and their Subsidiaries accrued for or
applicable to the period and on the dates of such financial
statements and all years and periods prior thereto and for which
either Borrower or any of their Subsidiaries may be liable in their
own right or as transferee of the assets of, or as successor to, any
other Person. No tax Liens have been filed and no material claims
are being asserted with respect to any such taxes, fees or charges.
5.10 Agreements. Neither of the Borrowers and none of
their Subsidiaries of the Borrowers are a party to any agreement,
instrument or indenture or subject to any restriction materially and
adversely affecting its business, operations, assets or financial
condition, except as disclosed in the financial statements described
in Section 5.4 hereof. Neither of the Borrowers and none of the
Subsidiaries of the Borrowers are in default in the performance,
observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement, instrument, or indenture
which default could have a material adverse effect on the business,
operations, properties or financial condition of the Borrowers and
their Subsidiaries as a whole. No holder of any material
indebtedness of the Borrowers or any of their Subsidiaries has given
notice of any asserted default thereunder, and no liquidation or
dissolution of the Borrowers or of any of their Subsidiaries and no
receivership, insolvency, bankruptcy, reorganization or other
similar proceedings relative to the Borrowers or of any of their
Subsidiaries or any of their properties is pending, or to the
knowledge of the Borrowers, threatened.
5.11 Title to Properties. Each of the Borrowers and each
Subsidiary of the Borrowers has good, valid, insurable (in the case
of real property) and marketable title to all of its properties and
assets (whether real or personal, tangible or intangible) reflected
on the financial statements described in Section 5.4 hereof, except
for such properties and assets as have been disposed of since the
date of such financial statements as no longer used or useful in the
conduct of its business or as have been disposed of in the ordinary
course of business.
5.12 ERISA. All plans ("Plans") of a type described in
Section 3(3) of ERISA in respect of which either of the Borrowers or
any Subsidiary of the Borrowers is an "Employer," as defined in
Section 3(5) of ERISA, are in substantial compliance with ERISA, and
none of such Plans is insolvent or in reorganization, has an
accumulated or waived funding deficiency within the meaning of
Section 412 of the Internal Revenue Code, and none of the Borrowers
and none of their Subsidiaries has incurred any material liability
(including any material contingent liability) to or on account of
any
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such Plan pursuant to Sections 4062, 4063, 4064, 4201 or 4204 of
ERISA; and no proceedings have been instituted to terminate any such
Plan, and no condition exists which presents a material risk to any
of the Borrowers or any of their Subsidiaries of incurring a
liability to or on account of any such Plan pursuant to any of the
foregoing Sections of ERISA. No Plan or trust forming a part thereof
has been terminated since September 1, 1974.
5.13 Eligibility. The Borrowers are approved and
qualified and in good standing as a lender or seller/servicer, as
set forth below, and meet all requirements applicable to their
status as such:
5.13(a) RFC approved seller/servicer of
Mortgage Loans, eligible to originate, purchase, hold,
sell and service Mortgage Loans to be sold to RFC.
5.14 Place of Business. The principal place of business
of the Borrowers is 1063 McGaw Avenue, Irvine, CA 92614.
5.15 Special Representations Concerning Collateral. The
Borrowers hereby represent and warrant to the Lender, as of the date
of this Agreement and as of the date of each Advance Request and the
making of each Advance, that:
5.15(a) The Borrowers are the legal and
equitable owner and holder, free and clear of all Liens
(other than Liens granted hereunder), of the Pledged
Mortgages and the Pledged Securities. All Pledged
Mortgages, Pledged Securities and Purchase Commitments
have been duly authorized and validly issued to the
Borrowers, and all of the foregoing items of Collateral
comply with all of the requirements of this Agreement,
and have been and will continue to be validly pledged or
assigned to the Lender, subject to no other Liens.
5.15(b) The Borrowers have, and will
continue to have, the full right, power and authority to
pledge the Collateral pledged and to be pledged by it
hereunder.
5.15(c) Any Mortgage Loan and any related
document included in the Pledged Mortgages (1) has been
duly executed and delivered by the parties thereto at a
closing held not more than ninety (90) days prior to the
date of the Advance Request for such Mortgage Loan, (2)
has been made in compliance with all requirements of the
Real Estate Settlement Procedures Act, Equal Credit
Opportunity Act, the federal Truth-In-Lending Act and
all other applicable laws and regulations, (3) is and
will continue to be valid and enforceable in accordance
with its terms, without defense or offset, (4) has not
been
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modified or amended except in writing, which writing is
part of the Collateral Documents, nor any requirements
thereof waived, (5) has been evaluated or appraised in
accordance with Title XI of FIRREA, and (6) complies and
will continue to comply with the terms of this Agreement
and, if applicable, with the related Purchase Commitment
held by the Borrowers. Each Mortgage Loan other than a
Home Equity Loan has been fully advanced in the face
amount thereof, each First Mortgage is a first Lien on
the premises described therein and each Second Mortgage
is secured by a second Lien on the premises described
therein, and has or will have a title insurance policy,
in American Land Title Association form or equivalent
thereof, from a recognized title insurance company,
insuring the priority of the Lien of the Mortgage and
meeting the usual requirements of Investors purchasing
such Mortgage Loans.
5.15(d) No default has occurred and is
continuing for more than sixty (60) days under any
Mortgage Loan included in the Pledged Mortgages without
the Advance against such Pledged Mortgage having been
repaid in accordance with Section 2.5(c)(3) hereof,
provided, however, that with respect to Pledged
Mortgages which have already been pledged as Collateral
hereunder, if any default has occurred, the Borrowers
will promptly notify the Lender.
5.15(e) The Borrowers have complied and will
continue to comply in all material respects with all
laws, rules and regulations in respect of the FHA
insurance or VA guaranty of each Mortgage Loan included
in the Pledged Mortgages designated by the Borrowers as
an FHA insured or VA guaranteed Mortgage Loan, and such
insurance or guarantee is and will continue to be in
full force and effect.
5.15(f) All fire and casualty policies
covering the premises encumbered by each Mortgage
included in the Pledged Mortgages (1) name and will
continue to name the Borrowers and its successors and
assigns as the insured under a standard mortgagee
clause, (2) are and will continue to be in full force
and effect, and (3) afford and will continue to afford
insurance against fire and such other risks as are
usually insured against in the broad form of extended
coverage insurance from time to time available.
5.15(g) Pledged Mortgages secured by
premises located in a special flood hazard area
designated as such by the Director of the Federal
Emergency Management Agency are and shall continue to be
covered by special
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flood insurance under the National Flood Insurance
Program.
5.15(h) Each Pledged Mortgage against which
an Advance is made on the basis of a Purchase Commitment
meets all requirements of such Purchase Commitment. The
Borrowers shall assure that Pledged Mortgages which are
intended to be used in the formation of Mortgage-backed
Securities shall comply or, prior to the formation of
any such Mortgage-backed Security, shall comply with the
requirements of the governmental instrumentality,
department, agency or other Person issuing or
guaranteeing such Mortgage-backed Security. The
Borrowers shall assure that Uncommitted Mortgage Loans
pledged hereunder meet all requirements of one or more
Investors with which the Borrowers have agreements or
other arrangements to sell similar Mortgage Loans.
5.15(i) For Pledged Mortgages which will be
used to back Ginnie Mae Mortgage-backed Securities, the
Borrowers have received from Ginnie Mae a Confirmation
Notice or Confirmation Notices for Request Additional
Commitment Authority and for Request Pool Numbers, and
there remains available thereunder a commitment on the
part of Ginnie Mae sufficient to permit the issuance of
Ginnie Mae Mortgage-backed Securities in an amount at
least equal to the amount of such Pledged Mortgages
designated by the Borrowers as the Mortgage Loans to be
used to back such Ginnie Mae Mortgage-backed Securities;
each such Confirmation Notice is in full force and
effect; each of such Pledged Mortgages has been assigned
by the Borrowers to one of such Pool Numbers and a
portion of the available Ginnie Mae Commitment has been
allocated thereto by the Borrowers, in an amount at
least equal to such Pledged Mortgages; and each such
assignment and allocation has been reflected in the
books and records of the Borrowers.
5.15(j) Each Pledged Mortgage secured by
real property to which a Manufactured Home is affixed
will create a valid Lien on such Manufactured Home that
will have priority over any other Lien on such
Manufactured Home, whether or not arising under
applicable real property law.
5.16 Servicing. Attached hereto as Exhibit E is a true
and complete list of the Borrowers' Servicing Portfolio. All of the
Borrowers' Servicing Contracts are in full force and effect and,
except as otherwise indicated, are unencumbered by Liens. No default
or event which, with notice or lapse of time or both, would become a
default, exists under any such Servicing Contract.
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5.17 No Adverse Selection. The Borrowers have not
selected the Collateral in a manner so as to affect adversely
the Lender's interests.
5.18 Year 2000 Compliance. The Borrowers have conducted
a comprehensive review and assessment of the Borrowers' computer
applications and made inquiry of the Borrowers' key suppliers,
vendors, customers, and Investors with respect to the "Year 2000
Problem" and, based on that review and inquiry, the Borrowers do not
believe the Year 2000 Problem will result in a material adverse
change in the Borrowers' business condition (financial or
otherwise), operations, properties or prospects, or ability to repay
the credit.
6. AFFIRMATIVE COVENANTS.
The Borrowers hereby covenant and agree that, so long as
the Commitment is outstanding or there remain any Obligations to be
paid or performed under this Agreement or under any other Loan
Document, the Borrowers shall:
6.1 Payment of Note. Punctually pay or cause to be paid
all Obligations payable hereunder and under the Note in accordance
with the terms hereof and thereof.
6.2 Financial Statements and Other Reports. Deliver to
the Lender:
6.2(a) As soon as available and in any event
within thirty (30) days after the end of each calendar
month of BNC, statements of income and changes in
stockholders' equity of BNC and its Subsidiaries, on a
consolidated and consolidating basis for the immediately
preceding month and for the period from the beginning of
the fiscal year to the end of such calendar month, and
the related balance sheet as of the end of the
immediately preceding month, all in reasonable detail
and certified as to the fairness of presentation by the
chief financial officer of BNC, subject, however, to
year-end audit adjustments.
6.2(b) As soon as available and in any event
within ninety (90) days after the close of each fiscal
year of BNC, statements of income, changes in
stockholders' equity and cash flow of BNC and its
Subsidiaries, on a consolidated and consolidating basis
for such year, and the related balance sheet as of the
end of such year (setting forth in comparative form the
corresponding figures for the preceding fiscal year),
all in reasonable detail and accompanied by an opinion
(which opinion shall not be qualified due to possible
failure to
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take all appropriate steps to successfully address Year
2000 Problem) in form and substance satisfactory to the
Lender and prepared by an accounting firm reasonably
satisfactory to the Lender, or other independent
certified public accountants of recognized standing
selected by BNC and acceptable to the Lender, as to said
financial statements and a certificate signed by the
chief financial officer of BNC stating that said
financial statements fairly present the financial
condition and results of operations of BNC and its
Subsidiaries as of the end of, and for, such year.
6.2(c) Together with each delivery of
financial statements required in this Section 6.2, an
Officer's Certificate substantially in the form of
Exhibit I-SF hereto: (1) setting forth in reasonable
detail all calculations necessary to show that BNC and
its Subsidiaries are in compliance with the requirements
of Sections 7.6, 7.7, 7.8, 7.9 and 7.10 hereof as of the
end of such month or year (or, if the Borrowers are not
in compliance, showing the extent of non-compliance and
specifying the period of non-compliance and what actions
the Borrowers have taken, are taking or propose to take
with respect thereto); (2) certifying that the Borrowers
were, as of the end of the period, in compliance and in
good standing with applicable HUD, Ginnie Mae, or
Investor net worth requirements; (3) certifying that the
representation set forth in Section 5.18 hereof is true
and correct as of the date of such certificate or, if
such representation is not true and correct as of such
date, specifying the nature of the problem and what
action the Borrowers have taken, are taking and propose
to take with request thereto, and (4) stating that the
signers have reviewed the terms of this Agreement and
have made, or caused to be made under their supervision,
a review in reasonable detail of the transactions and
conditions of the Borrowers (and, if applicable, their
Subsidiaries) during the accounting period covered by
such financial statements and that such review has not
disclosed the existence during or at the end of such
accounting period, and that the signers do not have
knowledge of the existence as of the date of the
Officer's Certificate, of any Default or Event of
Default, or if any Default or Event of Default existed
or exists, specifying the nature and period of the
existence thereof and what action the Borrowers have
taken, are taking and propose to take with respect
thereto.
6.2(d) As soon as available and in any event
within thirty (30) days after the end of each calendar
month, a commitment summary and pipeline report
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substantially in the form of Exhibit L (the "Commitment
Summary Report") dated as of the end of such month.
6.2(e) As soon as available and in any event
within thirty (30) days after the end of each calendar
month, a consolidated report (the "Servicing Portfolio
Report") as of the end of the calendar month detailing,
as to all Mortgage Loans the servicing rights to which
are owned by the Borrowers (specified by investor type,
recourse and non-recourse) regardless of whether such
Mortgage Loans are Pledged Mortgages and which report
shall indicate Mortgage Loans which (A) are current and
in good standing, (B) are more than 30, 60 or 90 days
past due, respectively, (C) are, for Mortgage Loans
serviced with recourse, more than three hundred sixty
(360) days past due, (D) are the subject of pending
bankruptcy or foreclosure proceedings, or (E) have been
converted (through foreclosure or other proceedings in
lieu thereof) by the Borrowers into real estate owned by
the Borrowers.
6.2(f) As soon as available and in any event
within thirty (30) days after the end of each calendar
month, a consolidated report (the "Loan Production
Report") as of the end of such month, presenting the
total dollar volume and the number of Mortgage Loans
originated or purchased during such month and the fiscal
year to date, specified by property type and loan type
(e.g. FHA, Ginnie Mae, Fannie Mae, Freddie Mac,
Conventional, etc.)
6.2(g) As soon as available and in any event
within thirty (30) days after the end of each calendar
month, a delinquency report (the "Delinquency Report")
as of the end of such month, itemizing which Mortgage
Loans owned by the Borrowers or financed under a credit
facility of the Borrowers are more than 30, 60 and 90
days delinquent and indicating under which credit
facility of the Borrowers each Mortgage Loan is
financed.
6.2(h) Reports in respect of the Pledged
Mortgages and Pledged Securities, in such detail and at
such times as the Lender in its discretion may
reasonably request at any time or from time to time.
6.2(i) As soon as available and in any event
within fifteen (15) days of filing, copies of all
regular or periodic financial and other reports, if any,
which the Borrowers shall file with the Securities and
Exchange Commission or any governmental agency successor
thereto, copies of any audits completed by Ginnie Mae,
Fannie Mae or Freddie Mac and copies of the Mortgage
Bankers'
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Financial Reporting Forms (Freddie Mac Form 1055/Fannie
Mae Form 1002) which the Borrowers are required to have
filed, as the Lender may reasonably request.
6.2(j) As soon as available and in any event
within sixty (60) days after the end of each calendar
year, annual financial projections for the upcoming
fiscal year.
6.2(k) As soon as available and in any event
within thirty (30) days after the end of each calendar
month, a report detailing any and all repurchase or
rejected Mortgage Loan requests as well as any and all
indemnification agreements entered into by the
Borrowers.
6.2(l) From time to time, with reasonable
promptness, such further information regarding the
business, operations, properties or financial condition
of the Borrowers as the Lender may reasonably request.
6.3 Maintenance of Existence; Conduct of Business.
Preserve and maintain their corporate existence in good standing and
all of their rights, privileges, licenses and franchises necessary
or desirable in the normal conduct of its business, including,
without limitation, their eligibility as lender, seller/servicer and
issuer described under Section 5.13 hereof; conduct their business
in an orderly and efficient manner; maintain a net worth of
acceptable assets as required for maintaining the Borrowers'
eligibility as lender, seller/servicer and issuer described under
Section 5.13 hereof; and make no change in the nature or character
of their business or engage in any business in which they were not
engaged on the date of this Agreement.
6.4 Compliance with Applicable Laws. Comply with the
requirements of all applicable laws, rules, regulations and orders
of any governmental authority, a breach of which could materially
adversely affect their business, operations, assets, or financial
condition, except where contested in good faith and by appropriate
proceedings.
6.5 Inspection of Properties and Books. Permit
authorized representatives of the Lender or any Participant to
discuss the business, operations, assets and financial condition of
the Borrowers and their Subsidiaries with their officers and
employees and to examine their books of account and make copies or
extracts thereof, all at such reasonable times as the Lender or any
Participant may request. The Borrowers will provide their
accountants with a copy of this Agreement promptly after the
execution hereof and will instruct their accountants to answer
candidly any and all questions that the officers of the Lender or
any Participant
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or any authorized representatives of the Lender or any Participant
may address to them in reference to the financial condition or
affairs of the Borrowers and their Subsidiaries. The Borrowers may
have their representatives in attendance at any meetings between the
officers or other representatives of the Lender or any Participant
and the Borrowers' accountants held in accordance with this
authorization.
6.6 Notice. Give prompt Notice to the Lender of (a) any
action, suit or proceeding instituted by or against the Borrowers or
any of their Subsidiaries in any federal or state court or before
any commission or other regulatory body (federal, state or local,
domestic or foreign) which action, suit or proceeding has at issue
in excess of One Hundred Thousand Dollars ($100,000), or any such
proceedings threatened against the Borrowers or any of their
Subsidiaries in a writing containing the details thereof, except for
foreclosure and collection actions instituted by the Company on
Mortgage Loans to the extent no claim is made against the Company in
such actions, (b) the filing, recording or assessment of any
federal, state or local tax Lien against the Borrowers, or any of
their assets or any of their Subsidiaries, (c) the occurrence of any
Event of Default hereunder or the occurrence of any Default and
continuation thereof for five (5) days, (d) the suspension,
revocation or termination of the Borrower's eligibility, in any
respect, as approved lender, seller/servicer or issuer as described
under Section 5.13 hereof, (e) the transfer, loss or termination of
any Servicing Contract to which the Borrowers are a party, or which
is held for the benefit of the Borrowers, and the reason for such
transfer, loss or termination, if known to the Borrowers, and (f)
any other action, event or condition of any nature which may lead to
or result in a material adverse effect upon the business,
operations, assets, or financial condition of the Borrowers and
their Subsidiaries or which, with or without notice or lapse of time
or both, would constitute a default under any other agreement,
instrument or indenture to which the Borrowers or any of their
Subsidiaries is a party or to which the Borrowers or any of their
Subsidiaries, their properties, or assets may be subject.
6.7 Payment of Debt, Taxes, etc. Pay and perform all
obligations and indebtedness of the Borrowers, and cause to be paid
and performed all obligations and indebtedness of their
Subsidiaries, promptly and in accordance with the terms thereof and
pay and discharge or cause to be paid and discharged promptly all
taxes, assessments and governmental charges or levies imposed upon
the Borrowers or their Subsidiaries or upon their respective income,
receipts or properties before the same shall become past due, as
well as all lawful claims for labor, materials and supplies or
otherwise which, if unpaid, might become a Lien or charge upon
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such properties or any part thereof; provided, however, that the
Borrowers and their Subsidiaries shall not be required to pay taxes,
assessments or governmental charges or levies or claims for labor,
materials or supplies for which the Borrowers or their Subsidiaries
shall have obtained an adequate bond or adequate insurance or which
are being contested in good faith and by proper proceedings which
are being reasonably and diligently pursued and for which proper
reserves have been created.
6.8 Insurance. Maintain (a) errors and omissions
insurance or mortgage impairment insurance and blanket bond
coverage, with such companies and in such amounts as satisfy
prevailing requirements applicable to a lender, seller/servicer and
issuer described under Section 5.13 hereof, and (b) liability
insurance and fire and other hazard insurance on its properties,
with responsible insurance companies approved by the Lender, in such
amounts and against such risks as is customarily carried by similar
businesses operating in the same vicinity; and (c) within thirty
(30) days after Notice from the Lender, obtain such additional
insurance as the Lender shall reasonably require, all at the sole
expense of the Borrowers. Copies of such policies shall be furnished
to the Lender without charge upon request of the Lender.
6.9 Closing Instructions. Indemnify and hold the Lender
harmless from and against any loss, including reasonable attorneys'
fees and costs, attributable to the failure of a title insurance
company, agent or approved attorney to comply with the disbursement
or instruction letter or letters of the Borrowers relating to any
Mortgage Loan.
6.10 Subordination of Certain Indebtedness. Cause any
indebtedness of the Borrowers, incurred after the date of this
Agreement, to any shareholder, director or officer of the
Borrowers, or to any Affiliate of the Borrowers or of any
Subsidiary of the Borrowers, which indebtedness has a term of
more than one (1) year or is in excess of One Hundred Thousand
Dollars ($100,000) to be subordinated to all Obligations by
the execution of a Subordination of Debt Agreement in the form
of Exhibit F hereto and deliver to the Lender an executed copy
of said Agreement, certified by the respective corporate
secretary of the Borrowers to be true and complete and in full
force and effect.
6.11 Other Loan Obligations. Perform all material
obligations under the terms of each loan agreement, note, mortgage,
security agreement or debt instrument by which the Borrowers are
bound or to which any of their property is subject, and promptly
notify the Lender in writing of a declared default under or the
termination, cancellation,
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reduction or nonrenewal of any of its other lines of credit or
agreements with any other lender. Exhibit J hereto is a true and
complete list of all such lines of credit or agreements as of the
date hereof and the Borrowers hereby agree to give the Lender at
least thirty (30) days Notice before entering into any additional
lines of credit.
6.12 Use of Proceeds of Advances. Use the proceeds of
each Advance solely for the purpose set forth in Section 2.1(b) for
Advances of that type.
6.13 Special Affirmative Covenants Concerning
Collateral.
6.13(a) Warrant and defend the right, title
and interest of the Lender in and to the Collateral
against the claims and demands of all Persons
whomsoever.
6.13(b) Service or cause to be serviced all
Mortgage Loans in accordance with the standard
requirements of the issuers of Purchase Commitments
covering the same and all applicable FHA and VA
requirements, including without limitation taking all
actions necessary to enforce the obligations of the
obligors under such Mortgage Loans. The Borrowers shall
service or cause to be serviced all Mortgage Loans
backing Pledged Securities in accordance with applicable
governmental requirements and requirements of issuers of
Purchase Commitments covering the same. The Borrowers
shall hold all escrow funds collected in respect of
Pledged Mortgages and Mortgage Loans backing Pledged
Securities in trust, without commingling the same with
non-custodial funds, and apply the same for the purposes
for which such funds were collected.
6.13(c) Execute and deliver to the Lender
such Uniform Commercial Code financing statements with
respect to the Collateral as the Lender may request. The
Borrowers shall also execute and deliver to the Lender
such further instruments of sale, pledge or assignment
or transfer, and such powers of attorney, as required by
the Lender, and shall do and perform all matters and
things necessary or desirable to be done or observed,
for the purpose of effectively creating, maintaining and
preserving the security and benefits intended to be
afforded the Lender under this Agreement. The Lender
shall have all the rights and remedies of a secured
party under the Uniform Commercial Code of Minnesota, or
any other applicable law, in addition to all rights
provided for herein.
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6.13(d) Notify the Lender within two (2)
Business Days of any default under, or of the
termination of, any Purchase Commitment relating to any
Pledged Mortgage, Eligible Mortgage Pool or Pledged
Security.
6.13(e) Promptly comply in all respects with
the terms and conditions of all Purchase Commitments,
and all extensions, renewals and modifications or
substitutions thereof or thereto. The Borrowers will
cause to be delivered to the Investor the Pledged
Mortgages and Pledged Securities to be sold under each
Purchase Commitment not later than the mandatory
delivery date thereof.
6.13(f) Maintain, at its principal office or
in a regional office approved by the Lender, or in the
office of a computer service bureau engaged by the
Borrowers and approved by the Lender, and, upon request,
make available to the Lender the originals, or copies in
any case where the originals have been delivered to the
Lender or to an Investor, of its Mortgage Notes and
Mortgages included in Pledged Mortgages, Mortgage-backed
Securities delivered to the Lender as Pledged
Securities, Purchase Commitments, and all related
Mortgage Loan documents and instruments, and all files,
surveys, certificates, correspondence, appraisals,
computer programs, tapes, discs, cards, accounting
records and other information and data relating to the
Collateral.
7. NEGATIVE COVENANTS.
The Borrowers hereby covenant and agree that, so long as
the Commitment is outstanding or there remain any Obligations to be
paid or performed, the Borrowers shall not, either directly or
indirectly, without the prior written consent of the Lender:
7.1 Contingent Liabilities. Assume, guarantee, endorse,
or otherwise become contingently liable for the obligation of any
Person other than the Borrowers, except by endorsement of negotiable
instruments for deposit or collection in the ordinary course of
business.
7.2 Sale or Pledge of Servicing Contracts. Sell, pledge
or grant a security interest in any existing or future
Servicing Contracts of the Borrowers other than to the Lender,
excepting therefrom any such Servicing Contracts pledged as
collateral for mortgage warehouse lines of credit, except as
otherwise expressly permitted in this Agreement, or omit to
take any action required to keep all such Servicing Contracts
in full force and effect; provided, however, that if no
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Default or Event of Default has occurred and is continuing,
servicing on individual Mortgage Loans may be sold concurrently with
and incidental to the sale of such Mortgage Loans (with servicing
released) in the ordinary course of the Borrowers' business.
7.3 Merger; Sale of Assets; Acquisitions. (a) Liquidate,
dissolve, consolidate or merge, (b) sell any substantial part of its
assets, or (c) acquire any substantial part of the assets of another
if, after giving effect to such acquisition, (i) an Event of Default
or Default would exist or (ii) any material change in the senior
management of the Borrowers would occur.
7.4 Deferral of Subordinated Debt. Pay in advance of the
stated maturity thereof any Subordinated Debt of the Borrowers or,
if a Default or Event of Default hereunder shall have occurred, make
any payment of any kind thereafter on such Subordinated Debt until
all Obligations have been paid and performed in full and any
applicable preference period has expired.
7.5 Loss of Eligibility. Take any action that would
cause the Borrowers to lose all or any part of their status as an
eligible lender, seller/servicer and issuer as described under
Section 5.13 hereof.
7.6 Debt to Tangible Net Worth Ratio. Permit the ratio
of Debt (excluding, for this purpose only, Debt arising under the
Hedging Arrangements, to the extent of assets arising under the same
Hedging Arrangements) to Tangible Net Worth of BNC and its
Subsidiaries, on a consolidated and consolidating basis, at any time
to exceed 15 to 1.
7.7 Minimum Tangible Net Worth. Permit Tangible Net
Worth of BNC and its Subsidiaries, on a consolidated and
consolidating basis, at any time to be less than Twenty-Five Million
Dollars ($25,000,000) and of each Subsidiary, on an unconsolidated
basis, at any time to be less than One Dollar ($1.00).
7.8 Liquidity. Permit the Liquid Assets of BNC and its
Subsidiaries, on a consolidated and consolidating basis, at any time
to be less than Ten Million Dollars ($10,000,000).
7.9 Transactions with Affiliates. Directly or indirectly
(a) make any loan, advance, extension of credit or capital
contribution to any of its Affiliates, (b) transfer, sell, pledge,
assign or otherwise dispose of any of its assets to or on behalf of
such Affiliates, (c) merge or consolidate with or purchase or
acquire assets from such Affiliates, or (d) pay management fees to
or on behalf of such Affiliates.
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7.10 Quarterly Net Income. Permit the net income of BNC
for any fiscal quarter, beginning with the quarter ending June 1999,
to be less than zero.
7.11 Acquisition of Recourse Servicing Contracts.
Acquire Servicing Contracts under which the Borrowers are obligated
to repurchase or indemnify the holder of the Mortgage Loans as a
result of defaults on the Mortgage Loans at any time during the term
of such Mortgage Loans.
7.12 Special Negative Covenants Concerning Collateral.
7.12(a) The Borrowers shall not amend or
modify, or waive any of the terms and conditions of, or
settle or compromise any claim in respect of, any
Pledged Mortgages or Pledged Securities.
7.12(b) The Borrowers shall not sell,
assign, transfer or otherwise dispose of, or grant any
option with respect to, or pledge or otherwise encumber
(except pursuant to this Agreement or as permitted
herein) any of the Collateral or any interest therein.
7.12(c) The Borrowers shall not make any
compromise, adjustment or settlement in respect of any
of the Collateral or accept other than cash in payment
or liquidation of the Collateral.
8. DEFAULTS; REMEDIES.
8.1 Events of Default. The occurrence of any of the
following conditions or events shall be an event of default ("Event
of Default"):
8.1(a) Failure to pay the principal of any
Advance when due, whether at stated maturity, by
acceleration, or otherwise; or failure to pay any
installment of interest on any Advance or any other
amount due under this Agreement within ten (10) days
after the due date; or failure to pay, within any
applicable grace period, any other Obligations of the
Borrowers due the Lender; or
8.1(b) Failure of the Borrowers or any of
their Subsidiaries to pay, or any default in the payment
of any principal or interest on, any other indebtedness
or in the payment of any contingent obligation within
any period of grace provided; breach or default with
respect to any other material term of any other
indebtedness or of any loan agreement, mortgage,
indenture or other agreement relating thereto, if the
effect of such breach
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or default is to cause, or to permit the holder or
holders thereof (or a trustee on behalf of such holder
or holders) to cause, indebtedness of the Borrowers or
their Subsidiaries in the aggregate amount of One
Hundred Thousand Dollars ($100,000) or more to become or
be declared due prior to its stated maturity (upon the
giving or receiving of notice, lapse of time, both, or
otherwise); or
8.1(c) Failure of the Borrowers to perform
or comply with any term or condition applicable to them
contained in Sections 6.3, 6.12 and 6.13 or in any
Section of Article 7 of this Agreement; or
8.1(d) Any of the Borrowers' representations
or warranties made or deemed made herein or in any other
Loan Document (other than the representations and
warranties set forth in Section 5.15 hereof), or in any
statement or certificate at any time given by the
Borrowers in writing pursuant hereto or thereto shall be
inaccurate or incomplete in any material respect on the
date as of which made or deemed made; or
8.1(e) The Borrowers shall default in the
performance of or compliance with any term contained in
this Agreement or any other Loan Document other than
those referred to above in Subsections 8.1(a), 8.1(c) or
8.1(d) and such default shall not have been remedied or
waived within thirty (30) days after the earliest of (i)
receipt by the Borrowers of Notice from the Lender of
such default, (ii) receipt by the Lender of Notice from
the Borrowers of such default, or (iii) the date the
Borrowers should have notified the Lender of such
default pursuant to Section 6.6(c); or
8.1(f) (1) A court having jurisdiction shall
enter a decree or order for relief in respect of the
Borrowers, any Subsidiary of the Borrowers in an
involuntary case under any applicable bankruptcy,
insolvency or other similar law in respect of the
Borrowers, any Subsidiary of the Borrowers now or
hereafter in effect, which decree or order is not
stayed; the Borrowers, any Subsidiary of the Borrowers
shall consent to the entry of any such decree or order;
or a filing of a voluntary case under any applicable
bankruptcy, insolvency or other similar law in respect
of the Borrowers, any Subsidiary of the Borrowers has
occurred; or any other similar relief shall be granted
under any applicable federal or state law; or (2) the
filing of an involuntary case in respect of the
Borrowers, any Subsidiary of the Borrowers under any
applicable bankruptcy, insolvency or other similar law;
or a decree or order of a court having jurisdiction for
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the appointment of a receiver, liquidator, sequestrator,
trustee, custodian or other officer having similar
powers over the Borrowers, any Subsidiary of the
Borrowers, or over all or a substantial part of their
respective property, shall have been entered; or the
involuntary appointment of an interim or permanent
receiver, trustee or other custodian of the Borrowers,
any Subsidiary of the Borrowers for all or a substantial
part of their respective property; or the issuance of a
warrant of attachment, execution or similar process
against any substantial part of the property of the
Borrowers, any Subsidiary of the Borrowers, and the
continuance of any such events in Subsection (2) above
for sixty (60) days unless dismissed, bonded off or
discharged; or
8.1(g) The Borrowers, any Subsidiary of the
Borrowers shall consent to the appointment of or taking
possession by a receiver, trustee or other custodian for
all or a substantial part of their property; the making
by the Borrowers, any Subsidiary of the Borrowers of any
assignment for the benefit of creditors; or the
inability or failure of the Borrowers, any Subsidiary of
the Borrowers, or the admission by the Borrowers, any
Subsidiary of the Borrowers in writing of their
inability, to pay their debts as such debts become due;
or
8.1(h) Failure of the Borrowers to perform
any contractual obligations which they may have to
repurchase Mortgage Loans, if such obligations in the
aggregate exceed Five Hundred Thousand Dollars
($500,000); or
8.1(i) Any money judgment, writ or warrant
of attachment, or similar process involving in any case
an amount in excess of One Hundred Thousand Dollars
($100,000) shall be entered or filed against the
Borrowers or any of their Subsidiaries or any of their
respective assets and shall remain undischarged,
unvacated, unbonded or unstayed for a period of thirty
(30) days or in any event later than five (5) days prior
to the date of any proposed sale thereunder; or
8.1(j) Any order, judgment or decree shall
be entered against the Borrowers decreeing the
dissolution or split up of the Borrowers and such order
shall remain undischarged or unstayed for a period in
excess of twenty (20) days; or
8.1(k) Any Plan maintained by the Borrowers
or any of its Subsidiaries shall be terminated within
the meaning of Title IV of ERISA or a trustee shall be
appointed by an appropriate United States district court
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to administer any Plan, or the Pension Benefit Guaranty
Corporation (or any successor thereto) shall institute
proceedings to terminate any Plan or to appoint a
trustee to administer any Plan if as of the date thereof
the Borrowers' liability or any such Subsidiary's
liability (after giving effect to the tax consequences
thereof) to the Pension Benefit Guaranty Corporation (or
any successor thereto) for unfunded guaranteed vested
benefits under the Plan exceeds the then current value
of assets accumulated in such Plan by more than
Twenty-Five Thousand Dollars ($25,000) (or in the case
of a termination involving the Borrowers or any of their
Subsidiaries as a "substantial employer" (as defined in
Section 4001(a)(2) of ERISA) the withdrawing employer's
proportionate share of such excess shall exceed such
amount); or
8.1(l) The Borrowers or any of their
Subsidiaries as employer under a Multiemployer Plan
shall have made a complete or partial withdrawal from
such Multiemployer Plan and the plan sponsor of such
Multiemployer Plan shall have notified such withdrawing
employer that such employer has incurred a withdrawal
liability in an annual amount exceeding Twenty-Five
Thousand Dollars ($25,000); or
8.1(m) The Borrowers shall purport to
disavow their obligations hereunder or shall contest the
validity or enforceability hereof; or the Lender's
security interest on any portion of the Collateral shall
become unenforceable or otherwise impaired; provided
that, subject to the Lender's approval, no Event of
Default shall occur as a result of such impairment if
all Advances made against any such Collateral shall be
paid in full within ten (10) days of the date of such
impairment; or
8.1(n) Any Lien for any taxes, assessments
or other governmental charges (i) is filed against the
Borrowers or any of their property, or is otherwise
enforced against the Borrowers or any of their property,
or (ii) obtains priority that is equal or greater than
the priority of the Lender's security interest in any of
the Collateral; or
8.1(o) A material adverse change occurs, or
is reasonably likely to occur, in the business condition
(financial or otherwise), operations, properties or
prospects of the Borrowers, or in the ability of the
Borrowers to repay the Obligations.
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8.2 Remedies.
8.2(a) Upon the occurrence of any Event of
Default described in Sections 8.1(f) or 8.1(g), the
Commitment shall be terminated and the unpaid principal
amount of and accrued interest on the Note and all other
Obligations shall automatically become due and payable,
without presentment, demand or other requirements of any
kind, all of which are hereby expressly waived by the
Borrowers.
8.2(b) Upon the occurrence of any Event of
Default, other than those described in Sections 8.1(f)
and 8.1(g), the Lender may, by Notice to the Borrowers,
terminate the Commitment and/or declare all Obligations
to be immediately due and payable, whereupon the same
shall forthwith become due and payable, together with
all accrued interest thereon, and the obligation of the
Lender to make any Advances shall thereupon terminate.
8.2(c) Upon the occurrence of any Event of
Default, the Lender may also do any of the following:
(1) Foreclose upon or otherwise
enforce its security interest in and Lien on
the Collateral to secure all payments and
performance of the Obligations in any manner
permitted by law or provided for hereunder.
(2) Notify all obligors in
respect of Collateral that the Collateral
has been assigned to the Lender and that all
payments thereon are to be made directly to
the Lender or such other party as may be
designated by the Lender; settle,
compromise, or release, in whole or in part,
any amounts owing on the Collateral, any
such obligor or any Investor or any portion
of the Collateral, on terms acceptable to
the Lender; enforce payment and prosecute
any action or proceeding with respect to any
and all Collateral; and where any such
Collateral is in default, foreclose on and
enforce security interests in such
Collateral by any available judicial
procedure or without judicial process and
sell property acquired as a result of any
such foreclosure.
(3) Act, or contract with a
third party to act, as servicer or
subservicer of each item of Collateral
requiring servicing and perform all
obligations required in connection with
Servicing Contracts and Purchase
Commitments, such third party's fees to be
paid by the Borrowers.
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(4) Require the Borrowers to
assemble the Collateral and/or books and
records relating thereto and make such
available to the Lender at a place to be
designated by the Lender.
(5) Enter onto property where
any Collateral or books and records relating
thereto are located and take possession
thereof with or without judicial process;
and obtain access to the Borrowers' data
processing equipment, computer hardware and
software relating to the Collateral and to
use all of the foregoing and the information
contained therein in any manner the Lender
deems necessary for the purpose of
effectuating its rights under this Agreement
and any other Loan Document.
(6) Prior to the disposition of
the Collateral, prepare it for disposition
in any manner and to the extent the Lender
deems appropriate.
(7) Exercise all rights and
remedies of a secured creditor under the
Uniform Commercial Code of Minnesota or
other applicable law, including, but not
limited to, selling or otherwise disposing
of the Collateral, or any part thereof, at
one or more public or private sales, whether
or not such Collateral is present at the
place of sale, for cash or credit or future
delivery, on such terms and in such manner
as the Lender may determine, including,
without limitation, sale pursuant to any
applicable Purchase Commitment. If notice is
required under such applicable law, the
Lender will give the Borrowers not less than
ten (10) days' notice of any such public
sale or of the date after which any private
sale may be held. The Borrowers agree that
ten (10) days' notice shall be reasonable
notice. The Lender may, without notice or
publication, adjourn any public or private
sale or cause the same to be adjourned from
time to time by announcement at the time and
place fixed for the sale, and such sale may
be made at any time or place to which the
same may be so adjourned. In case of any
sale of all or any part of the Collateral on
credit or for future delivery, the
Collateral so sold may be retained by the
Lender until the selling price is paid by
the purchaser thereof, but the Lender shall
not incur any liability in case of the
failure of such purchaser to take up and pay
for the Collateral so sold and, in case of
any such failure, such Collateral may
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again be sold upon like notice. The Lender
may, however, instead of exercising the
power of sale herein conferred upon it,
proceed by a suit or suits at law or in
equity to collect all amounts due upon the
Collateral or to foreclose the pledge of and
sell the Collateral or any portion thereof
under a judgment or decree of a court or
courts of competent jurisdiction, or both.
(8) Proceed against the
Borrowers on the Note.
8.2(d) The Lender shall incur no liability
as a result of the sale or other disposition of the
Collateral, or any part thereof, at any public or
private sale or disposition. The Borrowers hereby waive
(to the extent permitted by law) any claims they may
have against the Lender arising by reason of the fact
that the price at which the Collateral may have been
sold at such private sale was less than the price which
might have been obtained at a public sale or was less
than the aggregate amount of the outstanding Advances
and the unpaid interest accrued thereon, even if the
Lender accepts the first offer received and does not
offer the Collateral to more than one offeree. Any sale
of Collateral pursuant to the terms of a Purchase
Commitment, or any other disposition of Collateral
arranged by the Borrowers, whether before or after the
occurrence of an Event of Default, shall be deemed to
have been made in a commercially reasonable manner.
8.2(e) The Borrowers acknowledge that
Mortgage Loans and Mortgage-backed Securities are
collateral of a type which is customarily sold on a
recognized market. The Borrowers waive any right they
may have to prior notice of the sale of any Pledged
Mortgage or Pledged Security, and agrees that the Lender
may purchase any Pledged Mortgages or Pledged Securities
at a private sale of such Collateral.
8.2(f) The Borrowers specifically waive and
releases (to the extent permitted by law) any equity or
right of redemption, all rights of redemption, stay or
appraisal which the Borrowers have or may have under any
rule of law or statute now existing or hereafter
adopted, and any right to require the Lender to (1)
proceed against any Person, (2) proceed against or
exhaust any of the Collateral or pursue its rights and
remedies as against the Collateral in any particular
order, or (3) pursue any other remedy in its power. The
Lender shall not be required to take any steps necessary
to preserve any rights of the Borrowers against holders
of mortgages
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prior in lien to the Lien of any Mortgage included in
the Collateral or to preserve rights against prior
parties.
8.2(g) The Lender may, but shall not be
obligated to, advance any sums or do any act or thing
necessary to uphold and enforce the Lien and priority
of, or the security intended to be afforded by, any
Mortgage included in the Collateral, including, without
limitation, payment of delinquent taxes or assessments
and insurance premiums. All advances, charges, costs and
expenses, including reasonable attorneys' fees and
disbursements, incurred or paid by the Lender in
exercising any right, power or remedy conferred by this
Agreement, or in the enforcement hereof, together with
interest thereon, at the Default Rate, from the time of
payment until repaid, shall become a part of the
principal balance outstanding hereunder and under the
Note.
8.2(h) No failure on the part of the Lender
to exercise, and no delay in exercising, any right,
power or remedy provided hereunder, at law or in equity
shall operate as a waiver thereof; nor shall any single
or partial exercise by the Lender of any right, power or
remedy provided hereunder, at law or in equity preclude
any other or further exercise thereof or the exercise of
any other right, power or remedy. Without intending to
limit the foregoing, all defenses based on the statute
of limitations are hereby waived by the Borrowers to the
extent permitted by law. The remedies herein provided
are cumulative and are not exclusive of any remedies
provided at law or in equity.
8.2(i) The Lender is hereby granted a
non-exclusive license or other right to use, without
charge, the Borrowers' computer programs, other
programs, labels, patents, copyrights, rights of use of
any name, trade secrets, trade names, trademarks,
service marks and advertising matter, or any property of
a similar nature, as it pertains to the Collateral, in
advertising for sale and selling any Collateral, and the
Borrowers' rights under all licenses and all other
agreements related to the foregoing shall inure to the
Lender's benefit until the Obligations are paid in full.
8.3 Application of Proceeds. The proceeds of any sale,
disposition or other enforcement of the Lender's security interest
in all or any part of the Collateral shall be applied by the Lender
to the Obligations in such order as the Lender, in its sole and
absolute discretion, shall determine from and after the indefensible
payment to the Lender of all of the Obligations, any remaining
proceeds shall be paid:
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First, to the payment of the costs and expenses of such
sale or enforcement, including reasonable compensation to the
Lender's agents and counsel, and all expenses, liabilities and
advances made or incurred by or on behalf of the Lender in
connection therewith;
Second, to the payment of interest accrued and unpaid on
the Note;
Third, to the payment of any other Obligations due
(other than principal and interest) under this Agreement and the
Loan Documents;
Fourth, to the payment of the outstanding principal
balance of the Note;
Fifth, to any remaining Obligations; and
Finally, to the payment to the Borrowers, or to their
successors or assigns, or as a court of competent jurisdiction may
direct, of any surplus then remaining from such proceeds.
If the proceeds of any such sale, disposition or other
enforcement are insufficient to cover the costs and expenses of such
sale, as aforesaid, and the payment in full of all Obligations, the
Borrowers shall remain liable for any deficiency.
8.4 Lender Appointed Attorney-in-Fact. The Lender is
hereby appointed the attorney-in-fact of the Borrowers, with full
power of substitution, for the purpose of carrying out the
provisions hereof and taking any action and executing any
instruments which the Lender may deem necessary or advisable to
accomplish the purposes hereof, which appointment as
attorney-in-fact is irrevocable and coupled with an interest.
Without limiting the generality of the foregoing, the Lender shall
have the right and power to give notices of its security interest in
the Collateral to any Person, either in the name of the Borrowers or
in their own name, to endorse all Pledged Mortgages or Pledged
Securities payable to the order of the Borrowers, to change or cause
to be changed the book-entry registration or name of subscriber or
Investor on any Pledged Security, or to receive, endorse and collect
all checks made payable to the order of the Borrowers representing
any payment on account of the principal of or interest on, or the
proceeds of sale of, any of the Pledged Mortgages or Pledged
Securities and to give full discharge for the same.
8.5 Right of Set-Off. If the Borrowers shall default in
the payment of the Note, any interest accrued thereon, or any other
sums which may become payable hereunder when due, or in the
performance of any of its other obligations or liabilities
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<PAGE> 63
under this Agreement, the Lender shall have the right, at any time
and from time to time, without notice, to set-off and to appropriate
or apply any and all property or indebtedness of any kind at any
time held or owing by the Lender to or for the credit or the account
of the Borrowers against and on account of the Obligations of the
Borrowers under the Note and this Agreement, irrespective of whether
or not the Lender shall have made any demand hereunder and whether
or not said Obligations shall have matured.
9. NOTICES.
All notices, demands, consents, requests and other
communications required or permitted to be given or made hereunder
(collectively, "Notices") shall, except as otherwise expressly
provided hereunder, be in writing and shall be delivered in person
or telecopied or mailed, first class or delivered by overnight
courier, return receipt requested, postage prepaid, addressed to the
respective parties hereto at their respective addresses hereinafter
set forth or, as to any such party, at such other address as may be
designated by it in a Notice to the other. All Notices shall be
conclusively deemed to have been properly given or made when duly
delivered, in person, by telecopy or by overnight courier, or if
mailed, on the date of receipt as noted on the return receipt,
addressed as follows:
if to the Borrowers: BNC Mortgage, Inc.
Mortgage Logic.Com, Inc.
1063 McGaw Avenue
Irvine, CA 92614
Attention: Pete Evans, V.P.
Telecopier No.: (949) 260-6052
if to the Lender: Residential Funding Corporation
440 Sawgrass Corp. Parkway
Suite 204
Sunrise, Florida 33325
Attention: Gary Shev, Director
Telecopier No.: (954) 846-8352
10. REIMBURSEMENT OF EXPENSES; INDEMNITY.
The Borrowers shall: (a) pay a documentation production fee of Five
Thousand Dollars ($5,000) in connection with the preparation and negotiation of
this Agreement; (b) pay such additional documentation production fees as the
Lender may require and all out-of-pocket costs and expenses of the Lender,
including, without limitation, reasonable fees, service charges and
disbursements of counsel (including allocated costs of internal counsel), in
connection with the amendment, enforcement and
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administration of this Agreement, the Note, and other Loan Documents and the
making and repayment of the Advances and the payment of interest thereon; (c)
indemnify, pay, and hold harmless the Lender and any holder of the Note from and
against, any and all present and future stamp, documentary and other similar
taxes with respect to the foregoing matters and save the Lender and the holder
or holders of the Note harmless from and against any and all liabilities with
respect to or resulting from any delay or omission to pay such taxes; and (d)
indemnify, pay and hold harmless the Lender and any of its officers, directors,
employees or agents and any subsequent holder of the Note (collectively called
the "Indemnitees") from and against any and all liabilities, obligations,
losses, damages, penalties, judgments, suits, costs, expenses and disbursements
of any kind or nature whatsoever (including without limitation, the reasonable
fees and disbursements of counsel of the Indemnitees (including allocated costs
of internal counsel) in connection with any investigative, administrative or
judicial proceeding, whether or not such Indemnitees shall be designated a party
thereto) which may be imposed upon, incurred by or asserted against such
Indemnitees in any manner relating to or arising out of this Agreement, the
Note, or any other Loan Document or any of the transactions contemplated hereby
or thereby (the "Indemnified Liabilities"); provided, however, that the
Borrowers shall have no obligation hereunder with respect to Indemnified
Liabilities arising from the gross negligence or willful misconduct of any such
Indemnitees. To the extent that the undertaking to indemnify, pay and hold
harmless as set forth in the preceding sentence may be unenforceable because it
is violative of any law or public policy, the Borrowers shall contribute the
maximum portion which it is permitted to pay and satisfy under applicable law,
to the payment and satisfaction of all Indemnified Liabilities incurred by the
Indemnitees or any of them. The agreement of the Borrowers contained in this
Subsection (d) shall survive the expiration or termination of this Agreement and
the payment in full of the Note. Attorneys' fees and disbursements incurred in
enforcing, or on appeal from, a judgment pursuant hereto shall be recoverable
separately from and in addition to any other amount included in such judgment,
and this clause is intended to be severable from the other provisions of this
Agreement and to survive and not be merged into such judgment.
11. FINANCIAL INFORMATION.
All financial statements and reports furnished to the
Lender hereunder shall be prepared in accordance with GAAP, applied
on a basis consistent with that applied in preparing the financial
statements as at the end of and for the last fiscal year ended
(except to the extent otherwise required to conform to good
accounting practice).
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12. MISCELLANEOUS.
12.1 Terms Binding Upon Successors; Survival of
Representations. The terms and provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns. All representations,
warranties, covenants and agreements herein contained on the part of
the Borrowers shall survive the making of any Advance and the
execution of the Note, and shall be effective so long as the
Commitment is outstanding hereunder or there remain any Obligations
to be paid or performed.
12.2 Assignment. This Agreement may not be assigned by
the Borrowers. This Agreement and the Note, along with the Lender's
security interest in any or all of the Collateral, may, at any time,
be transferred or assigned, in whole or in part, by the Lender, and
any assignee thereof may enforce this Agreement, the Note and such
security interest.
12.3 Amendments. Except as otherwise provided in this
Agreement, this Agreement may not be amended, modified or
supplemented unless such amendment, modification or supplement is
set forth in a writing signed by the parties hereto.
12.4 Governing Law. This Agreement and the other Loan
Documents shall be governed by the laws of the State of Minnesota,
without reference to its principles of conflicts of laws.
12.5 Participations. The Lender may at any time sell,
assign or grant participations in, or otherwise transfer to any
other Person (a "Participant"), all or part of the Obligations.
Without limitation of the exclusive right of the Lender to collect
and enforce such Obligations, the Borrowers agree that each
disposition will give rise to a debtor-creditor relationship of the
Borrowers to the Participant, and the Borrowers authorize each
Participant, upon the occurrence of an Event of Default, to proceed
directly by right of setoff, banker's lien, or otherwise, against
any assets of the Borrowers which may be in the hands of such
Participant. The Borrowers authorize the Lender to disclose to any
prospective Participant and any Participant any and all information
in the Lender's possession concerning the Borrowers, this Agreement
and the Collateral.
12.6 Relationship of the Parties. This Agreement
provides for the making of Advances by the Lender, in its capacity
as a lender, to the Borrowers, in their capacity as a borrower, and
for the payment of interest, repayment of principal by the Borrowers
to the Lender, and for the payment of certain fees by the Borrowers
to the Lender. The relationship between the Lender and the Borrowers
are limited to that of creditor/secured party, on the one hand, and
59
<PAGE> 66
debtor, on the other hand. The provisions herein for compliance with
financial covenants and delivery of financial statements are
intended solely for the benefit of the Lender to protect its
interests as lender in assuring payments of interest and repayment
of principal and payment of certain fees, and nothing contained in
this Agreement shall be construed as permitting or obligating the
Lender to act as a financial or business advisor or consultant to
the Borrowers, as permitting or obligating the Lender to control the
Borrowers or to conduct the Borrowers' operations, as creating any
fiduciary obligation on the part of the Lender to the Borrowers, or
as creating any joint venture, agency, or other relationship between
the parties hereto other than as explicitly and specifically stated
in this Agreement. The Borrowers acknowledge that they have had the
opportunity to obtain the advice of experienced counsel of its own
choosing in connection with the negotiation and execution of this
Agreement and to obtain the advice of such counsel with respect to
all matters contained herein. The Borrowers further acknowledge that
they are experienced with respect to financial and credit matters
and have made their own independent decisions to apply to the Lender
for credit and to execute and deliver this Agreement.
12.7 Severability. If any provision of this Agreement
shall be declared to be illegal or unenforceable in any respect,
such illegal or unenforceable provision shall be and become
absolutely null and void and of no force and effect as though such
provision were not in fact set forth herein, but all other
covenants, terms, conditions and provisions hereof shall
nevertheless continue to be valid and enforceable.
12.8 Operational Reviews. From time to time upon
request, the Borrowers shall permit the Lender or its representative
access to their premises and records, for the purpose of conducting
a review of the Borrowers' general mortgage business methods,
policies, and procedures, auditing loan files and reviewing
financial and operational aspects of the Borrowers' business.
12.9 Consent to Credit References. The Borrowers hereby
consent to the disclosure of information regarding the Borrowers and
their relationships with the Lender to Persons making credit
inquiries to the Lender. This consent is revocable by the Borrowers
at any time upon Notice to the Lender as provided in Section 9
hereof.
12.10 Consent to Jurisdiction. The Borrowers hereby
agree that any action or proceeding under the Loan Documents, the
Note or any document delivered pursuant hereto may be commenced
against it in any court of competent jurisdiction within the State
of Minnesota, by service of process upon the
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Borrowers by first class registered or certified mail, return
receipt requested, addressed to the Borrowers at their address last
known to the Lender. The Borrowers agree that any such suit, action
or proceeding arising out of or relating to this Agreement or any
other such document may be instituted in the Hennepin County State
District Court or in the United States District Court for the
District of Minnesota at the option of the Lender; and the Borrowers
hereby waive any objection to the jurisdiction or venue of any such
court with respect to, or the convenience of any court as a forum
for, any such suit, action or proceeding. Nothing herein shall
affect the right of the Lender to accomplish service of process in
any other manner permitted by law or to commence legal proceedings
or otherwise proceed against the Borrowers in any other jurisdiction
or court.
12.11 Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an
original, but all such counterparts shall together constitute but
one and the same instrument.
12.12 Entire Agreement. This Agreement, the Note and the
other Loan Documents represent the final agreement among the parties
hereto and thereto with respect to the subject matter hereof and
thereof, and may not be contradicted by evidence of prior or
contemporaneous oral agreements among such parties. There are no
oral agreements among the parties with respect to the subject matter
hereof and thereof.
12.13 WAIVER OF JURY TRIAL. THE BORROWERS AND THE LENDER
EACH HEREBY (a) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF
ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (b) WAIVES ANY RIGHT TO
TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR
HEREAFTER EXIST. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY
GIVEN, KNOWINGLY AND VOLUNTARILY, BY THE BORROWERS AND THE LENDER,
AND THIS WAIVER IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE
AND EACH ISSUE AS TO WHICH THE RIGHT OF A JURY TRIAL WOULD OTHERWISE
ACCRUE. THE LENDER AND THE BORROWERS ARE EACH HEREBY AUTHORIZED AND
REQUESTED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION
OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO SERVE AS
CONCLUSIVE EVIDENCE OF THE FOREGOING WAIVER OF THE RIGHT TO JURY
TRIAL. FURTHER, THE BORROWERS AND THE LENDER EACH HEREBY CERTIFIES
THAT NO REPRESENTATIVE OR AGENT OF THE OTHER PARTY, INCLUDING THE
OTHER PARTY'S COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO
ANY OF ITS REPRESENTATIVES OR AGENTS THAT THE OTHER PARTY WILL NOT
SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
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BNC MORTGAGE, INC., a Delaware
corporation
By:
----------------------------------
Its:
----------------------------------
MORTGAGE LOGIC.COM, INC., a
California corporation
By:
----------------------------------
Its:
----------------------------------
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
By:
----------------------------------
Its: Director
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On , 1999, before me, a Notary Public,
personally appeared , the
of BNC MORTGAGE, INC., a Delaware corporation, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument and acknowledged to me that
he/she executed the same in his/her authorized capacity, and that by his/her
signature on the instrument the person, or the entity upon behalf of which the
person acted, executed the instrument.
WITNESS my hand and official seal.
-------------------------------
Notary Public
(SEAL) My Commission Expires:
--------
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On , 1999, before me, a Notary Public,
personally appeared , the
of MORTGAGE LOGIC.COM, INC., a California corporation, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person whose name is subscribed to the within instrument and acknowledged to me
that he/she
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executed the same in his/her authorized capacity, and that by his/her signature
on the instrument the person, or the entity upon behalf of which the person
acted, executed the instrument.
WITNESS my hand and official seal.
-------------------------------
Notary Public
(SEAL) My Commission Expires:
--------
63
<PAGE> 70
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On , 1999, before me, a Notary Public, personally appeared , the
Director of RESIDENTIAL FUNDING CORPORATION, a Delaware corporation, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person whose name is subscribed to the within instrument and acknowledged to me
that he/she executed the same in his/her authorized capacity, and that by
his/her signature on the instrument the person, or the entity upon behalf of
which the person acted, executed the instrument.
WITNESS my hand and official seal.
-------------------------------
Notary Public
(SEAL) My Commission Expires:
--------
64
<PAGE> 1
EXHIBIT 10.2
AGREEMENT
FOR THE PURCHASE OF CERTAIN ASSETS
AND THE ASSUMPTION OF CERTAIN LIABILITIES
OF AMERICA'S LENDER, INC.
BETWEEN
MORTGAGE LOGIC.COM, INC.
A CALIFORNIA CORPORATION, AS PURCHASER
AND
BNC MORTGAGE, INC.
A DELAWARE CORPORATION, THE BNC PARTIES
ON THE ONE HAND
AND
AMERICA'S LENDER, INC.
A CALIFORNIA CORPORATION,
AND
KEITH GUY
AND
SHL HOLDINGS, INC.,
A CALIFORNIA CORPORATION, AS SELLER GROUP
ON THE OTHER HAND
DATED: DECEMBER 21, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C>
SECTION 1 DEFINITIONS...........................................................1
"Action" ...............................................................1
"Agency" ...............................................................2
"Agency Approvals"......................................................2
"Affiliate".............................................................2
"Affiliated"............................................................2
"Assumed Contracts" ....................................................2
"Assumed Obligations"...................................................2
"Bill of Sale"..........................................................2
"Code" ...............................................................2
"Confidential Information"..............................................2
"Contract"..............................................................2
"Correspondent Agreements"..............................................2
"Correspondent" ........................................................3
"Environmental Claim" ..................................................3
"ERISA" ...............................................................3
"Excluded Assets" ......................................................3
"FHA" ...............................................................4
"FHLMC" ...............................................................4
"Financial Statements"..................................................4
"Fixed Assets" .........................................................4
"FNMA" ...............................................................4
"GAAP" ...............................................................4
"GNMA" ...............................................................4
"Governmental Entity" ..................................................4
"Hazardous Material" ...................................................5
"HUD" ...............................................................5
"Insurer" ..............................................................5
"Investor" .............................................................5
"Liens" ...............................................................5
"Loan File" ............................................................5
"Loans in Inventory"....................................................5
"Material Adverse Effect" ..............................................5
"Mortgage Loan" .......................................................5
"Order" ...............................................................6
"Permit" ...............................................................6
"Person" ...............................................................6
"Pipeline Advances" ....................................................6
"Pipeline Loans" .......................................................6
"PMI" ...............................................................6
"Purchased Assets" .....................................................6
"Relevant Investor" ....................................................7
"Remedial Action" ......................................................7
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
"Tax," "Taxes" and "Taxable" ...........................................8
"Transferred Employees" ................................................8
"TrueLink" .............................................................8
"TrueLink Agreements" ..................................................8
SECTION 2 SALE OF ASSETS; PURCHASE PRICE........................................9
2.1 Agreement to Purchase and Sell Purchased Assets................9
2.2 Purchase Price.................................................9
2.3 Acceleration of Earn Out Following a Trigger Event. ..........10
2.4 Escrow Accounts...............................................10
2.5 Payment of the Purchase Price.................................11
2.6 Form of Payment. ............................................11
SECTION 3 CLOSING..............................................................11
3.1 The Closing...................................................11
3.2 Payments and Deliveries at Closing............................11
(a) Deliveries and Payments by Seller Group..............11
(b) Deliveries and Payments by Purchaser.................12
3.3 Proration; Discharge of Monetary Liens........................13
3.4 Delivery of Possession........................................13
SECTION 4 REPRESENTATION AND WARRANTIES OF SELLER GROUP........................13
4.1 Organization and Authority....................................14
4.2 Ownership.....................................................14
4.3 Authority and Capacity........................................14
4.4 Compliance with Law...........................................14
4.5 Title to Assets...............................................15
4.6 Effect of Agreement...........................................15
4.7 Financial Statements..........................................15
4.8 Leases........................................................16
4.9 Litigation....................................................17
4.10 General Consents..............................................17
4.11 Intellectual Property and Software............................17
4.12 Events Since June 30, 1998. ..................................18
4.13 Contracts. ..................................................20
4.14 Seller's Obligations Under the Assumed Obligations. ..........21
4.15 Compliance with Law Including Consumer Law....................21
4.16 Pipeline Loans. ............................................21
4.17 Tax Matters. .................................................22
4.18 Pipeline Advances.............................................23
4.19 Insurance. ..................................................23
4.20 Employees and Employee Benefits...............................24
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
4.21 Environmental Matters. .......................................25
4.22 Guaranties. .................................................26
4.23 Powers of Attorney............................................26
4.24 Brokers and Finders...........................................26
4.25 Certain Business Relationships with Shareholder. ............26
4.26 Undisclosed Liabilities. ....................................26
4.27 Foreign Corrupt Practices Act. ..............................26
4.28 Section 341(f)(2). ..........................................26
4.29 Disclosure. .................................................26
SECTION 5 REPRESENTATIONS AND WARRANTIES OF BNC PARTIES........................27
5.1 Organization and Authority....................................27
5.2 Authority and Capacity........................................27
5.3 Effect of Agreement...........................................27
5.4 No Consents Required..........................................27
SECTION 6 CONDUCT PENDING CLOSING..............................................27
6.1 Cooperation...................................................27
6.2 Furnishing of Data............................................28
6.3 Conduct of Seller Prior to the Closing........................28
6.4 Advice of Changes.............................................29
SECTION 7 ADDITIONAL AGREEMENTS.................................................30
7.1 Assignment of Lease. ........................................30
7.2 Contributions, Taxes, etc. ..................................30
7.3 Seller Employees..............................................30
7.4 Non-Competition Agreement. ..................................30
7.5 Web Site Agreement. .........................................30
7.6 Credit Bureau Agreement.......................................30
7.7 Escrow Agreement..............................................30
7.8 Discontinuance of Use of Name. ..............................31
SECTION 8 CONDITIONS PRECEDENT.................................................31
8.1 Conditions to Obligations of Purchaser at Closing.............31
8.2 Conditions to Obligations of Seller at Closing................33
SECTION 9 INDEMNIFICATION......................................................34
9.1 Nature and Survival of Representations and Warranties.........34
9.2 Indemnification by Seller Group...............................34
9.3 Indemnification by Purchaser..................................36
9.4 Notice of Indemnification.....................................37
9.5 Indemnification Procedure for Third-Party Claims..............37
</TABLE>
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<TABLE>
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<S> <C>
9.6 Indemnification Payments and Tax Effects......................38
9.7 Market Value of Assets........................................38
9.8 Certain Limitations...........................................38
SECTION 10 FURTHER AGREEMENTS OF THE PARTIES...................................38
10.1 Confidentiality and Non-Disclosure............................38
10.2 Purchaser Cooperation.........................................39
10.3 Seller Cooperation. .........................................39
10.4 Transfer of Pipeline Loans....................................40
10.5 Right of Endorsement..........................................40
10.6 Employees.....................................................41
10.7 Additional Agreements.........................................41
10.8 Forwarding Post-Closing Date Items............................41
10.9 Warehouse Lines...............................................41
10.10 Non-Competition Agreement.....................................41
SECTION 11 TAXES...............................................................42
11.1 Payment of Taxes, Filing of Returns. ........................42
11.2 Sales Taxes...................................................42
SECTION 12 TERMINATION.........................................................42
12.1 Termination...................................................42
12.2 Effect of Termination.........................................42
12.3 Extension; Waiver.............................................43
SECTION 13 MISCELLANEOUS.......................................................43
13.1 Expenses......................................................43
13.2 Successors and Assigns........................................43
13.3 Notices.......................................................43
13.4 Exhibits and Schedules........................................44
13.5 Amendment.....................................................44
13.6 GOVERNING LAW.................................................44
13.7 Captions; Certain Terms.......................................45
13.8 Counterparts; Signatures......................................45
13.9 Attorneys' Fees...............................................45
13.10 Severability..................................................45
13.11 Rights Cumulative.............................................45
13.12 Time of the Essence...........................................45
13.13 Merger of Prior Negotiations and Agreements...................46
13.14 Third Parties.................................................46
LIST OF SCHEDULES..............................................................A-1
</TABLE>
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TABLE OF CONTENTS
<TABLE>
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<S> <C>
LIST OF EXHIBITS...............................................................A-2
SCHEDULE 1A ASSUMED CONTRACTS..........................................SCH-1
SCHEDULE 1B ASSUMED OBLIGATIONS........................................SCH-2
SCHEDULE 1C FIXED ASSETS...............................................SCH-3
SCHEDULE 1D EXCLUDED ASSETS............................................SCH-4
SCHEDULE 1F-1 LICENSES...................................................SCH-5
SCHEDULE 1F-2 MANUALS AND GUIDELINES.....................................SCH-6
SCHEDULE 1F-3 DEFERRED AND PREPAID CHARGES...............................SCH-7
SCHEDULE 1F-4 CLAIMS, CREDITS, ETC.......................................SCH-8
SCHEDULE 2.2 GUIDELINES.................................................SCH-9
SCHEDULE 2.5 DESIGNATED EARN OUT EMPLOYEES.............................SCH-10
SCHEDULE 4 CLOSING EXCEPTIONS TO PURCHASER'S
REPRESENTATIONS AND WARRANTIES............................SCH-11
SCHEDULE 4.1 ORGANIZATION AND AUTHORITY................................SCH-15
SCHEDULE 4.8 LEASES....................................................SCH-16
SCHEDULE 4.10 GENERAL CONSENTS..........................................SCH-17
SCHEDULE 4.11 INTELLECTUAL PROPERTY AND SOFTWARE........................SCH-18
SCHEDULE 4.13 CONTRACTS.................................................SCH-19
SCHEDULE 4.17 TAXES.....................................................SCH-21
SCHEDULE 4.19 INSURANCE.................................................SCH-22
SCHEDULE 4.20 EMPLOYEE BENEFITS.........................................SCH-23
</TABLE>
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TABLE OF CONTENTS
<TABLE>
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<S> <C>
SCHEDULE 5 SELLER EXCEPTIONS.........................................SCH-24
SCHEDULE 8.1(g) REQUIRED ENTITIES.........................................SCH-25
SCHEDULE 8.1(q) EMPLOYEES TO BE HIRED BY PURCHASER........................SCH-26
EXHIBIT 2.4 ESCROW AGREEMENT...........................................EXH-1
EXHIBIT 7.4 NON-COMPETITION AGREEMENT..................................EXH-2
EXHIBIT 7.5 WEB SITE AGREEMENT.........................................EXH-3
EXHIBIT 7.6 CREDIT BUREAU AGREEMENT....................................EXH-4
EXHIBIT 7.10 LIMITED LICENSE AGREEMENT..................................EXH-5
EXHIBIT 8.1 (h) BILL OF SALE...............................................EXH-6
EXHIBIT 8.1(l) OPINIONS TO BE RENDERED BY SELLER..........................EXH-7
EXHIBIT 8.1(m) SELLER'S OFFICER'S CERTIFICATE.............................EXH-8
EXHIBIT 8.2(g) EMPLOYMENT AGREEMENT.......................................EXH-9
EXHIBIT 8.2(j) OPINIONS TO BE RENDERED BY PURCHASER......................EXH-10
</TABLE>
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<PAGE> 8
AGREEMENT
THIS AGREEMENT (this "AGREEMENT") is made and entered into as of
December 21, 1998 by and between Mortgage Logic.com, Inc., a California
corporation, which name may be changed on or prior to the Closing ("PURCHASER"),
BNC Mortgage, Inc. ("BNC" and, together with Purchaser, the "BNC PARTIES") and
America's Lender, Inc., a California corporation ("SELLER"), SHL Holdings, a
California corporation ("SHL") and Keith Guy ("SHAREHOLDER" and, together with
Seller and SHL, the "SELLER GROUP"), with reference to the following:
W I T N E S S E T H:
A. WHEREAS, Seller is primarily engaged in the origination and sale
of mortgage loans and mortgage lending (the "MORTGAGE BUSINESS");
B. WHEREAS, Seller desires to sell and Purchaser desires to
purchase certain of the assets and assume certain liabilities of Seller which
are used or are useful in the operation of the Mortgage Business;
C. WHEREAS, SHL owns 100% of the outstanding capital stock of
Seller;
D. WHEREAS, Shareholder owns 100% of the outstanding capital stock
of SHL;
E. WHEREAS, Purchaser is a newly formed entity wholly-owned by BNC;
and
F. WHEREAS, Shareholder, SHL, and the Boards of Directors of Seller
and the BNC Parties, have each determined that it is in their respective best
interests to transfer and assign certain of the assets and assign certain of the
liabilities of the Mortgage Business to Purchaser on the terms and conditions
set forth below:
A G R E E M E N T
NOW, THEREFORE, in consideration of these premises and the
representations, warranties and agreements herein contained and upon the terms
and subject to the conditions hereinafter set forth, the BNC Parties and Seller
Group agree as follows:
SECTION 1 DEFINITIONS
1.1 For purposes of this Agreement, the following terms have the
following meanings:
"ACTION" shall mean any lawsuit, litigation, action, demand,
mediation, arbitration, investigation, proceeding, or claim before any court,
Governmental Entity, administrative agency or quasi-judicial body, including,
but not limited to, an arbitrator or alternative dispute resolution
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body or agency or similar entity, whether formal or informal, civil, criminal,
administrative or investigative of any federal state, local, or foreign
jurisdiction.
"AGENCY" shall mean the FHA, FHLMC, FNMA, HUD or any other state
or federal agency or organization to or through which Mortgage Loans originated
by the Mortgage Business are sold, guaranteed, insured or underwritten.
"AGENCY APPROVALS" shall mean the approvals and authorizations
issued to Seller by the Agencies which are used in or useful to the conduct of
the Mortgage Business.
"AFFILIATE" of, or a Person "AFFILIATED" with, a Person, shall
mean, with respect to any other Person, any Person that directly or indirectly,
controls or is controlled by or is under common control with such Person.
"ASSUMED CONTRACTS" shall mean all of Seller's Contracts
(excluding those in Excluded Assets) listed on Schedule 1A attached hereto.
"ASSUMED OBLIGATIONS" shall mean: (i) those accrued liabilities
specifically identified on Schedule 1B as being assumed by Purchaser; and (ii)
all of Sellers' duties arising after the Closing Date (but none of their
liabilities existing at the Closing) under the Assumed Contracts listed on
Schedule 1A (if the Consents to Assignment with respect to such Assumed
Contracts are obtained), and no others.
"BILL OF SALE" shall mean that certain document to be executed
and delivered by Seller at the Closing in the form attached hereto as Exhibit
8.1(h) pursuant to which Seller shall convey all of its right, title and
interest in and to those Purchased Assets consisting of personal property to
Purchaser.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" shall mean all information of any
kind, type or nature (written, stored on magnetic or other media, or oral) which
is or has been compiled, prepared, devised, developed, designed, discovered or
otherwise learned of by Seller Group including, without limitation, all of
Seller's price lists, pricing information, marketing strategies, business plans
or methods, borrower lists, borrower information, and financial information;
provided, however, that any such information which is generally known to the
public (other than as a result of actions or omissions by Seller Group or one of
their representatives or Affiliates) shall not be deemed to be Confidential
Information.
"CONTRACT" shall mean and includes any agreement, contract,
understanding, commitment and/or arrangement (whether written or oral),
including, without limitation, leases, licenses, options, assignments and
guarantees.
"CORRESPONDENT AGREEMENTS" shall mean those certain agreements
between Seller and a Correspondent pursuant to which Seller acquires Mortgage
Loans by concurrent assignment
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from a Correspondent or by which a Mortgage Loan is brokered to Seller by a
Correspondent and funded by Seller.
"CORRESPONDENT" shall mean mortgage brokers, mortgage bankers,
depository financial institutions and others from which Seller acquires Mortgage
Loans, Pipeline Loans and/or leads therefor and which Seller currently does
business or which are currently approved as brokers or correspondents by Seller.
"ENVIRONMENTAL CLAIM" means any allegation, notice of violation,
action, claim, Lien, demand, abatement or other Order or direction (conditional
or otherwise) by any Governmental Entity or any other Person for personal injury
(including sickness, disease or death), tangible or intangible property damage,
damage to the environment, nuisance, pollution, contamination or other adverse
effects on the environment, or for fines, penalties, or restrictions resulting
from or based upon (a) the existence, or the continuation of the existence, of a
release (including, without limitation, sudden or non-sudden accidental or
nonaccidental releases) of, or exposure to, any Hazardous Material or other
substance, chemical, material, pollutant, contaminant, odor, audible noise, or
other release in, into or onto the environment (including, without limitation,
the air, soil, surface or groundwater) at, in, by, from or related to any of the
real property leased by Seller or any activities conducted thereon; (b) the
environmental aspects of the transportation, storage, treatment or disposal of
Hazardous Materials in connection with the operation of any of the Mortgage
Business; or (iii) the violation, or alleged violation, of any Environmental
Law, Order or Permit of or from any Governmental Entity relating to
environmental matters connected with the Mortgage Business.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"EXCLUDED ASSETS" shall mean those assets of the Mortgage
Business of Seller which will not be acquired by Purchaser, and which are
specifically identified below:
(a) all Loans in Inventory and all interest due from
mortgagees on all Loans in Inventory;
(b) all cash, including, without limitation, all
cash deposited or designated by Seller for or in connection with the funding of
Mortgage Loans by Seller pursuant to the requirements or needs of Seller's
warehouse funding facilities (including, without limitation, cash used to cover
the "haircut" on Seller's warehouse lines of credit);
(c) all advances and interest due from Shareholder
and all receivables due from employees of Seller;
(d) those fixed assets which consist solely of
personal property of Shareholder or Seller's employees located at Seller's
premises;
(e) all cash equivalents and accounts receivable of
Seller including, without limitation, all accounts receivable due from Investors
for any Loans in Inventory or performance fees due upon origination;
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<PAGE> 11
(f) all deferred income taxes;
(g) the corporate charter, all minute books and
stock transfer ledgers, and other documents relating to the organization,
maintenance, and existence of Seller as a corporation;
(h) all Pipeline Advances (if any) in excess of the
amount set forth on the Pipeline Advance Statement;
(i) all Agency Approvals of Seller;
(j) all state licenses of Seller, including, but not
limited to Seller's Department of Real Estate license;
(k) all of Seller's rights in any Action to which it
is a party except as listed in Schedule 1F-4; and
(l) all assets owned or held by TrueLink, including
but not limited to those assets listed on Schedule 1D hereto.
"FHA" shall mean the Federal Housing Administration or any
successor organization.
"FHLMC" shall mean the Federal Home Loan Mortgage Corporation or
any successor organization.
"FINANCIAL STATEMENTS" shall mean collectively the financial
statements of Seller for the fiscal years ended June 30, 1998 and June 30, 1997,
including the balance sheets as of said dates and the statements of income,
statements of shareholder's equity and statements of cash flow, and unaudited
financial statements for the three month period ended September 30, 1998.
"FIXED ASSETS" shall mean all of Seller's furniture, fixtures,
equipment, supplies and other tangible personal property located at the premises
or at other facilities of Seller, which is used by the Mortgage Business in the
ordinary course of its business, including but not limited to, those assets set
forth on Schedule 1C.
"FNMA" shall mean the Federal National Mortgage Association or
any successor organization.
"GAAP" shall mean generally accepted accounting principles,
applied on a basis consistent with the preparation of the Financial Statements.
"GNMA" shall mean the Government National Mortgage Association
or any successor organization.
"GOVERNMENTAL ENTITY" shall mean any court, any federal, state,
local or foreign government and/or any administrative agency or commission or
other governmental authority or
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instrumentality whatsoever having jurisdiction or supervision over any aspect of
the Mortgage Business, the operation, use or disposition of the Purchased
Assets, the execution, delivery and performance by Seller Group of this
Agreement, and/or the consummation of the transactions contemplated by this
Agreement.
"HAZARDOUS MATERIAL" means any substance, material or waste, or
any constituent thereof, which is regulated by any local Governmental Entity,
Governmental Entity in any jurisdiction in which Seller conducts business, or
the United States or other national government, or is regulated by or forms the
basis of liability under any Environmental Law, including, without limitation,
any material or substance which is defined as a "hazardous waste," "hazardous
material," "hazardous substance," "extremely hazardous waste" or "restricted
hazardous waste," "subject waste," "contaminants," "toxic waste" or "toxic
substance" under any Environmental Laws, including but not limited to, petroleum
products, asbestos and polychlorinated biphenyls.
"HUD" shall mean the Department of Housing and Urban Development
or any successor organization.
"INSURER" with respect to any Mortgage Loan shall mean a Person
who insures or guarantees all or any portion of the risk of loss under such
Mortgage Loan due to a default by the mortgagor, including a private mortgage
insurer and/or FHA.
"INVESTOR" shall mean any Agency or other Person to which Seller
sells, assigns or brokers Mortgage Loans, or any Insurer which issues PMI on
Mortgage Loans funded by Seller.
"LIENS" shall mean any and all liens, charges, encumbrances,
mortgages, pledges, security interests, options or other similar rights to
acquire, adverse claims and restrictions.
"LOAN FILE" shall mean the loan application packages and all
other documents which have been prepared by, submitted to or otherwise in the
possession of Seller which pertain to Pipeline Loans.
"LOANS IN INVENTORY" shall mean those Mortgage Loans which, as
of the Closing, have been funded by or on behalf of Seller and which have not
been delivered to or, if delivered, for which the purchase price due has not
been paid by, an Investor.
"MATERIAL ADVERSE EFFECT" shall mean an effect which,
individually or in the aggregate with any other effect might, with or without
notice or the passage of time or both, be materially adverse to (i) the use,
operation or disposition of the Purchased Assets; (ii) the due and proper
performance and discharge of the Assumed Obligations; (iii) the operation of the
Mortgage Business in the manner and at the volume historically conducted by
Seller, including Purchaser's ability to operate the Mortgage Business
immediately after the Closing; or (iv) this Agreement, the performance by Seller
Group of its obligations hereunder or the transactions contemplated hereby.
"MORTGAGE LOAN" shall mean a loan secured by a mortgage or a
deed of trust on real property, on which or within which are residential
improvements consisting of one to four dwelling units, including condominiums,
units in planned developments and units in cooperative projects.
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<PAGE> 13
"ORDER" shall mean any order, injunction, judgment, decree,
ruling, writ, assessment or arbitration award.
"PERMIT" shall mean any written approval, authorization,
consent, franchise, license, permit or certificate by any Governmental Entity.
"PERSON" shall mean any individual, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, Governmental
Entity or any other legal entity whatsoever.
"PIPELINE ADVANCES" shall mean third party expenses incurred in
connection with the creation, origination, processing or other activity related
to any Pipeline Loans (including, without limitation, expenses advanced for
credit reporting and appraisal fees).
"PIPELINE LOANS" shall mean a mortgage loan submission for which
Seller has received an application, a lock-in or registration before the Closing
Date, which has not been funded as of the Closing Date, and which has not been
rejected by Seller or withdrawn by the borrower as of the Closing Date.
"PMI" with respect to any Mortgage Loan shall mean the private
mortgage insurance issued or to be issued by an Insurer covering a portion of
the mortgagor's obligations under the mortgage or mortgage note with respect to
such loan, and to the extent such Mortgage Loan is insured by FHA such term
shall be construed to include an FHA Mortgage Insurance Certificate.
"PURCHASED ASSETS" shall mean all of Seller's right, interest
and title in and to all of Seller's assets used or useful in the Mortgage
Business (whether real, personal or mixed, tangible or intangible, and wherever
located) together with all modifications, replacements and additions (if any) to
any of the following after the date hereof (specifically excluding the Excluded
Assets), including, but not limited, to the following:
(a) all Fixed Assets;
(b) Seller's web site(s) located at
http://www.Americaslender.com;
(c) the names "America's Lender," "Spectrum Home
Loans," "America's Online Lender," "Amerimor Financial Corp." and any other
names utilized in connection with the Mortgage Business or owned by Seller and
all related logos, trademarks, trade names, service marks and copyrights, and
applications and registrations relating thereto and all patents and patent
applications owned by the Seller or licensed to the Seller by third parties
relating to the Business, in each case as listed on Schedule 4.11;
(d) all trade secrets, know-how, inventions, and
other technical information, that is either owned by or licensed to Seller by
third parties, and all notebooks, records, reports and data relating thereto;
(e) all rights and remedies, including all
prepayments, security deposits and options to renew or purchase in connection
therewith, under the Assumed Contracts;
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(f) all licenses (including applications therefor)
used in the conduct of the Mortgage Business to the extent assignable by Seller
as set forth in Schedule 1F-1;
(g) the Pipeline Advances in the amount set forth on
the Pipeline Advance Statement;
(h) all computer systems, computer hardware,
databases and software programs, including any licenses or warranties, if any,
used in the Mortgage Business (including databases and software programs
developed by Seller in the operation of the Mortgage Business, source codes and
user manuals), in each case, owned by Seller or licensed to Seller by third
parties;
(i) all catalogues, marketing brochures and
materials, underwriting manuals and guidelines, internal operational manuals and
other printed and written materials relating to the Mortgage Business as
described on Schedule 1F-2;
(j) all of Seller's interest in rights under or
pursuant to all warranties, representations and guarantees, if any, made by
vendors, suppliers, and contractors in connection with or relating to the
Mortgage Business or affecting the Purchased Assets;
(k) all deferred and prepaid charges, sums and fees,
and all insurance premiums relating to the Mortgage Business as listed on
Schedule 1F-3;
(l) all claims, credits, causes of action or rights
of set-off of Seller relating to the Mortgage Business against third parties,
except as may be included in the Excluded Assets, including those listed on
Schedule 1F-4;
(m) all Correspondents lists, and all files,
documents, books, records, papers, agreements, formulae, books of account and
other data and records (including all computer programs, tapes, discs, punch
cards and similar media) relating thereto; and
(n) all goodwill and going concern value, customer
relationships and vendor relationships relating to the Mortgage Business or the
foregoing Purchased Assets.
"RELEVANT INVESTOR" shall mean, with respect to any particular
Pipeline Loan, the Investor and the program under which the Pipeline Loan was,
at the time of interest rate lock, intended to be sold, insured and/or
guaranteed.
"REMEDIAL ACTION" shall mean any action, including, without
limitation, any capital expenditure, required or voluntarily undertaken to (a)
clean up, remove, treat, or in any other way address any Hazardous Material or
other substance in the indoor or outdoor environment, (b) prevent the release or
threat of release, or minimize the further release of any Hazardous Material or
other substance so it does not migrate or endanger or threaten to endanger
public health or welfare of the indoor or outdoor environment, (c) perform
pre-remedial studies and investigations or post-remedial monitoring and care, or
(d) bring any Purchased Asset into compliance with all Environmental Laws and
Permits in all material respects.
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"TAX," "TAXES" and "TAXABLE" shall mean any federal, state,
local, foreign or other tax or governmental charge of any type or kind
whatsoever, together with any interest and any penalty, addition to tax or
additional amount imposed by any taxing authority due from, or allocable under
any applicable law or agreement to, Seller.
"TRANSFERRED EMPLOYEES" shall mean all Employees who accept
offers of employment from Purchaser on or after the Closing Date.
"TRUELINK" shall mean TrueLink, Inc., a California corporation.
"TRUELINK AGREEMENTS" shall mean the Web Site Agreement and the
Credit Bureau Agreement (as each is defined herein).
1.2 In addition to the terms defined in Section 1.1, the following
terms are defined in the Section numbers listed below:
<TABLE>
<S> <C>
Benefit Arrangement 4.20(b)
CERCLA 4.21(a)
Closing Schedule 8.1(k)
Closing 3.1
Closing Date 3.1
Consents and Permits 4.10
Contest 9.4
Credit Bureau Agreement 3.2(a)(xi)
Damages 9.2
Earn Out 2.2(e)
Employee Benefit Plan 4.20(b)
Environmental Laws 4.21(a)
Escrow Agreement 2.4
Indemnitee 9.4
Indemnitor 9.4
Indemnity Claim 9.4
Intellectual Property 4.11(a)
Leases 4.8
Limited License Agreement 3.2(a)(xiv)
Net Origination Volume of the Mortgage Business 2.2(e)
Non-Competition Agreement 3.2(a)(xv)
Notices 13.3
Officer's Certificate 3.2(a)(vii)
Permitted Liens 4.5(a)
Prorated Items 3.3
Purchaser Indemnified Party 9.2
Pipeline Advances Statement 3.2(a)(xvi)
Retained Employees 7.3(a)
Seller's Certificate 7.2
Seller Parties 9.3
</TABLE>
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<TABLE>
<S> <C>
Seller's Shares 4.2
Settlement Statement 8.1(d)
Stub Financials 3.2(a)
Tax Affiliates 4.17(a)
Termination Date 12.1(b)
Venture Lease 7.1
Web Site Agreement 3.2(a)(x)
</TABLE>
SECTION 2 SALE OF ASSETS; PURCHASE PRICE.
2.1 AGREEMENT TO PURCHASE AND SELL PURCHASED ASSETS.
(a) On the terms and subject to the conditions of this
Agreement, on the Closing Date (i) Seller agrees to sell, assign, transfer and
deliver to Purchaser, and the BNC Parties agree to purchase and acquire from
Seller, on the Closing Date, the Purchased Assets and (ii) the BNC Parties agree
to pay, assume, discharge and be liable for, the Assumed Obligations.
(b) Notwithstanding any provisions in this Agreement or any
other writing to the contrary executed on or prior to the date hereof, the BNC
Parties are assuming only the Assumed Obligations and is not assuming any other
liability or obligation of Seller Group or the Mortgage Business (or any
predecessor owner of all or part of the Mortgage Business) of whatever nature
whether in existence on the Closing Date or arising thereafter. All such other
liabilities and obligations shall be retained by and remain obligations and
liabilities of Seller Group. Without limiting the liabilities that the BNC
Parties are not assuming, the BNC Parties will not assume or agree to pay or
discharge (i) liabilities, if any, incurred by Seller Group as a result of any
act performed or transaction entered into in violation of any of the terms and
conditions of this Agreement (except to the extent such violation is waived by
Purchaser in writing); (ii) except as set forth in Section 11.2 hereof,
liabilities for any federal, state or local tax, including, without limitation,
any sales tax, income tax, franchise tax liability, or other tax of any nature
whatsoever, including, but not limited to, any tax based upon or arising out of
or resulting from or measured by income or gain arising out of or resulting from
the sale, conveyance, transfer, assignment or delivery of the Assets as provided
herein; (iii) except as set forth in Section 10.4 hereof, liabilities arising
out of or related to the Assumed Contracts to the extent such liabilities arise
as the result of the operation of the Mortgage Business prior to the Closing
Date; (iv) accrued employee vacations and accrued payroll amounts including
commissions and bonuses; (v) liabilities of Seller Group arising out of or in
connection with the negotiation, execution or performance of this Agreement,
including costs and expenses of consultants and brokers, if any; (vi)
liabilities arising out of or in connection with the termination of Seller's
employees prior to the Closing; and (vii) liabilities arising out of or related
to any litigation set forth in Schedule 4 (as defined herein). All such
liabilities and obligations not being assumed herein are referred to as the
"EXCLUDED OBLIGATIONS."
2.2 PURCHASE PRICE. The purchase price (the "PURCHASE PRICE") for
the Purchased Assets shall be equal to:
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(a) $1.5 million; plus
(b) $500,000 payable in cash representing the parties'
estimate of the value of the Fixed Assets; plus
(c) all Pipeline Advances outstanding as of the Closing as
set forth on the Pipeline Advances Statement; plus
(d) assumption of the Assumed Obligations; plus
(e) an earn out (the "EARN OUT") of $.001 for each dollar of
Net Origination Volume of the Mortgage Business that equals or exceeds
$500,000,000 during the full 12 month period commencing on the first day of the
first full month after the Closing and ending on the last day of the twelfth
month thereafter; provided, that in no event shall the Earn Out exceed $1.0
million. Purchaser shall deposit $500,000 against the first amounts which may be
earned under the Earn Out into an escrow account pursuant to Section 2.2 herein.
For the purposes of the foregoing, "NET ORIGINATION VOLUME OF THE
MORTGAGE BUSINESS" shall mean the original principal balance of all mortgage
loans originated by Purchaser and funded by Purchaser or any third party that
fall within the guidelines described on Schedule 2.2 hereof and which are not
rejected on resale or repurchased by Purchaser not later than that date which is
thirty (30) days from 12 months from the Closing.
2.3 ACCELERATION OF EARN OUT FOLLOWING A TRIGGER EVENT. If the Board
of Directors of either BNC Party approves the liquidation, dissolution, sale or
other transfer or assignment (other than an assignment made in connection with
obtaining a warehouse line of credit or similar credit facility by either BNC
Party) of all or substantially all of the assets of the Mortgage Business or of
the shares of Purchaser as a result of which BNC does not have the right, power
or authority to elect a majority of the board of directors of Purchaser on or
prior to that date which is twelve months from the Closing, except pursuant to a
transaction in which the BNC Parties or any current subsidiary thereof solely
merge together or effect a reorganization together, then promptly upon such
occurrence, the maximum Earn Out (i.e., $1 million) will be deemed fully due and
payable to Seller, regardless of the actual Net Origination Volume of the
Mortgage Business at that time.
2.4 ESCROW ACCOUNTS. At the Closing, Purchaser shall establish an
escrow account as follows:
(a) $500,000 shall be deposited as an advance against the
first amounts which may be earned under Section 2.2(e). Should the Earn Out not
be earned, the $500,000 so deposited shall revert back to Purchaser; and
(b) the escrow account set forth above shall be evidenced by
that certain Escrow Agreement by and between Seller Group, the BNC Parties and a
mutually agreeable escrow agent to be identified by BNC and Shareholder, dated
as of Closing, substantially in the form attached hereto as Exhibit 2.4. (the
"ESCROW AGREEMENT").
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2.5 PAYMENT OF THE PURCHASE PRICE. The Purchase Price shall be paid
as follows: (a) the BNC Parties shall pay the amount calculated under Sections
2.2(a) through 2.2(c) at the Closing in accordance with Section 3 hereof; and
(b) the BNC Parties shall pay the Earn Out to Seller not later than that date
which is forty-five (45) days from twelve months from the Closing or such longer
period as set forth in the Escrow Agreement.
2.6 FORM OF PAYMENT. All payments due hereunder in cash shall be
made in immediately available funds to Seller, provided, that the Earn Out is
payable to those persons and in such amounts as set forth in Schedule 2.6 as
designated by Seller and as approved by Purchaser.
SECTION 3 CLOSING
3.1 THE CLOSING. The Closing of the purchase and sale of the
Purchased Assets (the "CLOSING") shall take place at 10:00 a.m., Pacific
Standard Time, on February 29, 1999 (or such later date as set forth in Section
12.1(b) herein), at the offices of Freshman, Marantz, Orlanski, Cooper & Klein.
9100 Wilshire Blvd., 8th Floor, East, Beverly Hills, California 90212, or at
such other time or place as agreed to by the parties. The date of the Closing is
herein referred to as the "CLOSING DATE."
3.2 PAYMENTS AND DELIVERIES AT CLOSING.
(a) DELIVERIES AND PAYMENTS BY SELLER GROUP. At the Closing,
Seller Group shall deliver, or cause to be delivered to Purchaser, duly executed
originals or, to the extent noted below, certified copies of each of the
following (each of which shall conform to the provisions of Section 8 of this
Agreement):
(i) the Settlement Statement together with any
payments that may be due by Seller to Purchaser as a result of the settlement of
the Prorated Items;
(ii) originals of all records and documentation of
the Purchased Assets;
(iii) all required consents of assignment of the
Assumed Contracts;
(iv) certified copies of resolutions of SHL and
Seller's Board of Directors authorizing the execution and delivery of this
Agreement, the performance of Seller Group's obligations hereunder and the
consummation of the transactions contemplated hereby;
(v) the Closing Schedules (defined in Section
8.1(k));
(vi) an opinion of Seller's counsel;
(vii) an officer's certificate in substantially the
form attached hereto as Exhibit 8.1(m) (the "OFFICER'S CERTIFICATE");
(viii) the Seller's Certificate as set forth in Section
7.2;
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(ix) such other bills of sale, endorsements,
assignments and other good and sufficient instruments of transfer, conveyance
and assignment set forth in Section 8.1 hereof and as may be required by
Purchaser;
(x) that certain Licensing and Web Site Hosting
Agreement, as executed by TrueLink, by and between TrueLink and the BNC Parties
dated as of the Closing (the "WEB SITE AGREEMENT");
(xi) that certain Credit Bureau Services Agreement,
as executed by TrueLink, by and between TrueLink and the BNC Parties dated as of
the Closing (the "CREDIT BUREAU AGREEMENt");
(xii) that certain Limited License Agreement, as
executed by Seller, by and between the BNC Parties and Seller dated as of the
Closing (the "LIMITED LICENSE AGREEMENT")
(xiii) that certain Non-Competition Agreement, as
executed by Seller and Shareholder, by and among Seller, Shareholder and
Purchaser, dated as of the Closing (the "NON- COMPETITION AGREEMENT");
(xiv) a statement as of the Closing Date setting forth
the Pipeline Advances (the "PIPELINE ADVANCES STATEMENT");
(xv) executed assignments of the Pipeline Loans (to
the extent necessary);
(xvi) a schedule listing the Pipeline Loans and
complete originals of the Loan Files of the Pipeline Loans;
(xvii) the Escrow Agreement executed by Seller Group;
and
(xx) unaudited financial statements for the one month
period ended October 31, 1998 and such other periods as set forth in Section
6.2(b) herein (the "Stub Financials").
(b) DELIVERIES AND PAYMENTS BY PURCHASER. At the Closing,
the BNC Parties shall deliver, or cause to be delivered to Seller, each of the
following (each of which shall conform to the provisions of Section 8 of this
Agreement):
(i) the amount payable under Section 2.2(a) through
(c);
(ii) all TrueLink Agreements, each as executed by the
BNC Parties;
(iii) the Limited License Agreement, as executed by
the BNC Parties;
(iv) the Non-Competition Agreement, as executed by
the BNC Parties;
(v) the Settlement Statement together with any
payments that may be due by Purchaser to Seller as a result of the settlement of
the Prorated Items;
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(vi) the employment agreement of Liz Drew, as
executed by the BNC Parties; and
(vii) the Escrow Agreement, as executed by the BNC
Parties, together with the deposit of $500,000 required to be made thereunder.
3.3 PRORATION; DISCHARGE OF MONETARY LIENS. All interest, rents,
utilities, insurance, personal property taxes, expense of supplies and payments
due under any Assumed Contract after the Closing Date (the "PRORATED ITEMS")
shall be prorated between Purchaser and Seller on the basis of twelve thirty-day
months and a three hundred sixty-day year, as of the Closing Date. At the
Closing, settlement of all Prorated Items, to the extent invoices or bills
therefor have been received by Seller, shall be made. If, after the Closing
Date, Purchaser or Seller receives any bills or invoices relating to the
Prorated Items, copies thereof shall be delivered to the other and the amounts
due thereunder shall be prorated in accordance with the previous sentence and
settled as soon as practicable after receipt of such invoice or bill (but not
more than ten (10) days after receipt by Seller or Purchaser, as the case may
be). If, after the Closing Date, Purchaser receives a personal property tax bill
retroactively imposing a Tax for any period prior to the Closing Date, or if
Purchaser receives any bill after the Closing Date which relates to any of the
Excluded Assets or any obligation not included in the Assumed Obligations, the
amount of any such Tax or bill shall be paid by Seller, reimbursed to Purchaser
by Seller, or offset against any amounts payable to Seller Group by Purchaser,
at the election of Purchaser. If, after the Closing Date, Purchaser or Seller
receives a personal property tax bill imposing a Tax different in amount than
that upon which the prorations hereunder were determined, Purchaser and Seller
shall redetermine the Prorated Items as of the Closing Date on the basis of the
different Tax and make such payments to the other as may be necessary or
appropriate under the circumstances. If, on the Closing Date, the Purchased
Assets or any portion thereof are subject to any monetary Lien or special
assessment, then, at Purchaser's election, Seller or Purchaser, shall satisfy
and obtain the complete release and discharge of the Purchased Assets from any
and all such Liens at the Closing hereunder, and if performed by Purchaser, then
Seller shall reimburse Purchaser for such amounts in connection therewith. If,
after the Closing Date, Purchaser or Seller receives a refund of any Tax which
is subject to proration hereunder and which covers a period which extends both
prior to and subsequent to the Closing hereunder, Purchaser and Seller shall
prorate any such refund between them as of the Closing Date.
3.4 DELIVERY OF POSSESSION. At the Closing, Seller shall deliver to
Purchaser possession of the Purchased Assets to such locations as the Purchased
Assets were located as of September 30, 1998.
SECTION 4 REPRESENTATION AND WARRANTIES OF SELLER GROUP
Except as set forth on the Exception Schedule attached hereto as
Schedule 4, the Seller Group jointly and severally represents and warrants to
Purchaser as set forth in this Section 4. The Exception Schedule shall state
each specific section of this Agreement to which each exception is made. Such
representations and warranties are made on the date hereof and shall be made
again as of the Closing as if made on the date thereof. No fact or circumstance
disclosed to or discovered or known by Purchaser shall constitute an exception
to these representations and warranties unless such
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fact or circumstance is set forth on the Exception Schedule attached hereto. The
parties hereto acknowledge that disclosure of any matter in the Exception
Schedule does not effect Seller Group's indemnification obligations under
Section 9.2 herein (other than Section 9.2(b) herein).
4.1 ORGANIZATION AND AUTHORITY. Seller is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
California and has corporate power and authority to carry on its business as it
is now being conducted. The execution, delivery, and performance by Seller Group
of this Agreement and the transactions contemplated hereby are within Seller
Group's power. Seller is duly qualified or licensed to do business in each
jurisdiction in which the nature of the Mortgage Business or Seller's properties
makes such qualification or licensing necessary except to the extent that any
failures to qualify or obtain a license either individually or in the aggregate
would not have a Material Adverse Effect on Seller. Schedule 4.1 contains a true
and complete listing of the following, as each relates to the Mortgage Business:
(a) the locations of all sales offices, development and
support facilities, and any other offices or facilities of Seller;
(b) all states in which Seller maintains any employees;
(c) all states in which Seller is required to be duly
qualified to transact business as a foreign corporation;
(d) all names under which Seller has done business during
the three (3) years prior to the Closing; and
(e) correspondence which is attached to Schedule 4.1, from
Countrywide Credit Industries, Inc. regarding Seller's use of its name, which
correspondence are the sole inquiries with respect to Seller's name.
4.2 OWNERSHIP. All of the outstanding capital stock of Seller
("SELLER'S SHARES") is owned, beneficially and of record, by SHL. All of the
outstanding capital stock of SHL is owned, beneficially and of record, by
Shareholder. Neither Seller, SHL nor Shareholder is a party to any voting trust
or other voting agreement with respect to any of Seller's Shares or to any
agreement relating to the issuance, sale, redemption, transfer or other
disposition of Seller's Shares.
4.3 AUTHORITY AND CAPACITY. Seller Group has full power and
authority (corporate and other) to enter into, execute and deliver this
Agreement and to perform their obligations hereunder. The Agreement, and the
transactions contemplated hereby, have been duly authorized by the Board of
Directors and shareholder of Seller, and no other proceedings on the part of
Seller Group are necessary to authorize the Agreement and the transactions
contemplated hereby. The Agreement has been duly executed and delivered by
Seller Group, and constitutes the valid and binding obligation of Seller Group
enforceable in accordance with its terms.
4.4 COMPLIANCE WITH LAW. Seller Group has not violated, and is not
in violation of, and does not need to give any notice to, make any filing with,
or obtain the authorization, consent or approval under, any statutes, laws,
ordinances, rules and regulations of any federal, state, and local
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governmental bodies, agencies, and subdivisions having, asserting, or claiming
jurisdiction over Seller or over any part of its operations, which could have a
Material Adverse Effect regarding the Purchased Assets, the execution, delivery
and performance of this Agreement (including the rights to be acquired by
Purchaser hereunder), the Mortgage Business or consummation of the transactions
contemplated hereby.
4.5 TITLE TO ASSETS.
(a) Seller is the lawful owner of and has good, valid and
marketable title to, or a valid leasehold interest in, the Purchased Assets,
free and clear of all Liens except for Liens for current taxes not yet
delinquent (collectively, the "PERMITTED LIENS"). Upon delivery to Purchaser of
the Purchased Assets together with the instruments of transfer of ownership
contemplated by this Agreement, Purchaser shall have good and marketable title
in and to, and a valid first priority interest in, the Purchased Assets, free
and clear of all Liens other than the Permitted Liens.
(b) Seller Group reasonably believes that the Purchased
Assets are sufficient to continue the conduct of the Mortgage Business at the
volume levels and in the manner historically conducted by Seller, and that none
of the assets listed on Schedule 1D are materially necessary to continue the
conduct of the Mortgage Business at the manner historically conducted by
Seller..
(c) The Purchased Assets are in good condition and repair
excepting ordinary and customary wear and tear), contain no latent defects, and
are leasable, saleable or useable in the ordinary course of the Mortgage
Business as heretofore conducted.
4.6 EFFECT OF AGREEMENT. Subject to Seller obtaining all Consents
and Permits, the execution and delivery by Seller Group of this Agreement, the
sale by Seller of the Purchased Assets to Purchaser, the performance by Seller
Group of their obligations pursuant to the terms of this Agreement and the
consummation of the transactions contemplated hereby, do not and will not, with
or without the giving of notice or passage of time, or both, result in the
creation or imposition of any Lien, other than the Permitted Liens, on the
Purchased Assets or contravene or constitute a default or breach under,
violation of, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel (i) any Agency Approval; (ii) the
requirements of any Relevant Investor; (iii) the articles of incorporation or
bylaws of Seller; (iv) any provision of any statute, code, ordinance, order,
writ, injunction, ruling, law, rule, or regulation of any court or Governmental
Entity or Agency, or any judgment, injunction, order, decree, contract
provision, license, franchise or permit to which any of the Purchased Assets or
the Mortgage Business is subject; or (v) any contract which the Seller is a
party or by which it is bound, including any Assumed Contract.
4.7 FINANCIAL STATEMENTS.
(a) The Financial Statements and the Stub Financials, which
have been delivered to Purchaser, are complete and correct, have been prepared
from the books and records, which are correct and complete, of the Seller in
accordance with GAAP consistently applied throughout the periods involved,
except for changes specified therein and except that unaudited financial
statements are not accompanied by notes, and present fairly the financial
condition, results of operations,
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shareholders' equity and changes in financial position of the Seller as of the
dates thereof and for the periods specified therein.
(b) To the best of the knowledge of Seller Group, the costs
and expenses incurred by Seller in connection with the item on the Financial
Statements for the period ended June 30, 1998 titled "Non-Operating Costs" arose
from events or transactions that, in light of the environment in which the
Mortgage Business currently operates, are: (i) abnormal to the Mortgage Business
and unrelated to the conduct of the Mortgage Business in the ordinary course or
(ii) not reasonably expected to recur in the foreseeable future.
4.8 LEASES.
(a) Schedule 4.8 to this Agreement contains an accurate and
complete list of the monthly payment, term, description and location of
collateral and any other similar term of all leasehold estates and lease
obligations (as amended to date) of Seller, its equipment service contracts and
computer service contracts which are in any way related to the operation of the
Mortgage Business or which are included in the Assumed Contracts (collectively,
the "LEASES"). All such Leases: (a) are in full force and effect and are the
legal, valid and binding obligations of the parties thereto, enforceable in
accordance with their respective terms; (b) there are no existing defaults by
Seller or, to the knowledge of Seller Group, any other Person thereunder and no
event has occurred, which, with or without notice, lapse of time or both, could
constitute a default by Seller or any other Person thereunder. No such lease has
been modified or amended in writing except as set forth on the Exception
Schedule. Seller Group has not received from any party to any such lease any
written notice of, or written claim with respect to, any breach or default
thereof. Seller Group has not granted any sublease, license or other agreement
granting to any person or entity any right to the use or occupancy of the Leases
or any portion thereof, or the right to purchase the Leases or any portion
thereof, and Seller Group does not have any knowledge of such grant by any other
Person.
(b) The plants, buildings, structures and equipment, if any,
included in the Leases are substantially suited for their present uses.
(c) No violation of any law, regulation or ordinance
(including laws, regulations or ordinances relating to zoning, city planning or
similar matters) relating to the Leases currently exists, except for violations
which would not have a Material Adverse Effect. Seller Group has not received
notice of any contemplated governmental actions which might reasonably be
expected to materially detract from the value of the leased real property,
materially interfere with any present use of any leased real property, or
materially adversely affect the marketability of any of the Lease's real
property. There is no action pending or threatened to initiate a condemnation in
respect of any of the real property of the Leases.
(d) Upon consummation of the transactions contemplated
hereby, Purchaser will have acquired, on and as of the Closing Date, a valid
leasehold interest in the leased real property, free and clear of all Liens.
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4.9 LITIGATION. There is no Action pending or threatened against any
of Seller Group, or any outstanding injunction, judgment, order, decree, ruling
or charge which could affect the Purchased Assets, the Mortgage Business, this
Agreement or the transactions contemplated hereby, and there are no facts
existing which might result in, nor does Seller Group have reason to believe
that there is any basis for, any such Action. Seller is not in default under or
in breach or violation of, nor is there any valid basis for any claim of default
by the Seller under, or breach or violation by Seller of, any contract,
commitment or restriction to which Seller is a party. To Seller's knowledge, no
other party is in default under or in breach or violation of, nor is there any
valid basis for any claim of default by any other party under or any breach or
violation by any other party of, any material contract, commitment, or
restriction to which any of the Sellers is bound and which relates to the
Mortgage Business or the Purchased Assets.
4.10 GENERAL CONSENTS. Schedule 4.10 to this Agreement lists all
approvals, authorizations, consents, orders or other actions of, or filings with
(collectively, the "CONSENTS AND PERMITS"), any Investors, Governmental Entities
and/or other third Persons, that are required or necessary (a) in connection
with the execution and delivery of, and the consummation of the transactions
contemplated by, this Agreement by Seller; (b) to prevent the violation, breach
or termination of, or any default under, or the creation of any Lien, other than
the Permitted Liens, on any Purchased Asset pursuant to, the terms of any law,
regulation, order or other requirement or any Correspondent Agreements or any
other Contract binding upon Seller or to which it or any of the Purchased Assets
may be subject, as a result of this Agreement and the transactions contemplated
hereby, and (c) to insure that the Purchased Assets or the Mortgage Business are
transferred to Purchaser free and clear of any Liens other than the Permitted
Liens and in compliance with all applicable laws, rules and regulations
including those of all Investors and Governmental Entities.
4.11 INTELLECTUAL PROPERTY AND SOFTWARE.
(a) Schedule 4.11 correctly and completely identifies all
issued domestic and foreign patents, patent applications, pending patent
applications, patent applications in process, trademarks, trademark
registrations, trademark registration applications, service marks, service mark
registrations, service mark registration applications, copyright registrations,
copyright registration applications, license agreements, rights acquired through
litigation, logos, trade names, and slogans owned by Seller Group which are
presently used in or useful or necessary to the generation or conduct of the
Mortgage Business (the foregoing, along with know-how and trade secrets owned by
Seller Group are hereinafter collectively referred to as the "INTELLECTUAL
PROPERTY"). Seller has delivered to Purchaser correct and complete copies of all
such patents, registrations, applications, licenses, agreements, and permissions
(as amended to date) and has made available all other written documentation
evidencing Seller's rights in such items.
(b) Seller possesses all right, title and interest in and
to, free and clear of any Lien or has the right to use pursuant to license,
sublicense, agreement, or permission all Intellectual Property currently used in
the operation of the business of Seller as presently conducted. Each license,
sublicense, agreement, or permission covering the Intellectual Property is
legal, valid, binding, enforceable, and in full force and effect in all material
respects. No party to the license, sublicense, agreement, or permission has
repudiated any material provision thereof. Seller has not granted any sublicense
or similar right with respect to any license, sublicense, agreement, or
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permission. No party to the license, sublicense, agreement, or permission is in
material breach or default, and no event has occurred which with notice or lapse
of time would constitute a material breach or default or permit termination,
modification, or acceleration thereunder.
(c) Each item of Intellectual Property included within the
Purchased Assets will be owned or available for use by Purchaser on terms and
conditions substantially similar to those available to Seller immediately
subsequent to the Closing hereunder. Seller has taken all necessary and
desirable action to maintain and protect each item of Intellectual Property
included within the Purchased Assets.
(d) Seller has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual Property
rights of third parties, and neither Seller and its officers and directors have
ever received any charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including any claim
that Seller must license or refrain from using any Intellectual Property rights
of any third party). To the knowledge of Seller Group, no third party has
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of Seller.
(e) To the knowledge of Seller Group, Purchaser will not
interfere with, infringe upon, misappropriate, or otherwise come into conflict
with any Intellectual Property rights of third parties as a result of the
continued operation of the Mortgage Business as presently conducted.
4.12 EVENTS SINCE JUNE 30, 1998. Except as a result of the
transactions contemplated by this Agreement, since June 30, 1998,
(a) there has not been any change in the business, financial
condition, operations, results of operations, or prospects of Seller that would
reasonably be expected to have a Material Adverse Effect on the Purchased Assets
or the Mortgage Business.
(b) Seller has not sold, leased, transferred, or assigned
any of its assets, tangible or intangible, other than Mortgage Loans in the
ordinary course of business and except assets to TrueLink in an amount less than
$10,000 and which assets are not material to the operation of the Mortgage
Business;
(c) Seller has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts, leases, and
licenses) either involving more than $10,000 or outside the ordinary course of
business;
(d) Seller has not accelerated, terminated, modified, or
canceled any agreement, contract, lease or license (or series of related
agreements, contracts, leases, and licenses) involving more than $10,000 to
which Seller is bound;
(e) Seller has not imposed or permitted any Person to impose
any Lien upon any of its assets, tangible or intangible other than the Permitted
Liens;
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(f) Seller has not made any capital expenditure (or series
of related capital expenditures) involving more than $1,000;
(g) Seller has not made any capital investment in, any loan
to, or any acquisition of the securities or assets of, any other Person (or
series of related capital investments and acquisitions);
(h) Seller has not issued any note, bond or other debt
security or created, incurred, assumed or guaranteed any indebtedness for
borrowed money or capitalized lease obligation either involving more than $5,000
singly or $25,000 in the aggregate;
(i) Seller has not delayed or postponed the payment of
material liabilities;
(j) Seller has not canceled, compromised, waived, or
released any right or claim (or series of related rights and claims);
(k) Seller has not sold, assigned, transferred, licensed or
otherwise disposed of any patent, trademark, servicemark, tradename, brand name,
copyright (or pending application for any patent, trademark, servicemark or
copyright), invention, process, know-how, formulae or trade secret or interest
thereunder or other intangible asset used in the Mortgage Business;
(l) there has been no change made or authorized in the
articles of incorporation or bylaws of Seller;
(m) Seller has not experienced any material damage,
destruction, or loss (whether or not covered by insurance) to its property, the
Purchased Assets or Mortgage Business;
(n) Seller has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees;
(o) Seller has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of any
such existing contract or agreement;
(p) Seller has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan, contract, or
commitment for the benefit of any of its directors, officers, and employees (or
taken any such action with respect to any other employee benefit plan;
(q) Seller has not made any other material change in
employment terms for any of its directors, officers, and employees outside the
ordinary course of business;
(r) Seller has not paid any amount to any third party with
respect to any liability or obligation (including any costs and expenses Seller
has incurred or may incur in connection with this Agreement and the transactions
contemplated hereby) which would constitute an Assumed Obligation if in
existence at the Closing; and there has not been any other material occurrence,
event, incident, action, failure to act, or transaction outside the ordinary
course of business involving Seller;
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(s) Seller has not granted any increase in the base
compensation of any of its directors, officers, and employees;
(t) There does not exist any amendment to or termination of
any agreement relating to the Mortgage Business which, if not so amended or
terminated, would be required to be disclosed on the Exception Schedule;
(u) Seller has not made any change in the accounting methods
or practices it follows, whether for general financial or tax purposes, or any
change in depreciation or amortization policies or rates adopted therein as it
relates to the Purchased Assets or the Mortgage Business; and
(v) Seller has not committed to do any of the foregoing.
4.13 CONTRACTS. Schedule 4.13 accurately identifies each contract
with respect to the Purchased Assets or the Mortgage Business to which Seller is
a party, including but not limited to the following:
(a) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease payments in
excess of $5,000 per annum;
(b) any agreement (or group of related agreements) for the
purchase or sale of equipment, supplies, products, or other personal property,
or for the furnishing or receipt of services, the performance of which will
extend over a period of more than one year, result in a material loss to Seller,
or involve consideration in excess of $5,000;
(c) any agreement concerning a partnership or joint venture;
(d) any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed any indebtedness from
borrowed money, or any capitalized lease obligation, in excess of $5,000 or
under which it has imposed a Lien on any of its assets, tangible or intangible;
(e) any agreement concerning confidentiality or
noncompetition;
(f) any agreement with Shareholder;
(g) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or arrangement for
the benefit of its current or former directors, officers, and employees;
(h) any collective bargaining agreement;
(i) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual compensation
in excess of $50,000 or providing severance benefits;
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(j) any agreement under which it has advanced or loaned any
amount to any of its directors, officers, and employees outside the ordinary
course of business;
(k) any agreement under which the consequences of a default
or termination could have a Material Adverse Effect on the Mortgage Business,
including its financial condition, operations, results of operations or future
prospects, or the Purchased Assets; or
(l) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $10,000.
Seller has delivered to Purchaser a correct and complete copy of each
written agreement (as amended to date) listed in Schedule 1A. With respect to
each agreement covered by this Section 4.13, (A) the agreement is legal, valid,
binding, enforceable and in full force and effect; (B) the agreement will
continue to be legal, valid, binding, enforceable and in full force and effect
on identical terms at the Closing; (C) neither Seller nor, to the knowledge of
Seller Group, any other Person a party thereto is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default, or permit termination, modification, or acceleration, under the
agreement; and (D) neither Seller nor, to the knowledge of Seller Group, any
other Person a party thereto has repudiated or modified any provision of the
agreement.
4.14 SELLER'S OBLIGATIONS UNDER THE ASSUMED OBLIGATIONS. Seller is
not in default with respect to, or delinquent in the performance or payment of,
any of the Assumed Obligations and has made all payments and performed all
obligations with respect thereto as and when due. No condition, event, state of
facts or circumstance exists which, with notice or lapse of time or both, would
constitute an event of default by Seller with respect to such Assumed
Obligations.
4.15 COMPLIANCE WITH LAW INCLUDING CONSUMER LAW. Seller has complied
with all applicable licensure, disclosure, usury and other consumer credit laws
and regulations governing residential mortgage lending and brokering in all
material respects, including, but not limited to, all applicable rules,
regulations, standards and guidelines promulgated by any Governmental Entity or
Agency having jurisdiction over the operations of the Mortgage Business and all
applicable provisions of the Real Estate Settlement Procedures Act of 1974, the
Flood Insurance Protection Act, the Consumer Credit Protection Act, the Truth in
Lending Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act,
all as amended from time to time, and all regulations promulgated thereunder
(the foregoing statutes and laws called "CONSUMER CREDIT LAWS") and no notice or
correspondence (whether regarding litigation, regulatory action or otherwise)
has been received by Seller from or on behalf of consumers and no action, suit,
proceeding, hearing, investigation, charge, claim demand or notice has been
filed or commenced against Seller which might have a Material Adverse Effect on
any of the Purchased Assets, Pipeline Loans or the Mortgage Business. All
Pipeline Loans comply in all material respects with the requirements of all
Consumer Credit Laws.
4.16 PIPELINE LOANS. With respect to each Pipeline Loan:
(a) All documents, applications, records and other
documentation in the Loan File are complete and authentic and all signatures
thereon are genuine.
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(b) Each Pipeline Loan complies with the guidelines of the
Relevant Investor.
(c) The information with respect to each Pipeline Loan in
all lists attached as Schedules to this Agreement is true and correct.
(d) No material provision of any Pipeline Loan has been
waived, altered or modified in any respect except by written instruments or
documents contained in the documentation.
(e) All requirements of federal, State and local laws, and
regulations thereunder, including, without limitation, usury laws, if any, in
respect of the Pipeline Loans have been complied with, and the Pipeline Loans
will comply with all legal requirements of the jurisdiction in which they were
originated.
(f) The assignment to Purchaser of the Pipeline Loan will
not violate the terms or provisions of any such Pipeline Loan or any other
agreement to which Seller is a party or by which it is bound.
(g) Any party executing documents contained in the Loan File
on behalf of the borrower thereunder had the legal capacity to execute such
documents and all other parties to the Pipeline Loan had the legal capacity to
execute such documents.
(h) No Pipeline Loan has been rescinded or sold,
transferred, assigned or pledged by Seller to any other Person (or any such
pledge has been released as evidenced by releases of lien).
(i) Seller has done nothing to materially impair the rights
of Purchaser in such Pipeline Loan or any income or proceeds with respect
thereto.
(j) The Pipeline Loans were originated by Seller in the
ordinary course of its business.
(k) No Pipeline Loan is subject to the laws of any
jurisdiction which would make unlawful the assignment of the documents contained
in the Loan File under this Agreement.
(l) All of the Pipeline Loans are evidenced by the
appropriate documentation and there are no understandings, agreements,
undertakings or arrangements between Seller and the borrower under such Pipeline
Loans which are not set forth in such Pipeline Loans and the related files.
4.17 TAX MATTERS.
(a) Seller, or the affiliated, combined or unitary tax group
of which Seller is or was a member, as the case may be (collectively, the "TAX
AFFILIATES") has (i) timely paid all taxes that are due and payable with respect
to Seller and relating to the Mortgage Business and the Purchased Assets, except
for taxes, the nonpayment of which, would not (A) result in a Lien on any of the
Purchased Assets after the Closing Date, (B) have a Material Adverse Effect, or
(C) result in Purchaser becoming liable therefor, and (ii) established (up to
and including the Closing Date will
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establish) reserves that are adequate for the payment of all taxes not yet due
and payable with respect to the results of operations up to and including the
Closing Date, the nonpayment of which would (A) result in a Lien on any of the
Purchased Assets after the Closing Date, (B) have a Material Adverse Effect, or
(C) result in Purchaser becoming liable therefor;
(b) As it relates to the Mortgage Business and the Purchased
Assets, Seller (or a Tax Affiliate on behalf of Seller) has complied with all
applicable laws, rules and regulations relating to the payment and withholding
of taxes relating to employee wages, salaries and other compensation and has
timely withheld and paid over to the proper governmental authorities all amounts
required to be so withheld and paid over for all periods under all applicable
laws;
(c) Except as otherwise disclosed on Schedule 4.17 none of
the Purchased Assets constitutes property that Purchaser or any of its
affiliates are or will be required to treat as being owned by another person
pursuant to the provisions of Section 168(f)(8) of the Code and in effect
immediately prior to the enactment of the Tax Return Act of 1986, or is
"tax-exempt use property" within the meaning of Section 168(h)(1) of the Code;
(d) Seller is not a "foreign person" within the meaning of
Section 1445 of the Code; and
(e) There is no contract, agreement, plan or arrangement
covering any Person that, individually or collectively, could give rise to the
payment of any amount that would not be deductible by Purchaser by reason of
Section 280G of the Code;
4.18 PIPELINE ADVANCES. All Pipeline Advances are current and
collectible, and will be collected in accordance with their terms at their
recorded amounts, subject only to the reserve for bad debts set forth on the
face of the Pipeline Advances Statement or on the June 30, 1998 balance sheet
(rather than in any notes thereto) as adjusted for operations and transactions
through the Closing Date in accordance with the past custom and practice of
Seller.
4.19 INSURANCE. Schedule 4.19 sets forth the following information
with respect to each material insurance policy (including policies providing
property, casualty, liability, and workers' compensation coverage and bond and
surety arrangements) with respect to which Seller is a party, a named insured,
or otherwise the beneficiary of coverage:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder,
and the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the
coverage is on a claims made, occurrence, or other basis) and amount
(including a description of how deductibles and ceilings are calculated
and operate) of coverage; and
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(v) a description of any retroactive premium adjustments or
other material loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect in all material respects; (B)
neither Seller nor any other party to the policy is in material breach or
default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a material breach or default, or permit termination,
modification, or acceleration, under the policy; and (C) no party to the policy
has repudiated any material provision thereof. Schedule 4.19 describes any
material self-insurance arrangements affecting Seller.
4.20 EMPLOYEES AND EMPLOYEE BENEFITS.
(a) (i) As it relates to the Mortgage Business, Seller
is not engaged in any unfair labor practice and is not in violation of any
applicable laws respecting employment and employment practices, terms and
conditions of employment, or wages and hours which would have a Material Adverse
Effect;
(ii) There is no unfair labor practice complaint
against the Seller actually pending or threatened before the National Labor
Relations Board or any similar state authority, as it relates to the Mortgage
Business which would have a Material Adverse Effect;
(iii) There is no strike, labor dispute, slowdown, or
stoppage actually pending or threatened against Seller, as it relates to the
Mortgage Business which would have a Material Adverse Effect;
(iv) No union representation question exists
respecting the employees of Seller, no union organizing activities are taking
place and Seller is not a party to any collective bargaining or union agreement;
(v) No grievance that might have a Material Adverse
Effect on the Assets, nor any arbitration proceeding arising out of or under any
collective bargaining agreement, as it relates to the Purchased Assets or the
Mortgage Business, is pending and no claims therefor exist;
(vi) Seller is not a party to or bound by any
collective bargaining agreement, nor has any of them experienced any strike or
material grievance, claim of unfair labor practices, or other collective
bargaining dispute within the past three years. Seller has not committed any
material unfair labor practice. Seller and the directors and officers of Seller
do not have any knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of
Seller. All persons who are retail loan officers of Seller are deemed
independent contractors under state and Federal law.
(vii) Seller has not experienced any material work
stoppage or other material labor difficulty, as it relates to the Mortgage
Business.
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(b) Schedule 4.20 lists each employee benefit plan as
defined in Section 3(3) of ERISA of Seller covering any employee or former
employee of the Mortgage Business (an "EMPLOYEE BENEFIT PLAN"). Schedule 4.20
hereto lists each (i) a list complete and accurate in all respects, of the names
and current annual salary or hourly rates or other basis for compensation for
all present employees or agents (excluding directors and officers) employed
solely in the Mortgage Business together with a statement of the full amount of
any bonuses, commissions, profit sharing or other remuneration paid directly to
each such person during the month ended September 30, 1998, or payable to each
such person in the future and the basis therefor; and (ii) employment or
severance contract or arrangement, each plan or arrangement providing for
insurance coverage, severance, termination or similar coverage and all written
compensation policies and practices maintained by Seller covering any employee
or former employee of the Mortgage Business and that is not an Employee Benefit
Plan (a "BENEFIT ARRANGEMENT");
(c) To the actual knowledge of Shareholder, no executive,
key employee, or significant group of employees has indicated his, her or their
intent to terminate employment with Seller during the next 12 months.
(d) There is no unfunded prior service cost with respect to
any bonus, deferred compensation, pension, profit-sharing, retirement, or other
employee benefit or fringe benefit plans, whether formal or informal, maintained
by Seller and relating to the Mortgage Business. Each bonus, deferred
compensation, pension, profit sharing, retirement, and other employee benefit or
fringe benefit plans, whether formal or informal, maintained by Seller and
relating to the Mortgage Business conforms to all applicable requirements of the
Employees Retirement Income Security Act of 1974;
(e) Each Employee Benefit Plan is in compliance with the
applicable requirements of ERISA and the Code; and
(f) Seller has provided adequate accruals for all employee
benefits relating to the Mortgage Business payable as of the Closing Date.
4.21 ENVIRONMENTAL MATTERS.
(a) There are no pending or threatened claims, suits or
proceedings arising out of or related to any noncompliance with any
environmental law in connection with the Mortgage Business or the ownership or
use of the Purchased Assets, including, without limitation, statutes related to
air quality, water quality, solid waste management, hazardous or toxic
substances or protection of health or the environment, including, but not
limited to, the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. 136
et seq. as amended), the Federal Water Pollution Control Act (33 U.S.C. 1251 et
seq. as amended), the Resource Conservation and Recovery Act (42 U.S.C. 6901 et
seq. as amended), the Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA") (42 U.S.C. 9601 et seq. as amended), the Clean Air Act
(42 U.S.C. 7401 et seq. as amended), the Toxic Substances Control Act (15 U.S.C.
2601 et seq. as amended), and any similar state or local laws, rules and
regulations (collectively, "ENVIRONMENTAL LAWS"). Seller has kept all records
and made all filings required by applicable law with respect to emissions into
the
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environment (including solids, liquids and gases) and the proper disposal of
such materials (including solid waste materials in all material respects); and
(b) Seller is not in violation of any Environmental Laws
with respect to the Purchased Assets or the conduct of the Mortgage Business.
4.22 GUARANTIES. Seller is not a guarantor or otherwise responsible
for any liability or obligation (including indebtedness) of any other person.
4.23 POWERS OF ATTORNEY. No person has been granted and currently
holds any power of attorney or similar authority to act on behalf of Seller in
connection with any of the Purchased Assets or the Mortgage Business.
4.24 BROKERS AND FINDERS. Seller Group has not retained or otherwise
engaged or employed, directly or indirectly, any broker, finder or any other
person, or paid, agreed to pay, or incurred any liability or obligation to pay,
any fee or commission to any agent, broker, finder or other person, for or on
account of acting as a finder or broker in connection with this Agreement or the
transactions contemplated hereby.
4.25 CERTAIN BUSINESS RELATIONSHIPS WITH SHAREHOLDER. Shareholder has
not been involved in any business arrangement or relationship with Seller,
outside of the ordinary course of business, within the past 12 months, and
Shareholder does not own any asset, tangible or intangible, which is used in the
business of Seller (except in connection with Shareholder's ownership interest
in TrueLink).
4.26 UNDISCLOSED LIABILITIES. Seller does not have any material
liability (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due, including any liability for
taxes) as to which Purchaser may incur or assume any liability or obligation as
a result of this Agreement or the transactions contemplated hereby, except for
(i) liabilities set forth on the face of the June 30, 1998 balance sheet (rather
than in any notes thereto); (ii) liabilities which have arisen in the ordinary
course of business since June 30, 1998; and (iii) the Assumed Obligations.
4.27 FOREIGN CORRUPT PRACTICES ACT. Seller Group has not made,
offered or agreed to offer anything of value to any government official,
political party or candidate for political office (or any person that either of
the Sellers knows or has reason to know will offer anything of value to any such
person) in violation of the Foreign Corrupt Practices Act of 1977, as amended.
4.28 SECTION 341(f)(2). Seller has not, with regard to any property
or assets held, acquired or to be acquired by it, at any time, filed a consent
to the application of Section 341(f)(2) of the Code, as amended, nor will any
such consent be filed before the Closing.
4.29 DISCLOSURE. No representation, warranty or other statement made
by Seller Group in this Agreement or in any Schedule, Exhibit or other writing
furnished or to be furnished pursuant to or by or on behalf of Seller Group in
connection with this Agreement contains any untrue statement of a material fact,
or omits to state any material fact required to make the statements or
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information herein or therein contained, in light of the circumstances under
which they were made, not misleading.
SECTION 5 REPRESENTATIONS AND WARRANTIES OF BNC PARTIES
As a material inducement to Seller Group to execute and deliver this
Agreement and perform their obligations hereunder and thereunder, except as set
forth on Schedule 5, the BNC Parties hereby represent and warrant as follows:
5.1 ORGANIZATION AND AUTHORITY. Such BNC Party is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation.
5.2 AUTHORITY AND CAPACITY. Such BNC Party has full power and
authority (corporate and other) to enter into, execute and deliver this
Agreement and to perform its obligations hereunder. The Agreement, and the
transactions contemplated hereby, have been duly authorized by the Board of
Directors and stockholders of each BNC Party, if required by applicable law, and
no other corporate proceedings on the part of either BNC Party are necessary to
authorize the Agreement and the transactions contemplated hereby. The Agreement
has been duly executed and delivered by each BNC Party, and constitutes the
valid and binding obligation of each BNC Party enforceable in accordance with
its terms.
5.3 EFFECT OF AGREEMENT. The execution and delivery of this
Agreement, the purchase by Purchaser of the Purchased Assets at the Closing, the
performance by each BNC Party of its obligations pursuant to the terms of this
Agreement, the operation by Purchaser of the Mortgage Business and the
consummation of the transactions contemplated hereby, do not and will not, with
or without the giving of notice or passage of time, or both, violate any
provision of law, statute, rule, regulation or executive order, any judgment,
order, writ or decree of any court or administrative body applicable to either
BNC Party, in each case which would have a material adverse effect on the
ability of either BNC Party to perform its obligations under this Agreement.
5.4 NO CONSENTS REQUIRED. There are no approvals, authorizations,
consents, orders or other actions of, or filings with, any governmental
authority or administrative agency, or any other third party, required to be
obtained or filed by either BNC Party in connection with the consummation by
each BNC Party of the transactions contemplated under this Agreement.
SECTION 6 CONDUCT PENDING CLOSING
6.1 COOPERATION.
(a) Each of the parties hereto will give any notices to,
make any filings with, and use its reasonable best efforts to (i) obtain any
Consents and Permits required to be obtained before Closing; (ii) obtain the
consents or approvals from any Investor designated by Purchaser; and (iii) take
all action and do all things necessary in order to consummate and make effective
the transactions contemplated by this Agreement.
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(b) Each of the parties hereto agrees to use all reasonable
commercial efforts to assist the BNC Parties to obtain all approvals and
licenses which were held by Seller prior to the Closing and which are not held
by Purchaser at the Closing.
6.2 FURNISHING OF DATA.
(a) Seller agrees to give to Purchaser and to Purchaser's
counsel, accountants and other representatives full and complete access, during
normal business hours through the Closing hereunder, to all of Seller's
properties, books, businesses, contracts, commitments and records (including tax
records) which affect or relate to the Mortgage Business, the Purchased Assets
or the Assumed Contracts. In connection with the foregoing, Seller and Purchaser
agree that Purchaser's investigation and contacts shall be conducted in a manner
calculated not to unduly interfere with the Mortgage Business as presently
conducted. If this Agreement is terminated without the transactions contemplated
hereby having been effected, Purchaser shall return to Seller all documents,
working papers and other materials obtained from Seller pursuant to this
Agreement. No investigation pursuant to this Section shall affect any
representation or warranty given by the Seller in this Agreement.
(b) Seller shall provide Purchaser with unaudited financial
statements for November 30, 1998 and each month thereafter through the earlier
of the Closing or the termination of this Agreement as soon as such financial
statements are available.
6.3 CONDUCT OF SELLER PRIOR TO THE CLOSING. Except as otherwise
required or contemplated by this Agreement, Seller Group agrees that, from the
date hereof until the Closing Date hereunder:
(a) the Mortgage Business of Seller shall be conducted only
in the ordinary course and in accordance with the requirements of all Investors
and any Governmental Entities, and all applicable laws, rules and regulations;
(b) Seller shall use commercially reasonable efforts to
preserve the present business operations, organization and goodwill of the
Mortgage Business;
(c) Seller shall not change its policies or practices
regarding the Mortgage Business or the processing or approval of Pipeline Loans;
(d) Seller shall not sell, transfer, mortgage, pledge,
encumber or otherwise dispose of or hypothecate any of the Purchased Assets
other than in the ordinary course of business;
(e) Seller shall not enter into, amend, modify, terminate
(partially or completely) any Assumed Contract other than in the ordinary course
of business;
(f) Seller shall use commercially reasonable efforts to keep
its business (including it books and records) and properties substantially
intact and maintained in the usual, regular and ordinary manner, including its
present operations, physical facilities, working conditions, and relationships
with lessors, licensors, Investors and customers;
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(g) Seller shall use commercially reasonable efforts to keep
available the services of the present employees of the Mortgage Business;
(h) Seller shall use commercially reasonable efforts to
preserve the present relationships with persons having business dealings with
the Mortgage Business;
(i) Seller shall not (A) increase the rate of compensation
payable or to become payable to any of the employees or agents of the Mortgage
Business other than in the ordinary course of business, (B) amend in any
material respect any bonus, profit sharing, deferred compensation, pension,
retirement or other similar plan or arrangement to or in respect of any such
employee or agent, other than as may be required to maintain compliance with
ERISA and/or the Code or (C) enter into any new, or amend in any material
respect any existing, employment, severance or consulting agreement, sales
agency, or other Contract with respect to the performance of personal services
for the Mortgage Business, other than as may be required to maintain compliance
with ERISA and/or the Code;
(j) Seller shall not (A) incur or become subject to, or
agree to incur or become subject to, any obligation or liability (contingent or
otherwise) relating to the Mortgage Business, except (1) normal business
obligations incurred in the ordinary course of business and consistent with past
practice and (2) obligations under contracts listed on any Schedule to this
Agreement, (B) cancel or compromise any debt or claim or waive or release any
material right relating to the Mortgage Business or the Purchased Assets, except
for adjustments or settlements made in the ordinary course of business
consistent with past practice, or (C) acquire any assets relating to the
Mortgage Business other than in the ordinary course of business;
(k) Seller shall not enter into any transaction or perform
any act which would make any of the representations, warranties or agreements
contained in this Agreement false or misleading in any respect if made again
immediately after such transaction or act; and
(l) Seller shall not directly or indirectly sell, transfer
or otherwise dispose of, solicit any offer for the purchase or acquisition of,
or engage in or initiate any negotiations, discussions or agreements with any
Person the purpose or result of which would be the sale, transfer, or
disposition of the Purchased Assets or the Mortgage Business, or which could
have an adverse effect on the consummation of the transactions contemplated
hereby, including the sale of any capital stock (other than in the ordinary
course of business).
6.4 ADVICE OF CHANGES. If Seller Group becomes aware of any facts
which, if known at the date of this Agreement, would have been required to be
set forth or disclosed in or pursuant to this Agreement or in any Schedule,
Exhibit or other writing furnished, which would make the representations and
warranties set forth in Section 4 of this Agreement not true and complete, or
which, individually or in the aggregate has or could have a Material Adverse
Effect on the Purchased Assets, the Mortgage Business, this Agreement or the
consummation of the transactions contemplated by this Agreement, Seller Group
shall promptly give Purchaser written notice thereof. No disclosure shall be
deemed to amend or supplement Schedule 4 or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
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SECTION 7 ADDITIONAL AGREEMENTS
7.1 ASSIGNMENT OF LEASE. Seller shall cause to be executed and
delivered at the Closing a Consent for the assignment to Purchaser of that
certain lease regarding the real property located at Two Venture Plaza, 2
Venture, Irvine, CA Suites 100, 210, 420, 440 and dated as of October 18, 1998
by and between Two Venture Plaza, LLC and Seller (the "VENTURE LEASE"). In the
event any such Consent cannot be obtained, Seller shall cause to be executed and
delivered at the Closing, as applicable, subleases, acceptable in form to Seller
hereto, pursuant to which Purchaser will sublease from Seller the office space
currently leased by Seller at each of the locations.
7.2 CONTRIBUTIONS, TAXES, ETC. Seller shall certify to Purchaser
that as of the Closing: (a) no contributions or payments relating to employees
or independent contractors of Seller (including any interest or penalties) are
due or payable by Seller to any Governmental Entity (or if due or payable, have
been adequately provided for by the Seller); and (b) except as set forth in
Section 11, any sales or other taxes payable to any local authority by Seller
(including any interest or penalties) in respect of the Purchased Assets or the
Mortgage Business have been or will be paid by Seller (the "SELLER'S
CERTIFICATE").
7.3 SELLER EMPLOYEES.
(a) In its sole discretion, Purchaser may hire those
employees of Seller who are employed by Seller through the Closing Date;
provided that Purchaser shall provide to Seller a list of employees Purchaser
intends to hire at the Closing (the "RETAINED EMPLOYEES"). It is expressly
agreed by each party hereto that nothing herein is to be construed as an
employment Contract, express or implied, enforceable by any employee of Seller,
directly or indirectly (whether as a third party beneficiary or otherwise),
against Purchaser.
(b) From the date hereof until the Closing Date, Seller
shall make no representation to any of its employees regarding possible
employment with Purchaser. Seller shall not take any actions which could
reasonably be expected to impair Purchaser's ability to employ any or all of the
Retained Employees.
7.4 NON-COMPETITION AGREEMENT. As additional consideration for the
purchase by Purchaser of the Purchased Assets, Seller and Shareholder shall
execute and deliver at the Closing a Non-Competition Agreement, substantially in
the form of Exhibit 7.4 hereto.
7.5 WEB SITE AGREEMENT. At the Closing, Shareholder shall cause
TrueLink to execute and deliver the Web Site Agreement, substantially in the
form of Exhibit 7.5 hereto.
7.6 CREDIT BUREAU AGREEMENT. At the Closing, Shareholder shall cause
TrueLink to execute and deliver the Credit Bureau Agreement, substantially in
the form of Exhibit 7.6 hereto.
7.7 ESCROW AGREEMENT. At the Closing, Seller Group shall execute and
deliver the Escrow Agreement, substantially in the form of Exhibit 2.4 hereto,
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7.8 DISCONTINUANCE OF USE OF NAME. On the Closing Date, Seller will
cause to be filed with all appropriate Governmental Entities, the appropriate
documents to change its name to a name which is not the same as, or similar to,
"America's Lender, Inc." or any variation thereof. From and after the Closing
Date, Seller will cease using the name "America's Lender, Inc." and any
variations thereof, including any Intellectual Property associated therewith, in
any way, shape or form. Notwithstanding the foregoing, the BNC Parties and
Seller shall, at the Closing, execute and deliver that certain Limited License
Agreement to permit Seller to use the name "America's Lender, Inc."
substantially in the form of Exhibit 7.10 hereto.
SECTION 8 CONDITIONS PRECEDENT
8.1 CONDITIONS TO OBLIGATIONS OF PURCHASER AT CLOSING. The
obligations of Purchaser to purchase the Purchased Assets, assume the Assumed
Obligations and pay the Purchase Price hereunder are subject to the
satisfaction, on or before the Closing Date, of each of the following
conditions, the compliance with or the occurrence of which may be waived in
writing by Purchaser:
(a) All representations and warranties of Seller Group
contained in this Agreement or in any Schedule, Exhibit or other writing
furnished to Purchaser pursuant to the Agreement shall be true and complete on
and as of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date;
(b) Seller Group shall have performed and satisfied all
agreements, obligations, covenants and conditions required by this Agreement to
be performed and satisfied by them on or prior to the Closing Date;
(c) No Action shall be filed or threatened before any court
or quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (i) prevent consummation of any
of the transactions contemplated by this Agreement, (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (iii) materially and adversely affect the Purchased Assets,
Pipeline Loans or the Mortgage Business, the right of Purchaser to own the
Purchased Assets, or (iv) materially and adversely affect the right of Purchaser
to operate the Mortgage Business in the manner historically conducted by Seller
(and no such injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(d) Seller shall have delivered to Purchaser a settlement
statement (the "SETTLEMENT STATEMENT") which sets forth the calculations with
respect to any payments to be made with respect to the Prorated Items;
(e) Seller shall have obtained and delivered all Consents
and Permits listed on Schedule 4.10;
(f) Seller shall have assigned and delivered all Pipeline
Loans in accordance with Section 10.4 hereof;
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(g) Purchaser shall have received approval as a
correspondent or seller from the entities listed in Schedule 8.1(g).
(h) Seller shall have executed and delivered to Purchaser
the Bill of Sale;
(i) There shall be no Action pending or threatened by any
regulatory body or private party in which (i) an injunction is or may be sought
against the transactions contemplated hereby, or (ii) relief is or may be sought
against any party hereto as a result of this Agreement or transactions
contemplated by the Agreement and in which, in the good faith judgment of such
party (relying on the advice of their respective legal counsel), such regulatory
body or private party has a reasonable possibility of prevailing and such relief
would have a material adverse effect on such party;
(j) Seller shall have delivered to Purchaser certified
copies of resolutions adopted by its Board of Directors and shareholder
authorizing the execution and delivery of this Agreement, the performance of its
obligations hereunder and the consummation of the transactions contemplated
hereby;
(k) Seller shall have prepared updates of the Schedules
provided for in this Agreement (updated as of the Closing Date) and shall have
delivered to Purchaser revised Schedules containing the updated information (the
"CLOSING SCHEDULES") (or a certificate signed by Seller stating that there have
been no changes on the applicable Schedules), and the Closing Schedules shall
not be materially different from the Schedules delivered on the date of this
Agreement;
(l) Purchaser shall have received an opinion, dated as of
the Closing Date, of Seller's counsel, satisfactory to Purchaser and containing
the opinions set forth in Exhibit 8.1(l);
(m) Purchaser shall have received the Officer's Certificate
duly executed by Keith Guy;
(n) Purchaser shall have received the Seller's Certificate
as described in Section 7.2;
(o) Purchaser shall have received from Seller such bills of
sale, endorsements, releases, termination statements, assignments and other good
and sufficient instruments of transfer, conveyance, release and assignment, in
form reasonably satisfactory to Purchaser as shall be effective to vest in
Purchaser good, marketable and indefeasible title in and to the Purchased Assets
free and clear of all Liens other than the Permitted Liens;
(p) TrueLink shall have executed and delivered to Purchaser
the TrueLink Agreements, each effective as of the Closing Date;
(q) Each Retained Employee shall have tendered his or her
written resignation to Seller, effective on or prior to the Closing Date, and
the BNC Parties shall have entered into employment arrangements on terms and
conditions acceptable to Purchaser with those employees
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and independent contractors and brokers of Seller designated by Purchaser on the
terms and conditions substantially similar to those listed on Schedule 8.1(q)
hereof; and
(r) Seller shall have executed and delivered to Purchaser
the Limited License Agreement;
(s) Seller and Shareholder shall have executed and delivered
to Purchaser the Non-Competition Agreement;
(t) Seller Group shall have executed and delivered to
Purchaser the Escrow Agreement;
(u) Seller shall receive evidence, satisfactory to Purchaser
that all Liens covering the Purchased Assets have been or will be at the
Closing, satisfied and released; and
(v) True and complete copies of the files for the Pipeline
Loans shall have been delivered to Purchaser or its designee as of the Closing.
8.2 CONDITIONS TO OBLIGATIONS OF SELLER AT CLOSING. The obligations
of Seller hereunder are subject to the satisfaction, on or before the Closing
Date, of the following conditions, the compliance with or the occurrence of
which may be waived in writing by Seller:
(a) All representations and warranties of Purchaser
contained in this Agreement shall be true and correct on and as of the Closing
Date with the same effect as though such representations and warranties had been
made on and as of the Closing Date;
(b) Purchaser shall have performed and satisfied all
covenants and conditions required by this Agreement to be performed and
satisfied by it on or prior to the Closing Date;
(c) There shall be no Action pending or threatened by any
regulatory body or private party in which (i) an injunction is or may be sought
against the transactions contemplated hereby, or (ii) relief is or may be sought
against any party hereto as a result of this Agreement or transactions
contemplated by the Agreement and in which, in the good faith judgment of such
party (relying on the advice of their respective legal counsel), such regulatory
body or private party has a reasonable possibility of prevailing and such relief
would have a material adverse effect on such party;
(d) The BNC Parties shall have paid to Seller the amounts
payable under Section 2.2(a) through (c) hereof;
(e) The BNC Parties shall have executed and delivered to
TrueLink the TrueLink Agreements, each effective as of the Closing Date;
(f) The BNC Parties shall have executed and delivered to
Seller the Limited License Agreement, effective as of the Closing Date;
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(g) The BNC Parties shall have executed and delivered to Liz
Drew an agreement in substantially the form attached hereto at Exhibit 8.2(g);
(h) Purchaser shall have executed and delivered to Seller
Group the Non-Competition Agreement, effective as of the Closing Date;
(i) The BNC Parties shall have executed and delivered to
Seller Group the Escrow Agreement, effective as of the Closing Date; and
(j) Seller Group shall have received an opinion, dated as of
the Closing Date, of Purchaser's counsel, in substantially the form attached
hereto as Exhibit 8.2(j).
SECTION 9 INDEMNIFICATION
9.1 NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
statements of fact contained in any certificate, Schedule, Exhibit, or other
document or instrument or writing delivered by or on behalf of Seller Group to
each BNC Party or by or on behalf of each BNC Party to Seller Group shall be
deemed to be representations and warranties by the delivering party to the
receiving party under this Agreement. All representations and warranties of
Seller Group shall survive any and all inspections, examinations or audits on
behalf of each BNC Party, and shall be binding upon the parties to this
Agreement, their successors and assigns, and the representations, warranties and
covenants of the parties hereto set forth in this Agreement shall survive (even
if any such party, as applicable, knew or had reason to know of any
misrepresentation or breach of warranty at the time of Closing) this Agreement
for a period of four years following the Closing.
9.2 INDEMNIFICATION BY SELLER GROUP. Seller Group hereby covenants
and agrees with each BNC Party that, regardless of any investigation made at any
time by or on behalf of either BNC Party or any information either BNC Party may
have and regardless of the Closing hereunder, Seller Group shall, jointly and
severally, indemnify each BNC Party, their respective officers, agents,
representatives and Affiliates, and each of their successors and assigns (each,
a "PURCHASER INDEMNIFIED PARTY") and hold them harmless from, against and in
respect of any and all costs, losses, demands, claims, liabilities, fines,
penalties, fees, incidental and consequential damages, lost profits and expenses
(including interest which may be imposed in connection therewith and court costs
and fees and fees and costs of counsel) (collectively, the "DAMAGES") resulting
from, arising out of, relating to, in the nature of, or caused by any of them in
connection with:
(a) all claims or demands of any nature, whether accrued,
absolute, contingent or otherwise, arising out of the business of Seller, the
Purchased Assets or the Mortgage Business or any actions of Seller Group (other
than claims or demands relating to the Pipeline Loans which shall be governed by
and subject to the limitations of Section 9.2(h) herein) and, in any such case,
attributable to any event occurring at or prior to the Closing Date or which
relate or are attributable to (i) actions taken by Seller using the name
America's Lender pursuant to Section 7.9 hereof or (ii) Purchaser's compliance
with the provisions of Section 10.2 hereof;
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(b) any breach of, with respect to or any inaccuracy in any
of the representations, warranties, covenants or agreements made by Seller Group
in this Agreement, any Exhibit, Schedule or writing to this Agreement or any
certificate, instrument or writing delivered in connection therewith (other than
claims or demands relating to the Pipeline Loans which shall be governed by and
subject to the limitations of Section 9.2(h) herein), including but not limited
to the Non- Competition Agreement;
(c) any attempt (whether or not successful) by any Person to
cause or require a Purchaser Indemnified Party to pay or discharge any debt,
obligation, liability or commitment of Seller not assumed by Purchaser pursuant
to this Agreement (including any liability of Seller under any bulk transfer law
of any jurisdiction, under common law doctrine of de facto merger or successor
liability, or otherwise by operation of law) or the existence of which would
constitute a breach of any representation, warranty, covenant or agreement set
forth herein (other than claims or demands relating to the Pipeline Loans which
shall be governed by and subject to the limitations of Section 9.2(h) herein);
(d) any Action arising out of or incidental to any of the
matters indemnified against in this Section 9.2 (other than claims or demands
relating to the Pipeline Loans which shall be governed by and subject to the
limitations of Section 9.2(h) herein);
(e) any claims for compensation and other employee benefits
(including, but not limited to, severance pay, disability benefits, health,
workers' compensation, and death benefits) (A) accruing at any time with respect
to persons who were employed in the Mortgage Business and do not become Retained
Employees and (B) accruing prior to the date a person becomes a Retained
Employee, and related costs and liabilities, regardless of whether such claims
and related costs and liabilities are made or incurred before, on or after the
Closing Date;
(f) any claims by any current or former employees of the
Seller resulting from their termination as a result of Seller's sale of the
Purchased Assets.
(g) any Environmental Claim or any Remedial Action arising
out of or occurring with respect to the use of the Purchased Assets prior to the
Closing, or the operation of the Mortgage Business prior to the Closing;
(h) subject to Purchaser's compliance with the second
sentence of Section 10.4 herein, any Action in connection with the Pipeline
Loans, including Actions arising out of the conformity of the Pipeline Loans to
the requirements or guidelines of any Governmental Entity or Investor at or
prior to the Closing or compliance with applicable state and federal law at or
prior to the Closing;
(i) any Action arising from or related to the Limited
License Agreement including the use of the name "America's Lender" (or any
derivation thereof) by Seller pursuant to such Agreement; provided however, that
Seller Group shall have no liability or obligation for any Action arising out of
the exploitation or other use of the name "America's Lender" by the BNC Parties
after the Closing; and
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(j) any Action arising from or related to the fact that from
November 20, 1998 through December 10, 1998, Purchaser was incorporated under
the name America's Lender.com, Inc. subject to compliance with that certain
Limited License Agreement between the parties dated November 16, 1998.
If, by reason of the claim of any third Person relating to any
of the matters subject to indemnification under this Section 9.2, a Lien,
attachment, garnishment or execution is placed upon any of the assets or
property of any Purchaser Indemnified Party, Seller Group shall also, promptly
upon demand, furnish an indemnity bond satisfactory to Purchaser Indemnified
Party to obtain the prompt release of such Lien, attachment, garnishment or
execution. Notwithstanding anything set forth in the foregoing to the contrary,
Purchaser shall have the right to offset any Damages from any amounts to Seller
Group pursuant to this Agreement or any Schedule or Exhibit hereto, including
but not limited to amounts deposited pursuant to the Escrow Agreement.
9.3 INDEMNIFICATION BY PURCHASER. The BNC Parties shall indemnify,
defend and hold Seller Group and their respective officers, directors, agents,
representatives and Affiliates, and each of their successors and assigns
(collectively, the "SELLER PARTIES") harmless from any and all Damages resulting
from, arising out of, relating to, in the nature of, or caused by any of them in
connection with:
(a) all claims or demands of any nature, whether accrued,
absolute, contingent or otherwise, arising out of the Purchased Assets or the
Mortgage Business or any actions of the BNC Parties and, in any such case,
attributable to any event occurring after the Closing Date except those which
relate or are attributable to (i) actions taken by Seller using the name
America's Lender pursuant to Section 7.9 herein or (ii) Purchaser's compliance
with the provisions of Section 10.2 herein;
(b) any failure by the BNC Parties to pay or discharge the
Assumed Obligations after the Closing Date (except to the extent the BNC Parties
are disputing their liability to pay the Assumed Contracts in good faith, and
only during the pendency of such dispute);
(c) any breach with respect to or any inaccuracy in any of
the representations, warranties, covenants or agreements made by Purchaser in
this Agreement, Exhibit or any Schedule or writing to this Agreement or any
certificate or instrument or writing delivered in connection herewith or
therewith;
(d) any attempt (whether or not successful) by any Person to
cause or require a Seller party to pay or discharge any debt, obligation,
liabilities or commitment included in the Assumed Obligations after the Closing
Date; and
(e) any Action taken by Purchaser under Section 10.3(b) or
arising out of or incidental to any of the matters indemnified against in this
Section 9.3; provided, however, that Purchaser shall not be obligated to
indemnify Seller under this Section 9.3 with respect to any settlement of a
claim to which Purchaser has not consented, which consent shall not unreasonably
be withheld.
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If, by reason of the claim of any third Person relating to any
of the matters subject to indemnification under this Section 9.3, a Lien is
placed upon any of the property or assets of Seller, Purchaser shall also
promptly upon demand furnish an indemnity bond satisfactory to Seller to obtain
the prompt release of such Lien.
9.4 NOTICE OF INDEMNIFICATION. In the event any legal proceeding (an
"INDEMNITY CLAIM") shall be threatened or instituted or any claim or demand
shall be asserted by any person in respect of which payment may be sought by one
party hereto from the other party under the provisions of this Section 9, the
party seeking indemnification (the "INDEMNITEE") shall promptly cause written
notice of the assertion of any such claim of which it has knowledge which is
covered by this indemnity to be forwarded to the other party (the "INDEMNITOR")
on or prior to the fourth anniversary of the Closing. Any notice of a claim by
reason of any of the representations, warranties or covenants contained in this
Agreement shall state specifically the representation, warranty or covenant with
respect to which the Indemnity Claim is made, the facts giving rise to an
alleged basis for the claim, and the amount of the liability asserted against
the Indemnitor by reason of the Indemnity Claim. Within fifteen (15) days of the
receipt of such written notice, the Indemnitor shall notify the Indemnitee in
writing of its intent to contest its obligation to indemnify or reimburse under
this Agreement (a "CONTEST") or to accept liability hereunder. If the Indemnitor
does not respond within fifteen (15) days to such written notice, the Indemnitor
will be deemed to accept liability. In the event of a Contest, within ten (10)
business days of the receipt of the written notice thereof, the parties will
select an arbitrator and submit the dispute to binding arbitration in
California. The arbitrator shall be selected by the mutual agreement of the
parties. If the parties can not agree on an arbitrator, each may select one
arbitrator and the two designated arbitrators shall select the third arbitrator.
If the third arbitrator can not be agreed upon, the Federal District Court for
the Southern District of California shall select the third arbitrator. A
decision by the individual arbitrator or a majority decision by the three
arbitrators shall be final and binding upon the parties. Such arbitration shall
follow the rules of the American Arbitration Association and must be resolved by
the arbitrators within thirty (30) days after the matter is submitted to
arbitration.
9.5 INDEMNIFICATION PROCEDURE FOR THIRD-PARTY CLAIMS. In the event
of any Indemnity Claim brought by a third party on or prior to the fourth
anniversary of the Closing, Indemnitor shall promptly notify the Indemnitee of
such Indemnity Claim, specifying in reasonable detail the Indemnity Claim and
the circumstance under which it arose, and the amount of the liability asserted
against the Indemnitee by reason of the Indemnity Claim. Within ten (10)
business days of the receipt of such notice (or sooner if the nature of the
Indemnity Claim so requires) the Indemnitor shall notify the Indemnitee of its
intent to compromise or defend such Indemnity Claim or to Contest. Any Contest
shall be governed by the provisions of Section 9.4 herein. The Indemnitor may
elect to compromise or defend, at its own expense and by its own counsel, any
such Indemnity Claim. If the Indemnitor elects to compromise or defend such
Indemnity Claim, the Indemnitee shall cooperate, at the expense of the
Indemnitor, in the compromise of, or defense against, such Indemnitee Claim. If
the Indemnitor fails to notify the Indemnitee of its election as herein provided
or loses the Contest as provided in Section 9.4 herein, the Indemnitee may pay,
compromise or defend such Indemnity Claim. Except as otherwise provided herein,
in the event of the initiation of any Indemnity Claim against an Indemnitee by a
third party and the Indemnitor elects to compromise or defend, the Indemnitor
shall have the absolute right after the receipt of notice, at its option and
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at its own expense, to be represented by counsel of its choice, and to defend
against, negotiate, settle or otherwise deal with any Indemnity Claim; provided,
however, that the Indemnitee may participate in any such proceeding with counsel
of its choice and at its expense and the Indemnitor shall not settle any such
Indemnity Claim unless the Indemnitor is fully released without any admission of
liability. The parties hereto agree to cooperate fully with each other in
connection with the defense, negotiation or settlement of any such Indemnity
Claim. To the extent the Indemnitor elects not to defend such Indemnity Claim,
and the Indemnitee defends against or otherwise deals with any such Indemnity
Claim, the Indemnitee may retain counsel, at the expense of the Indemnitor, and
control the defense of such Indemnity Claim. If the Indemnitee shall settle any
such Indemnity Claim without the consent of the Indemnitor, the Indemnitee shall
thereafter have no claim against the Indemnitor under this Section 9 with
respect to any loss, liability, claim, obligation, damage and expense occasioned
by such settlement.
9.6 INDEMNIFICATION PAYMENTS AND TAX EFFECTS. The Indemnitor shall
pay any sums due and owing by it to the Indemnitee by wire transfer or certified
check within ten (10) days after the date of the determination of liability
pursuant to this Section 9. Any overdue amounts payable by the Indemnitor shall
bear interest at an annual rate of 9% per annum, based on a year of 365 days and
the number of days elapsed.
9.7 MARKET VALUE OF ASSETS. Notwithstanding anything set forth in
this Agreement to the contrary, Seller Group shall have no obligation to
indemnify the BNC Parties for any Damages caused by any discrepancy between the
market value of the Purchased Assets and the price paid pursuant to Section
2.2(b) hereof.
9.8 CERTAIN LIMITATIONS. Notwithstanding anything set forth in this
Agreement to the contrary the aggregate liability of Seller Group shall not
exceed $1.0 million for any indemnification arising pursuant to Sections 9.2(h).
SECTION 10 FURTHER AGREEMENTS OF THE PARTIES
10.1 CONFIDENTIALITY AND NON-DISCLOSURE.
(a) Seller Group and the BNC Parties agree to keep
confidential and not make any public announcement, nor divulge to any other
Person (other than to the employees, agents, attorneys, accountants and
consultants of each who have a need to receive such information and other than
as may be required by law or applicable state or federal securities laws) any
information regarding this Agreement, the existence of this Agreement and any of
the transactions contemplated hereby, or any information received from the
other, without the prior written consent of the other, until the earlier of (i)
the Closing Date or (ii) the date on which such documents and other information
otherwise becomes publicly available (other than as a result of a breach of this
provision). In the event that disclosure is required hereunder, the parties
shall consult with the other as to the content of such disclosure. In the event
this Agreement is terminated for any reason, the parties shall promptly return
or, at the election of the other party, destroy all documents obtained from the
other and any copies or notes of such documents (except to the extent
maintenance of such
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documents is required by law) and, upon the request of the other party, confirm
such destruction to the other in writing. Without limitation on the foregoing,
Seller Group shall not send or provide any notices or information to
Correspondents concerning this Agreement or the transactions contemplated hereby
without Purchaser's prior written consent, which consent may be withheld in
Purchaser's sole and absolute discretion.
(b) Seller Group agrees that it shall not, at any time from
and after the Closing Date, directly or indirectly, disclose, reveal or permit
access to all or any portion of the Confidential Information, or any tangible
expressions or embodiments thereof (including any facilities, apparatus or
equipment which embody or employ all or any portion of the Confidential
Information), to any Person without the prior written consent of Purchaser. No
provision of this Section 10.1 shall in any manner whatsoever prevent or inhibit
either BNC Party from using or disclosing any Confidential Information in any
manner as such BNC Party shall deem fit from and after the Closing Date. Seller
Group acknowledges and agrees that any Damages to such BNC Party from any breach
by Seller Group of this Section 10.1 would be wrongful, irreparable and
difficult to calculate and that money damages would be an inadequate remedy for
such breach. Accordingly, Seller Group agrees that if it breaches this Section
10.1, either BNC Party shall be entitled to, in addition to all other remedies
to which it may be entitled, a suit in equity for specific performance,
injunctive relief, or other appropriate orders to restrain any such breach by
Seller Group.
(c) Each BNC Party understands and agrees that all
information concerning TrueLink and/or its products and services is owned by and
shall remain the property of TrueLink and that nothing in this Agreement shall
be deemed to modify, amend or impair the obligations of either BNC Party under
the TrueLink Agreements.
10.2 PURCHASER COOPERATION. From and after the Closing Date for a
period of not more than 90 days thereafter, Purchaser agrees, upon the request
of Shareholder or Seller, to use commercially reasonable efforts to (i) assist
Seller in the sale or liquidation of the Excluded Assets and the application of
the proceeds thereof to repay Seller's warehouse lenders; and (ii) service any
Mortgage Loans, owned by Seller, subject to the following:
(a) Seller Group's rights under this Section 10.2 shall in
no way affect or modify the parties' rights and obligations under Section 9
hereof; and
(b) Seller Group shall reimburse Purchaser within ten (10)
days after demand by Purchaser for all reasonable costs and out of pocket
expenses incurred by Purchaser in connection with Purchaser's obligations under
this Section 10.2.
10.3 SELLER COOPERATION.
(a) Seller shall make available to either BNC Party, upon
written request, Seller's personnel (i) to assist such BNC Party in locating and
obtaining records and files maintained by Seller and (ii) whose assistance or
participation is reasonably required by either BNC Party in anticipation of, or
preparation for, existing or future litigation, arbitration, administrative
proceeding,
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tax return preparation or other matters in which either BNC Party or any of its
affiliates is involved and which is related to the Mortgage Business.
(b) At the request and at the expense of Purchaser on a
case-by-case basis, Seller shall execute and deliver instruments sufficient to
constitute and appoint, effective as of the Closing Date, Purchaser and its
successors and assigns as the true and lawful attorney of Seller with full power
of substitution in the name of Purchaser or in the name of Seller and for the
benefit of Purchaser for the sole and limited purpose of undertaking the
following:
(i) to collect for the account of Purchaser any
Purchased Assets as Purchaser may request; and
(ii) subject to Purchaser's obligation under Section
9.3 hereunder, to institute and prosecute all proceedings which
Purchaser may in its sole discretion deem proper in order to assert or
enforce any right, title or interest in, to or under the Purchased
Assets, and to defend or compromise any and all actions, suits or
proceedings in respect of such Purchased Assets or the Assumed
Obligations.
10.4 TRANSFER OF PIPELINE LOANS. Seller shall take such actions, and
execute and deliver such documents and instruments, as may be necessary to
transfer all of its right, title and interest in and to the Pipeline Loans to
Purchaser including, without limitation, delivering to Purchaser any and all
originals (and not copies) of the Loan Files and other materials relating to
each such Pipeline Loan. Concurrently with the satisfaction by Seller of the
foregoing conditions, Purchaser shall assume any commitments to fund those
Pipeline Loans included within the Purchased Assets, to deliver each Pipeline
Loan to the Relevant Investor (if any) and otherwise take those commercially
reasonable actions consistent with past practices of Seller through the Closing
to comply with the requirements of each Investor. In connection with the sale
and assignment by Seller of the Pipeline Loans hereunder, Purchaser and Seller
agree that all fees and charges paid by a prospective mortgagor in respect of
any Pipeline Loan shall belong to and be retained by Purchaser, regardless of
when such amounts were paid by borrower, and Seller agrees, for itself and its
Affiliates, successors and assigns as follows: (i) if Seller should possess,
receive or collect any fees, charges or expenses in respect of any Pipeline Loan
which, in accordance with this Section 10.4, would be deemed to belong to
Purchaser (or Purchaser's Affiliates, successors or assigns), Seller shall
immediately remit the amount owing to Purchaser; or (ii) if Seller should
possess, receive or collect any fees, charges or expenses due to third parties
as a result of services performed on behalf of the borrower prior to the Closing
Date, then Seller shall assign all of its right, title and interest in and to
such accounts (and all proceeds thereof) to Purchaser. In addition, if Purchaser
fails to deliver a Pipeline Loan to a Relevant Investor, the BNC Parties shall
pay and be responsible for any "pair-off" or non-delivery fees that result from
such non-delivery.
10.5 RIGHT OF ENDORSEMENT. After the Closing, Purchaser shall have
the absolute and unconditional right and authority to endorse, without recourse,
Seller's name on any check or any other evidence of indebtedness received by
Purchaser on account of any Purchased Asset, and upon Purchaser's request,
Seller shall deliver to Purchaser copies of resolutions duly adopted by its
respective Board of Directors, certified by the Secretary or an Assistant
Secretary of Seller, and
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letters of instruction executed by the President and the Secretary or an
Assistant Secretary of Seller, sufficient to permit Purchaser to deposit such
checks or other evidences of indebtedness in bank accounts in the name of
Purchaser.
10.6 EMPLOYEES. The parties hereto acknowledge and agree that, the
hiring of any of the current employees working solely in the Mortgage Business
by Purchaser shall be determined by Purchaser in the sole exercise of its
discretion; and such parties further acknowledge and agree that Purchaser has no
obligations to provide continuing employment to the foregoing under any
circumstances.
10.7 ADDITIONAL AGREEMENTS. Subject to the terms and conditions
herein provided and in addition to the specific agreements expressly set forth
elsewhere in this Agreement, each of the parties hereto agrees to use all
reasonable best efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including its reasonable best efforts to obtain
all necessary waivers, consents and approvals and effect all necessary
registrations, filings and applications, and using its reasonable best efforts
in good faith to respond promptly to any governmental requests or inquiries with
respect thereto.
10.8 FORWARDING POST-CLOSING DATE ITEMS. In the event Seller
receives, after the Closing Date, any payments, correspondence or other items
which relate to or may be useful to the Mortgage Business, the Purchased Assets
or the Assumed Obligations, or Purchaser receives any payments, correspondence
or other items which do not relate to the foregoing, the recipient shall
promptly forward all such items to the other.
10.9 WAREHOUSE LINES. Upon the request of Purchaser, Seller Group
will use commercially reasonable efforts to cause FHLMC to transfer the FHLMC
Automated Underwriting System Timesharing Agreement dated June 12, 1997 to
Purchaser, to cause Residential Funding Corporation to transfer the Lockpointe
Xtra Software Licensing Agreement dated August 20, 1997 and to cause its
existing warehouse lenders to transfer Seller's warehouse lines of credit to
Purchaser; provided, however, that Seller shall not be so obligated if, in the
sole discretion of Seller, Seller determines such effort would (i) adversely
affect its ability to sell the Loans in Inventory, or (ii) impair its liquidity
position in any material respect; provided, further, Seller's failure to obtain
such consents shall not (i) excuse the BNC Parties from any obligations under
this Agreement, or (ii) be deemed a failure by Seller to satisfy Section 8.1(b)
hereof. In the event such transfers occur prior to Closing, such agreements
shall become Assumed Contracts for purposes of this Agreement.
10.10 NON-COMPETITION AGREEMENT. The parties hereto acknowledge and
agree that for tax and accounting purposes, they will allocate $100,000 of the
Purchase Price to the Non- Competition Agreement. The parties acknowledge that
such allocation will in no way affect the enforceability through its term of
said Non-Competition Agreement.
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SECTION 11 TAXES
11.1 PAYMENT OF TAXES, FILING OF RETURNS. Seller Group shall remain
liable for the payment of and shall pay all federal, state and local taxes (i)
which are now or at any later time payable by it as a result of the sale of
Purchased Assets and Purchaser's assumption of the Assumed Obligations
contemplated by this Agreement; and (ii) any other applicable taxes, (except as
set forth in this Agreement), which are attributable to the operations of Seller
on or prior to the Closing Date.
11.2 SALES TAXES. BNC Parties and Seller Group shall bear equal
responsibility for sales, use or other similar Taxes, if any, arising out of the
consummation of the transactions contemplated hereby; however, it shall be the
responsibility of Seller Group to file all tax returns and reports with respect
to such Taxes. Purchaser shall reimburse Seller for 50% of sales tax paid within
30 days of receipt by Purchaser of Seller's tax return evidencing the amount of
said sales tax. Purchaser or Seller, as the case may be, shall execute and
deliver to the other at the Closing any certificates or other documents as the
other may reasonably request to perfect any exemption from any such transfer,
documentary, sales, gains, excise or use tax, provided that in no way shall any
such exemption cause Purchaser to be in any way responsible for more than 50% of
any such tax arising out of or resulting from the sale of the Purchased Assets
hereunder.
SECTION 12 TERMINATION
12.1 TERMINATION. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual agreement of the parties hereto;
(b) by either party unilaterally if the Closing shall not
have occurred on or prior to February 28, 1999 (the "TERMINATION DATE") through
no fault of the terminating party; provided however, that Purchaser in its sole
discretion may extend such termination date until March 31, 1999 if Purchaser
has complied with its obligations under this Agreement;
(c) by Purchaser (i) prior to the Closing under the
following conditions only; should Purchaser receive a written rejection from an
entity listed on Schedule 8.1(g), it shall have ten (10) days from the receipt
thereof to send written notice to Seller of its election to terminate this
Agreement; should Purchaser not so respond, it shall be deemed to have waived
the receipt of approval from such entity, and such entity only, as a condition
to Closing under Section 8.1(g) herein or (ii) if at the Closing any of the
conditions specified in Section 8.1 have not been met or waived by Purchaser;
and
(d) by Seller or Shareholder if at the Closing any of the
conditions specified in Section 8.2 have not been met or waived by Seller.
12.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement pursuant to Sections 12.1 (a) or (b) hereof, this Agreement shall
forthwith become void and there shall be no liability on the part of any party
or their respective partners, officers or directors. In the event of
42
<PAGE> 50
termination of this Agreement pursuant to Sections 12.1(c) or (d) hereof there
shall be such liability as may accrue because of a material default under or
material breach of this Agreement; provided however; that there shall be no
liability of any party due to a termination by Purchaser under Section
12.1(c)(i) herein or if at the Closing any of the conditions set forth in
Section 8.1(g) have not been met or waived by Purchaser.
12.3 EXTENSION; WAIVER. At any time prior to the Closing the parties
hereto may:
(a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto;
(b) waive any inaccuracies of the representations and
warranties contained herein or in any document delivered pursuant hereto; and
(c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid if set forth in an instrument in writing
signed by all the parties to this Agreement. Waiver of any one provision of this
Agreement shall not be deemed to be a waiver of any other provision.
SECTION 13 MISCELLANEOUS
13.1 EXPENSES. Except as specifically provided to the contrary in
this Agreement, each party hereto shall bear its own expenses in connection with
this Agreement and the transactions contemplated hereby; provided, however, that
Taxes occasioned solely by reason of the sale and transfer of Purchased Assets
in accordance with this Agreement shall be borne by Seller Group (except as set
forth in this Agreement).
13.2 SUCCESSORS AND ASSIGNS. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective transferees, successors and assigns, including but not
limited to any respective transferees, successors and assigns as a result of any
merger, acquisition, or other reorganization of any party hereto; provided,
however, that no rights, privileges, duties or obligations hereunder requiring
performance or exercise on or prior to the Closing Date may be assigned or
delegated by any party hereto without the prior written consent of the other
party to this Agreement and any attempted or purported assignment or delegation
of the same without such consent shall be null and void ab initio.
13.3 NOTICES. All notices, requests, demands and other communications
(collectively, "NOTICES") given or made pursuant to this Agreement shall be in
writing and shall be deemed to have been duly given if sent by telex, telecopy
or by registered or certified mail, return receipt requested, postage and fees
prepaid, or otherwise actually delivered, to the following addresses:
43
<PAGE> 51
(a) If to Purchaser, to:
Mortgage Logic.com, Inc.
1063 McGaw Avenue
Irvine, California 92614-5532
Attention: Kelly Monahan
with a copy to :
Freshman, Marantz, Orlanski, Cooper & Klein
Eighth Floor, East Tower
9100 Wilshire Boulevard
Beverly Hills, California 90212
Telephone: (310) 273-1870
Facsimile: (310) 274-8357
Attention: Thomas J. Poletti, Esq.
(b) If to Seller, to:
America's Lender, Inc. c/o TrueLink
3026 South Higuera St.
San Luis Obispo, CA 93401
Attention: Keith Guy
Any Notice shall be deemed duly given when received by the addressee thereof,
provided that any Notice sent by registered or certified mail shall be deemed to
have been duly given two days after the date of deposit in the United States
mails, unless sooner received. Any of the parties to this Agreement may from
time to time change its address or facsimile number for receiving Notice by
giving written Notice thereof in the manner set forth above.
13.4 EXHIBITS AND SCHEDULES. Each Exhibit and Schedule delivered
pursuant to the terms of this Agreement, each document, instrument, certificate
delivered by the BNC Parties or Seller Group in connection with the transactions
contemplated hereby constitutes an integral part of this Agreement.
13.5 AMENDMENT. This Agreement may be amended only by a written
agreement executed by the parties to this Agreement.
13.6 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SUCH JURISDICTION. EXCEPT AS SET FORTH IN
SECTION 9, ANY ACTION TO ENFORCE, WHICH ARISES OUT OF OR IN ANY WAY RELATES TO,
ANY OF THE PROVISIONS OF THIS AGREEMENT OR THE INSTRUMENTS, AGREEMENTS AND
44
<PAGE> 52
OTHER DOCUMENTS CONTEMPLATED HEREBY SHALL BE BROUGHT AND PROSECUTED IN THE
COURTS OF THE STATE OF CALIFORNIA LOCATED IN THE COUNTY OF LOS ANGELES OR OF THE
UNITED STATES FOR THE SOUTHERN DISTRICT OF CALIFORNIA. EACH PARTY IRREVOCABLY:
(A) SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND (B)
WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY
SUIT, ACTION OR PROCEEDING ("PROCEEDINGS") BROUGHT IN ANY SUCH COURT, WAIVES ANY
CLAIM THAT SUCH PROCEEDINGS HAVE BEEN BROUGHT IN AN INCONVENIENT FORUM AND
FURTHER WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO SUCH PROCEEDINGS, THAT SUCH
COURT DOES NOT HAVE JURISDICTION OVER SUCH PARTY. THE PARTIES IRREVOCABLY
CONSENT TO SERVICE OF PROCESS GIVEN IN THE MANNER PROVIDED FOR NOTICES IN
SECTION 13.3. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
13.7 CAPTIONS; CERTAIN TERMS. The various captions and headings
contained in this Agreement are for reference only and shall not be considered
or referred to in resolving questions of interpretation of this Agreement. As
used in this Agreement, the term "including" means "including but not limited
to," and the word "or" is not exclusive unless otherwise specified.
13.8 COUNTERPARTS; SIGNATURES. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument. This Agreement
may be executed and delivered by telecopy, and telecopied signatures shall be
deemed original signatures for all purposes relevant to this Agreement.
13.9 ATTORNEYS' FEES. If any Action is instituted to remedy, prevent
or obtain relief from a default in the performance by any party of its
obligations under this Agreement, the prevailing party shall recover all of such
party's reasonable attorney's fees incurred in each and every such Action,
including any and all appeals or petitions therefrom.
13.10 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be or become
prohibited or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
13.11 RIGHTS CUMULATIVE. No right granted to the parties under this
Agreement on default or breach is intended to be in full or complete
satisfaction of any damages arising out of such default or breach, and each and
every right under this Agreement, or under any other document or instrument
delivered hereunder, or allowed by law or equity, shall be cumulative and may be
exercised from time to time.
13.12 TIME OF THE ESSENCE. Time is of the essence of each provision of
this Agreement in which time is an element.
45
<PAGE> 53
13.13 MERGER OF PRIOR NEGOTIATIONS AND AGREEMENTS. This Agreement
along with the Schedules and Exhibits constitutes the entire agreement of the
parties and supersedes all other prior agreements, understandings,
representations and warranties, both written and oral, between the parties with
respect to the subject matter hereof (including, without limitation, that
certain proposal letter between Seller and BNC dated September 9, 1998, as
amended and that certain Limited License Agreement between the parties dated
November 16, 1998).
13.14 THIRD PARTIES. No provision of this Agreement is intended to be
for the benefit of any creditor, employee or other Person to whom any debt,
liability or obligation is owed by either party, or to create any debt,
liability or obligation in favor of any creditor, employee or other Person.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above mentioned.
"BNC PARTIES" "SELLER GROUP"
MORTGAGE LOGIC.COM, INC. AMERICA'S LENDER, INC.
By: By:
-------------------------------- -------------------------------------
Name: Kelly Monahan Name: Keith Guy
Title: President Title: President
BNC MORTGAGE, INC. SHL HOLDINGS, INC.
By: By:
-------------------------------- -------------------------------------
Name: Kelly Monahan Name: Keith Guy
Title: President Title: President
KEITH GUY
----------------------------------------
Keith Guy, an Individual
46
<PAGE> 54
LIST OF SCHEDULES
<TABLE>
<CAPTION>
Schedule Name Page
- -------- ---- ----
<S> <C> <C>
1A Assumed Contracts SCH-1
1B Assumed Obligations SCH-2
1C Fixed Assets SCH-3
1D Excluded Assets SCH-4
1F-1 Licenses SCH-5
1F-2 Manuals and Guidelines SCH-6
1F-3 Deferred and Prepaid Charges SCH-7
1F-4 Claims, Credits, Etc. SCH-8
2.2 Guidelines SCH-9
2.5 Designated Earn Out Employees SCH-10
4 Closing Exceptions to Purchaser's Representations and Warranties SCH-11
4.1 Organization and Authority SCH-15
4.8 Leases SCH-16
4.10 General Consents SCH-17
4.11 Intellectual Property and Software SCH-19
4.13 Contracts SCH-20
4.17 Taxes SCH-22
4.19 Insurance SCH-23
4.20 Employee Benefits SCH-24
5 Seller SCH-25
8.1(g) Required Entities SCH-26
8.1(q) Employees to be Hired by Purchaser SCH-27
</TABLE>
A-1
<PAGE> 55
LIST OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit Name
- ------- ----
<S> <C>
2.4 Escrow Agreement
7.4 Non-Competition Agreement
7.5 Web Site Agreement
7.6 Credit Bureau Agreement
7.10 Limited License Agreement
8.1(h) Bill of Sale
8.1(l) Opinions to be Rendered by Seller
8.1(m) Seller's Officer's Certificate
8.2(g) Employment Agreement
8.2(j) Opinions to be Rendered by Purchaser
</TABLE>
A-2
<PAGE> 56
SCH-1
<PAGE> 57
EXHIBIT 2.4
ESCROW AGREEMENT
EXH-1
<PAGE> 58
EXHIBIT 7.4
NON-COMPETITION AGREEMENT
EXH-2
<PAGE> 59
EXHIBIT 7.5
WEB SITE AGREEMENT
EXH-3
<PAGE> 60
EXHIBIT 7.6
CREDIT BUREAU AGREEMENT
EXH-4
<PAGE> 61
EXHIBIT 7.10
LIMITED LICENSE AGREEMENT
EXH-5
<PAGE> 62
EXHIBIT 8.1(h)
BILL OF SALE
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which are
hereby acknowledged, ______________________________ ("Seller"), pursuant to that
certain Agreement for the Purchase of Certain Assets and the Assumption of
Certain Liabilities of the ___________________________ (the "Agreement"), dated
as of October __, 1998, by and between Seller and
_______________________________________ ("Purchaser"), hereby sells, conveys,
transfers, and assigns to Purchaser all of the right, title, and interest of
Seller in and to the personal property more particularly described on Exhibit
"A" attached hereto (the "Purchased Assets"), as of and as the same shall exist
at the Closing Date.
Seller hereby warrants that title to the Purchased Assets described in
this Bill of Sale is free and clear of any liens or encumbrances, and agrees,
subject to and in accordance with the terms and conditions of the Agreement, to
defend such title as vested, by reason of this sale, in Purchaser and
Purchaser's successors and assigns, against any and all claims whatsoever.
IN WITNESS WHEREOF, the parties hereto have executed this Bill of Sale
this day of October, 1998.
PURCHASER:
By:
-------------------------------------
Its:
---------------------------------
SELLER:
By:
-------------------------------------
Its:
---------------------------------
EXH-6
<PAGE> 63
EXHIBIT 8.1(l)
OPINIONS TO BE RENDERED
BY SELLER
EXH-7
<PAGE> 64
EXHIBIT 8.1(m)
SELLER'S
OFFICER'S CERTIFICATE
In connection with that certain Agreement for the Purchase of Certain
Assets and the Assumption of Certain Liabilities of
_________________________________ ("Seller"), dated as of October ___, 1998 (the
"Agreement"), by and between _______________________, a California corporation
("Purchaser") and Seller (terms defined in the Agreement have the same meaning
when used herein), and as a material inducement to Purchaser to enter into the
Agreement and perform its obligations thereunder, I, __________________________,
_______________________ of Seller, do hereby certify, to the best of my
knowledge and belief that each of the conditions to Closing set forth in Section
8.1 of the Agreement have, in accordance with the requirements of the Agreement,
been satisfied in all material respects.
IN WITNESS WHEREOF, I have executed this Certificate this ____ day of
October, 1998.
---------------------------------------
EXH-8
<PAGE> 65
EXHIBIT 8.2(g)
EMPLOYMENT AGREEMENT
EXH-9
<PAGE> 66
EXHIBIT 8.2(j)
OPINIONS TO BE RENDERED
BY PURCHASER
EXH-10
<PAGE> 1
EXHIBIT 10.3
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT is made effective as of this 26
day of February, 1999, by and between BNC Mortgage, Inc., a Delaware corporation
("BNC") and Mortgage Logic.com, Inc., a California corporation ("Purchaser" and
together with BNC, the "BNC Parties"), on the one hand, and America's Lender,
Inc. ("Seller"), SHL Holdings, Inc., a California corporation ("SHL"), and Keith
Guy, an individual ("Guy"), on the other, (Seller, SHL and Guy are known
together as the "Seller Parties"), with reference to the following facts:
R E C I T A L S
WHEREAS, Purchaser is purchasing certain assets (and assuming certain
liabilities) pursuant to that certain Agreement for the Purchase of Certain
Assets and the Assumption of Certain Liabilities of America's Lender, Inc. dated
as of December 14, 1998 (the "Purchase Agreement");
WHEREAS, Guy is the sole Shareholder of Seller and of TrueLink, Inc., a
California corporation ("TrueLink");
WHEREAS, Seller has well established business relationships and contacts
in its business which includes, but is not limited to, originating, selling and
servicing mortgage loans and mortgage lending (the "Business");
WHEREAS, after the Closing Date (as defined in the Purchase Agreement)
the BNC Parties will own and operate the Business and the BNC Parties expect to
receive all benefits thereof;
WHEREAS, Seller's trade secrets include confidential information
concerning product and service marketing plans and strategy, customer needs and
peculiarities, and customer lists and detail information (the "Trade Secrets");
WHEREAS, the BNC Parties would not enter into the Purchase Agreement
unless it is assured that it will be able to operate the Business in the United
States without competition from the Seller Parties except as provided herein.
WHEREAS, it is a condition precedent to the consummation of the
transactions contemplated by the Purchase Agreement that the Seller Parties
enter into this Agreement;
WHEREAS, each of the Seller Parties has agreed not to compete with the
BNC Parties except as provided herein or use any confidential and/or proprietary
business information regarding the Business to the detriment of the BNC Parties
during the term of this Agreement in order to induce the BNC Parties to enter
into the Purchase Agreement and to perform its obligations thereunder;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, and for other good and valuable consideration, it is
hereby agreed by and between the parties hereto as follows:
1. Non-Competition
(a) Each of the Seller Parties agrees that for a period of
four (4) years from the date hereof (the "Non-Compete Term"), neither of the
Seller Parties nor their affiliates will directly or indirectly, engage or
participate in, prepare or setup, assist or have any interest in any person,
partnership, corporation, firm, association, or other business organization,
entity or enterprise (whether as an agent, security holder, creditor, consultant
or otherwise) that engages in (i) mortgage loan origination, selling, servicing
or lending activities of any type whatsoever or (ii) activities similar to or
which are otherwise in competition with the Business as such had been conducted
at any time prior to one year from the date hereof;
(b) the limitations set forth in Section 1(a) herein shall
not apply to the foregoing:
<PAGE> 2
(i) TrueLink may use, distribute, disseminate,
license, resell, exploit, upload, display, copy
and store data submitted on any person or entity
(so long as such activities do not violate
subsection (i) of Section 1(a) herein or Section
2 herein) that is not a customer, borrower or
loan applicant of any of the BNC Parties or any
affiliate thereof, or any of their customers or
brokers; provided, however, that TrueLink may
use, distribute, disseminate, license, resell,
exploit, upload, display, copy and store data of
any borrower or loan applicant of any of the BNC
Parties or any affiliate thereof, or any of
their customers or brokers, provided that such
data (A) either (I) consists solely of that raw
credit data regarding the creditworthiness of
such borrower or loan applicant as provided by
third party credit repositories which currently
consists of TransUnion Credit Information
Services, Equifax Credit Information Services or
Experien Information Services ("Credit Data")
that is submitted, transmitted or in any way
sent through the Interface and is the later of
(aa) the later of 31 days old from the date of
receipt thereof by TrueLink or that date on
which such data is "archived" pursuant to
TrueLink's internal operating procedures
consistently applied or (bb) such date as may be
agreed to between Purchaser and Guy, provided
that such parties acknowledge that they will
discuss a date on which such data is similarly
"archived" by third party repositories as
referenced in this subsection (i) or (II) is
independently obtained by TrueLink from any
source not under a duty of confidentiality to
any of the BNC Parties and (B) is not combined,
compared with or against, integrated or
presented in any way with any Client Proprietary
Information as that term is defined in that
certain Licensing and Web Site Hosting Agreement
by and between the Purchaser and TrueLink of
even date herewith (the "Web Site Agreement"):
provided however, that notwithstanding the
foregoing, TrueLink may not use, distribute,
disseminate, license, resell, exploit, upload,
display, copy or store any Credit Data for a
period of one hundred eighty (180) days from the
date hereof;
(ii) subject to the limitations set forth in
paragraph 2 of this Agreement, TrueLink, may
develop, distribute and sell software which
allows for automated loan origination and
underwriting, credit reporting and document
preparation and provide related website
development and support services to unaffiliated
third parties or other entities in which none of
the Seller Parties has a financial interest,
which may be in competition with the Business
(by way of example only, the type and nature of
services TrueLink may undertake are those
services TrueLink provides Purchaser pursuant to
the Web Site Agreement); and
(iii) Guy may broker a maximum of ten mortgage loans
per year, which amount shall not be carried over
to subsequent years if Guy does not broker a
maximum of ten mortgage loans in any given year,
provided further that any and all of such loans
will first be offered to BNC and/or its
affiliates for funding.
(b) The parties intend that the covenant contained in this
Section 1 shall be construed as a series of separate covenants, one for each
county specified in Exhibit "A" hereto. Except for geographic coverage, each
such separate covenant shall be deemed identical in terms to the covenant
contained in this Section 1. If, in any judicial proceedings, a court shall
refuse to enforce any of the separate covenants deemed included in this
paragraph, then this unenforceable covenant shall be deemed eliminated from
these provisions for the purpose of those proceeding to the extent necessary to
permit the remaining separate covenants to be enforced.
(c) Nothing contained in this Agreement shall be deemed to
preclude the Seller Parties from purchasing or owning in the aggregate, directly
or beneficially, TrueLink or, as a passive investment, five percent (5%) or less
of any class of a publicly traded securities or any entity if it does not
actively participate in or control, directly or indirectly, any investment or
other decisions with respect to such entity.
-2-
<PAGE> 3
2. Solicitation.
In connection with and in addition to the foregoing during the
Non-Compete Term, Seller Group agrees not to: (i) use or otherwise exploit,
directly or indirectly, the name "America's Lender," or any trademark, trade
name, service mark or logo used in connection with the Business, whether
registered or unregistered; (ii) directly or indirectly solicit, cause, or
induce, or attempt to solicit, cause or induce, any current or future employee
of the BNC Parties to terminate his or her employment with the BNC Parties;
(iii) request, advise or in any manner attempt to influence, directly or
indirectly, any customer or client, or prospective customer or client, of the
BNC Parties, or any person who had previously been a customer or client of the
BNC Parties, or who becomes a customer or client of the BNC Parties, to modify,
terminate or alter an existing relationship or not enter into a prospective
relationship with any BNC Party; or (iv) hire, retain or otherwise employ any
person or party who was an employee or consultant of Seller on or prior to a
date which is thirty (30) days from the date hereof.
3. Trade Secrets.
Each of the Seller Parties recognizes and acknowledges that the
Trade Secrets are valuable, special and unique assets of the Business. Each of
the Seller Parties shall keep all Trade Secrets confidential and not disclose
such Trade Secrets or any part thereof to any person, firm, corporation,
association or other entity for any reason or purpose whatsoever.
4. Acknowledgment.
Each of the Seller Parties acknowledges and agrees that the
covenants referred to in Sections 1 and 2 hereof are given in consideration of
the purchase by the BNC Parties of the Purchased Assets and assumption of the
Assumed Obligations (as those terms are defined in the Purchase Agreement)
pursuant to the Purchase Agreement.
5. Injunctive Relief
Each of the Seller Parties hereby acknowledges and agrees that
it would be difficult to fully compensate BNC for damages resulting from the
breach or threatened breach of Sections 1 and 2, herein and, accordingly, that
BNC shall be entitled to temporary and injunctive relief, including temporary
restraining orders, preliminary injunctions and permanent injunctions, to
enforce such Sections without the necessity of proving actual damages therewith.
This provision with respect to injunctive relief shall not, however, diminish
BNC's right to claim and recover damages or enforce any other of its legal
and/or equitable rights or defenses.
6. Severable Provisions
The provisions of this Agreement are severable and if any one or
more provisions may be determined to be illegal or otherwise unenforceable, in
whole or in part, the remaining provisions, and any partially unenforceable
provisions to the extent enforceable, shall nevertheless be binding and
enforceable.
7. Reference Provision
(a) Each controversy, dispute or claim between the parties
arising out of or relating to this Agreement, which controversy, dispute or
claim is not settled in writing within thirty (30) days after the "Claim Date"
(defined as the date on which a party subject to the Agreement gives written
notice to the other that a controversy, dispute or claim exists), will be
settled by binding arbitration in Los Angeles, California in accordance with the
provisions of the American Arbitration Association, which shall constitute the
exclusive remedy for the settlement of any controversy, dispute or claim, and
the parties waive their rights to initiate any legal proceedings against each
other in any court or jurisdiction. Any decision rendered by the arbitrator and
such arbitration will be final, binding and conclusive and judgment shall be
entered pursuant to CCP Section 644 in any court in the State of California
having jurisdiction.
(b) Except as expressly set forth in this Agreement, the
arbitrator shall determine the manner in which the proceeding is conducted,
including the time and place of all hearings, the order of presentation of
evidence, and all
-3-
<PAGE> 4
other questions that arise with respect to the course of the proceeding. All
proceedings and hearings conducted before the arbitrator, except for trial,
shall be conducted without a court reporter, except that when any party so
requests, a court reporter will be used at any hearing conducted before the
arbitrator. The party making such a request shall have the obligation to arrange
for any pay for the court reporter. The costs of the court reporter shall be
borne equally by the parties.
(c) The arbitrator shall be required to be determined in all
issues in accordance with existing case law and the statutory laws of the State
of California. The rules of evidence applicable to proceedings at law in the
state of California will be applicable to the referenced proceeding. The
arbitrator shall be empowered to enter equitable as well as legal relief, to
provide all temporary and/or provisional remedies and to enter equitable orders
that will be binding upon the parties. The arbitrator shall issue a single
judgement at the close of the proceeding which shall dispose of all of the
claims of the parties that are the subject of the proceeding. The parties hereto
expressly reserve the right to contest or appeal from the final judgment or any
appealable order or appealable judgement entered by the arbitrator. The parties
hereto expressly reserve the right to findings of fact, conclusions of law, a
written statement of decision, and the right to move for a new trial or a
different judgment, which new trial, if granted, is also to be a proceeding
governed under this provision.
8. Binding Agreement
This Agreement shall inure to the benefit of and shall be
binding upon the parties hereto and their successors and assigns.
9. Captions
The Section captions are inserted only as a matter of
convenience and reference and in no way define, limit or describe the scope of
this Agreement or the intent of any provisions hereof.
10. Entire Agreement
This Agreement contains the entire agreement of the parties
relating to the subject matter hereof, and the parties hereto have made no
agreements, representations or warranties relating to the subject matter of this
Agreement that are not set forth otherwise herein. This Agreement supersedes any
and all prior agreements, written or oral, between the parties hereto. No
modification of this Agreement shall be valid unless made in writing and signed
by the parties hereto and unless such writing is made by an executive officer of
each of the parties hereto. The parties hereto agree that in no event shall an
oral modification of this Agreement be enforceable or valid.
11. Governing Law
This Agreement shall be governed and construed in accordance
with the laws of the State of California.
12. Notices.
All notices and other communications under this Agreement shall
be in writing (including, without limitation, telegraphic, telex, telecopy or
cable communication) and mailed, telegraphed, telexed, telecopied, cabled or
delivered by hand or by a nationally recognized courier service guaranteeing
overnight delivery to a party at the following address (or to such other address
as such party may have specified by notice given to the other party pursuant to
this provision):
If to any of the Seller Parties, to:
America's Lender, Inc. c/o TrueLink
3026 South Higuera Street
-4-
<PAGE> 5
San Luis Obispo, California 93401
Telephone: (805) 782-8280
Facsimile: (805) 782-8281
Attention: Keith Guy
-5-
<PAGE> 6
If to BNC or Purchaser to:
BNC Mortgage, Inc.
1063 McGaw Avenue
Irvine, California 92614-5532
Telephone: (949) 260-6000
Facsimile: (949) 955-1678
Attention: Kelly Monahan, President
with a copy to:
Freshman, Marantz, Orlanski, Cooper & Klein
Eighth Floor, East Tower
9100 Wilshire Boulevard
Beverly Hills, California 90212
Telephone: (310) 273-1870
Facsimile: (310) 274-8293
Attention: Thomas J. Poletti, Esq.
All such notices and communications shall, when mailed, telegraphed, telexed,
telecopied, cabled or delivered, be effective three days after deposit in the
mails, delivered to the telegraph company, confirmed by telex answerback,
telecopied with confirmation of receipt, delivered to the cable company,
delivered by hand to the addressee or one day after delivery to the courier
service.
13. Attorney's Fees.
In the event that any party shall bring an action or proceeding
in connection with the performance, breach or interpretation hereof, then the
prevailing party in such action as determined by the court or other body having
jurisdiction shall be entitled to recover from the losing party in such action,
as determined by the court or other body having jurisdiction, all reasonable
costs and expense of litigation or arbitration, including reasonable attorney's
fees, court costs, costs of investigation and other costs reasonably related to
such proceeding.
-6-
<PAGE> 7
IN WITNESS WHEREOF, this Non-Competition Agreement is executed
as of the day and year first above written.
"BNC" "Seller"
BNC Mortgage, Inc. America's Lender, Inc.
a Delaware corporation a California corporation
By: By:
-------------------------------- -------------------------------------
Name: Name:
Title: Title:
"Purchaser" "Guy"
Mortgage Logic.com, Inc.
a California corporation
By:
-------------------------------- ----------------------------------------
Name: Keith Guy
Title:
"SHL"
SHL Holdings, Inc.
By:
--------------------------------
Name:
Title:
-7-
<PAGE> 8
EXHIBIT "A"
The geographic areas to which the non-competition provisions of Section
1 apply are as follows:
<PAGE> 1
EXHIBIT 10.4
LICENSING AND WEB SITE HOSTING AGREEMENT
This Agreement is entered into on February 26, 1999, (the "Effective
Date") by and between Mortgage Logic.com, Inc. ("Client"), with an address at
Two Venture Plaza, 2 Venture, Irvine, California 92618 and TrueLink, Inc.
("TrueLink"), with an address at 3026 South Higuera, San Luis Obispo, California
93401.
WHEREAS, TrueLink is in the business of (i) developing and licensing
interface software (the "Interface") to third parties; (ii) providing access to
credit bureau information to third parties through the Interface; and (iii)
providing certain technical support and programming customization services to
users of the Interface substantially similar to those specifically enumerated
herein (collectively "Support Services"); and
WHEREAS, TrueLink is licensed (or will be licensed) to provide access
through the Interface to automated underwriting systems made available by
certain third party investors or mortgage insurers (each such system is referred
to hereafter as a "System", and all systems for which TrueLink is licensed to
provide access are collectively referred to hereafter as the "Systems"); and
WHEREAS, Client desires to obtain access (for itself and for certain of
Client's correspondent broker customers) for communications with, and use of,
the Interface, including credit bureau information, by transmitting information
and data to and receiving information and data from the Interface and such
Support Services as Client may from time-to-time specify; and
WHEREAS, TrueLink is willing to provide to Client and to certain of
Client's correspondent broker customers access to the Interface and various
Support Services, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. DEFINITIONS.
a. Browser. The term "Browser" refers to a program used to
provide interactive, graphical access to sites on the World Wide Web.
b. Client Content. The term "Client Content" means all
text, words, names, likenesses, trademarks, logos, artwork, graphics, video,
audio, HTML, JAVA or other coding, domain names, image maps, links, software
applications, or other content that appear on, or are provided to TrueLink by or
on behalf of Client for uploading to or downloading from, the Web Site.
c. Client's Intellectual Property. The term "Client
Intellectual Property" means, client's designs, customer lists, formulas,
procedures, methods, apparatus, ideas, creations, improvements, works of
authorship, materials, processes, inventions, techniques, data, know-how,
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show-how, algorithms, programs, subroutines, tools, patents and patentable
materials, copyrights and copyrightable materials and trade secrets.
d. Credit Data. The term "Credit Data" means data of any
borrower or loan applicant of Client or BNC Mortgage, Inc., or any of their
affiliates, or any of their customers or brokers, provided that such data (i)
consists only of raw credit data regarding the creditworthiness of such a
borrower or loan applicant provided by third party credit repositories which
currently consists of TransUnion Credit Information Services, Equifax Credit
Information Services or Experien Information Services that is submitted,
transmitted or in any way sent through the Interface and is the later of (I) the
later of 31 days old from that date of receipt thereof by TrueLink or that date
on which such data is "archived" pursuant to TrueLink's internal operating
procedures consistently applied or (II) such date as may be agreed to between
Client and Keith Guy provided that the parties acknowledge that such parties
will discuss a date on which such data is similarly "archived" third party
credit repositories as referred in this subparagraph (d) and (ii) is not
combined, compared with or against, integrated or presented in any way with any
Client Proprietary Information.
e. Credit Reporting Agreement. The term "Credit Reporting
Agreement" means the various agreements between TrueLink and each of TransUnion
Credit Information Services, Experien Information Services and Equifax Credit
Information Services pursuant to which TrueLink is provided raw credit data from
time to time.
f. TrueLink's Intellectual Property. The term "TrueLink
Intellectual Property" means any or its intellectual property associated with
the Interface, including, without limitation, designs, formulas, procedures,
methods, apparatus, ideas, creations, improvements, works of authorship,
materials, processes, inventions, techniques, data, know-how, show-how,
algorithms, programs, subroutines, tools, patents and patentable materials,
copyrights and copyrightable materials and trade secrets.
g. Internet. The term "Internet" refers to the global
network of computers using the TCP/IP protocol for communication.
h. Web Site. The term "Web Site" refers to the World Wide
Web site on which Client Content will appear.
i. System Agreements. The term "System Agreements" means
any agreement pursuant to which TrueLink is licensed to provide access to a
System.
2. LICENSE.
a. Grant. TrueLink hereby grants to Client a non-exclusive
license to use the Interface in the ordinary course of its business of the
origination, underwriting, processing and funding of consumer finance
receivables in accordance with this Agreement. Notwithstanding the foregoing,
Client is not obligated to utilize the License and is free to acquire, develop,
license or otherwise utilize any other hardware, software system, design,
formula, procedure or trade secret to provide software and services similar to
the ones provided by TrueLink hereunder, so long as such
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software or services do not infringe upon any of TrueLink's Intellectual
Property. Nothing in the foregoing sentence is meant to affect in any way
Client's confidentiality obligations pursuant to Section 10 herein.
b. Scope. The license granted to Client pursuant to section
2(a) consists of the following rights:
i. Use and execution of the Interface on a
compatible software platform (as such compatibility specifications may be issued
by TrueLink from time to time); and
ii. Access to the Interface from multiple computer
located at those sites listed on Exhibit "A." Client may amend Exhibit "A" by
giving TrueLink written notice of the new sites.
c. Term. The license shall last until this Agreement is
terminated in accordance with section 12.
d. Ownership. Notwithstanding the license granted under
section 2.1, TrueLink retains all of its ownership and license rights in the
Interface.
3. HOSTING SERVICES. TrueLink will provide the following services
to Client (the "Hosting Services"):
a. Storage. ___ megabytes (MB) of disk space on TrueLink's
servers will be used for storage of the Web Site and any data files associated
with the Web Site.
b. Response Time. TrueLink agrees to use reasonable
commercial efforts, consistent with efforts provided to its other Clients to
ensure reasonable response times for users accessing the Web Site. Reasonable
response times shall be measured as follows: at a mutually agreed to time Client
will conduct three tests of the time that it takes to load the home page of the
Web Site from an IBM compatible computer (with a 16550 UART chip and an Intel
80586 300 MHZ processor running Windows 98 or NT and Microsoft Internet Explorer
(with the cache turned off) accessing the Web Site over a phone line using a
28.8K baud modem (the results of these tests will be reported to TrueLink upon
completion); reasonable response times means that at all times the time it takes
to load the home page of the Web Site using a properly configured IBM compatible
computer (as set forth above) accessing the Web Site over a phone line using a
28.8K baud modem shall in no event exceed twice the average of the three test
response times.
c. Bandwidth. ___ MB of monthly bandwidth (data transfer).
In the event that the response time is not reasonable as determined under
section 3.1 hereof, upon written notice from Client, TrueLink will, within a
reasonable period of time, use reasonable commercial efforts to increase the
bandwidth as necessary to make the response time reasonable.
d. Availability. The Web Site will be available Client's to
Internet users approximately 24 hours a day, seven days a week, normal
maintenance and unforeseen hardware or communications problems excepted. To
minimize server downtime during peak usage periods,
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TrueLink will take all reasonable actions to attempt to schedule routine
maintenance between the hours of 8:00 p.m. to 5:00 a.m. pacific standard time.
e. Access. Client will have access to Interface usage
statistics and raw log files in real time via the Interface.
f. Backups. TrueLink will backup the Interface and all data
files associated with it at least once each day and will store the backup
materials in a safe, secure location, suitable for magnetic media, and not at
the same location as TrueLink's server.
g. Internet Connection. TrueLink will maintain redundant
connections to the Internet on diverse backbones.
h. Domain Names. TrueLink shall provide assistance to
Client in securing one or more domain names, sub-domain names or URL's
associated therewith; provided that prior to TrueLink providing such assistance,
Client shall engage in an appropriate trademark search reasonably satisfactory
to TrueLink in order to establish that no domain name proposed by Client shall
infringe upon the trademark, service mark, name, or logo of any third party.
TrueLink will not be responsible for, or have any liability in connection with,
the operation of the Web Site with respect to online commercial transactions, or
for the transmission accuracy or completeness of any data or information to or
from the Web Site or through the Interface by Client or Client's customers.
i. Credit Bureau Information. TrueLink shall transmit such
credit data to Client through the Interface as may be permitted under the Credit
Repository Agreements and applicable law, each as in affect from time to tome,
and in accordance with the certain Credit Bureau Agreement between TrueLink and
Client dated of even date herewith. Subject to the foregoing, Client shall order
TrueLink a credit report on each borrower for which an underwriting approval is
requested through a System using the Interface. TrueLink makes no representation
or warranty, and shall have no liability for the truth or completeness of any
data so transmitted.
4. SUPPORT SERVICES. For a period of not less than ____ months,
TrueLink will make available to Client the services of at least one programmer
identified by TrueLink and reasonably acceptable to Client to provide such
Support Services as Client may reasonably request to TrueLink in writing for
purposes of permitting Client to use the Interface in accordance with the
License granted under Section 2 hereof and the other terms and conditions of
this Agreement.
5. COMPENSATION.
a. Client will pay TrueLink's fees for requested Hosting
Services and Support Services pursuant to the schedule of charges set forth on
Exhibits "A" and "B" attached hereto, (but not less than $____ per month for the
Hosting Services and $____ per month for Support Services). For any other
services agreed to between the parties, Client will pay TrueLink fees which will
be determined by the parties and will vary depending on the services utilized.
TrueLink will provide Client with an invoice for the requested Hosting Services
and Support Services and any other agreed-upon services on a monthly basis.
Invoices will be paid within 15 days of receipt.
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6. DOCUMENTATION AND DISPUTES. Client will be provided upon request
with documentation supporting the amount charged (other than the minimum monthly
fees listed in Section 4) and will be entitled to contest any charge (other than
the minimum monthly fees listed in Section 4), provided that Client timely pays
all contested amounts. TrueLink agrees that the costs for any Hosting Services
will not increase for a period of one year from the date of this Agreement and
that rates charged for Hosting Services will not exceed that charged by TrueLink
to any other party.
7. UNSOLICITED COMMERCIAL E-MAIL.
Client shall not engage in the practice commonly known as
"spamming" pursuant to the rights granted hereunder. This includes but is not
limited to, the following: posting an article or advertisement to more than ten
(10) news groups, forums, e-mail mailings lists or other similar groups or
lists; or sending unsolicited mass e-mailings to more than twenty-five (25)
e-mail users, if such unsolicited e-mailings provoke complaint.
8. COVENANTS AND WARRANTIES OF CLIENT
a. Compliance with Laws. Client will comply in all material
respects with applicable state and federal consumer credit reporting, privacy
and similar laws in connection with its use of the Interface.
b. Notification. Client shall not represent that loan
underwriting decisions related to loans originated by using the Interface are in
any way made by TrueLink in communicating all loan approvals or denials in
accordance with the foregoing.
c. Limitation on Access. Client will use reasonable
commercial efforts consistent with the protection of Client Proprietary
Information to restrict access to the Interface to its officers, employees, and
agents as may be approved by Client.
d. Use of Credit Data during the term of this Agreement.
Client hereby grants to TrueLink the nonexclusive worldwide right and license to
use, distribute, disseminate, license, resell, exploit, upload, display, copy
and store Credit Data subject to the limitations set forth in and in accordance
with the Non-Competition Agreement.
e. Representations of Client. Client represents and
warrants: (a) Client is the owner, valid licensee, or authorized user of the
Client Content, (b) to Client's actual knowledge the use of the Client Content
shall not infringe the copyright, trade secret, trademark or other proprietary
or intellectual property right of any third party, or constitute a definition,
invasion of privacy, or violation of any right of publicity or other third party
right, (c) the Client Content complies in all material respects with applicable
federal and state laws regarding posting or transmitting data which is
threatening, obscene, indecent, defamatory or in violation of report control
was, and (d) to Client's actual knowledge Client Content shall be free at the
time provided to TrueLink from viruses, worms, Trojan horses, and any other
malicious code.
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f. Spamming. TrueLink reserves the right at any time to
implement technical mechanisms to prevent Client engaging in illegal or obscene
activity or in "spamming," TrueLink reserves all legal and equitable rights in
enforcing this policy.
9. TRUELINK WARRANTIES. TrueLink represents and warrants that the
Interface and all related software (i) is designed to be used before, on and
after January l, 2000; (ii) will operate before, on and after January 1, 2000,
in the processing of dates, including without limitation calculating, comparing,
indexing and sequencing; and (iii) will successfully transition from December
31, 1999, to January 1, 2000, without human intervention. At Client's request,
TrueLink will provide sufficient evidence to demonstrate adequate testing of the
Interface and all related software to meet the foregoing requirements. Client
will provide reasonable access to TrueLink make any repairs necessary to comply
with this section and make any upgrades specified by TrueLink to so comply, all
at TrueLink's sole cost and expense, to the extent such upgrades were not
previously requested by Client pursuant to previously requested Hosting Services
or Support Services as set forth herein.
10. CONFIDENTIALITY.
a. Client acknowledges its responsibility to preserve the
confidentiality of certain technology, information, and documentation embedded
in the Interface and agrees to respect the confidential nature of the Interface.
Notwithstanding anything to the contrary contained in this Agreement, it is
understood and agreed that Client's confidentiality obligations relating to any
System and any data, documentation, or other output from such System shall
include those specified in any agreements between Client and the licensor of the
System.
b. TrueLink acknowledges its responsibilities to preserve
the confidentiality of all results of the Support Services, Client's
Intellectual Property, and subject to Section 8(d) herein Client Confidential
Information.
c. The parties hereto recognize that certain of the
information and documentation previously provided or that may in the future be
provided by a party to the other related to the matters covered by this
Agreement includes privileged, confidential and proprietary information
belonging to such party (a party's "Proprietary Information") which, if
disclosed, could result in substantial and irreparable harm to such party. For
information and documentation to qualify as a party's Proprietary Information,
such information must either be marked "Confidential" or otherwise identified in
writing as confidential at or prior to the time of its delivery to the other
hereunder. Notwithstanding the foregoing, the following matters will
automatically be deemed TrueLink Proprietary Information, whether or not
specifically marked or designated as such: (i) any implementation information or
user's guides for the Interface, (ii) any advance releases of TrueLink
promotional material, (iii) information concerning TrueLink's business plans and
strategies, and (iv) TrueLink's customer list. Notwithstanding the foregoing,
the following matters will be automatically deemed Client Proprietary
Information: Client's Intellectual Property, all results of the Hosting and
Support Services, including any information or materials of any type or nature,
tangible or intangible, disclosed by Client as a result of the TrueLink's
relationship with Client relating to the business, products or technology or
potential business, products or technology of Client, business plans, financial
information, borrower and loan data technical specifications, design concepts,
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technical information, customer lists, pricing information, marketing plans and
other similar information pertaining to Client. Each agrees to treat all of the
other Proprietary Information and all materials as strictly confidential, except
to the extent otherwise agreed by the other in writing. Except to the extent
otherwise agreed by both parties in writing, party further agrees to treat all
of the other Proprietary Information and all materials which it prepares using
or based on the other's Proprietary information or any portion thereof (the
"Derivative Documentation") as strictly confidential, including, without
limitation, any notes made and all reports prepared in connection with this
Agreement.
d. Notwithstanding the foregoing, the restrictions on
disclosure and other obligations set forth above with respect to Proprietary
Information or Derivative Documentation shall not apply when, and to the extent
that such Proprietary Information or Derivative Documentation: (i) is or becomes
generally available to the public through no fault of the receiving party; (ii)
was previously known to the receiving party free of any obligation to keep it
confidential; (iii) is subsequently disclosed to the receiving party by a third
party who may transfer and disclose such information without restriction and
free of any obligation to keep it confidential; (iv) is independently developed
by the receiving party or a third party without reference to or any use of the
disclosing party's proprietary information; or (v) is required to be disclosed
by the receiving party as a matter of law, provided that the receiving party
uses all reasonable efforts to provide the disclosing party with at least ten
days' prior notice of such disclosure.
11. STANDARD OF CARE. TrueLink shall perform the Hosting and Support
Services and any other agreed-upon services for Client with the same degree of
care, skill and prudence customarily exercised by it for its own operations.
12. INDEMNITY.
a. Client shall indemnify and hold TrueLink, its
affiliates, directors, officers, employees, agents and licensors harmless from
and against all claims, actions, expenses, losses, and liabilities, including
reasonable attorneys' fees, arising from or relating to the following: (i) any
claim arising out of any breach by Client of this Agreement, (ii) any claim or
demand resulting from any act or omission by Client or any customer of Client
granted access to the Interface by Client which constitutes a breach of or
default by TrueLink under any System Agreement or Credit Repository Agreement,
which breach or default has either not been cured or cannot be cured within the
applicable cure period and the consequences of which is that TrueLink will lose
material rights it has pursuant to said Agreements or a violation of any state
or federal law, rule or regulation (iii) any claim arising out of or relating to
the Web Site or Client Content (including, but not limited to, any claim
resulting from any content posted to the Web Site by Client or Client's
employees, agent or any customer of Client granted access to the Interface by
Client), without regard to any knowledge limitation or qualification that may be
contained in this Agreement, and (iv) injury or damage to person or property
caused by a product, service, or information, whether or not defective, that is
sold, distributed or transmitted from the Web Site.
b. TrueLink shall indemnify and hold Client harmless, its
affiliates, directors, officers, employees, agents and licensors harmless from
and against all claims, actions, expenses, losses, and liabilities, including
reasonable attorneys' fees, arising from or relating to any
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claim arising out of any breach by TrueLink of this Agreement or any failure by
TrueLink in the performance of any of its obligations or agreements hereunder.
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, TRUELINK DISCLAIMS ANY
AND ALL EXPENSES WARRANTIES, WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE AND
IMPLIED WARRANTIES OF MERCHANTABILITY OR FOR ANY MATTER RELATING TO THE ACCURACY
OR COMPLETENESS, OR TIMING OF TRANSMISSION OF ANY DATA SUBMITTED THROUGH THE
INTERFACE OR TO OR FROM THE WEB SITE.
IN NO EVENT SHALL TRUELINK'S LIABILITY FOR ANY MATTER ARISING UNDER OR
RELATED TO SECTION 3, 4, 7 AND 11 THIS AGREEMENT (OTHER THAN DUE TO A BREACH
RESULTING FROM TRUELINK'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT) EXCEED THE
TOTAL COMPENSATION PAID FOR HOSTING AND SUPPORT SERVICES OVER THE IMMEDIATELY
PRECEDING 12 MONTHS PERIOD.
13. TERM OF AGREEMENT. This Agreement will take effect on
the Effective Date and remain in effect for a period of 1 year; provided, that
Sections 2 and 3 level shall terminate promptly upon (a) any action or omission
by Client or any of its customers which constitutes a breach of or default by
TrueLink under any System Agreement or Credit Repository Agreement, which breach
or default has either not been cured or cannot be cured within the applicable
cure period and the consequences of which is that TrueLink will lose material
rights it had pursuant to said Agreements or (b) any violations or breach by
Client of Sections 8a - 8c. This Agreement shall renew automatically thereafter
for successive one year periods until terminated pursuant to Section 12 herein
or unless either Client or TrueLink deliver to the other written notice of
intent not to renew no later than thirty (30) days prior to the end of said
year. If Client decides to discontinue its Hosting Service, Client is
responsible for arranging for a new name server within 30 days. In case of
discontinued Service, Client shall retain full ownership of all domains
associated with Client and Client Content. If Client decides to discontinue
Hosting Service, Client is responsible for arranging for a new hosting
environment within 60 days.
14. TERMINATION. Subject to Section 4 hereof, TrueLink will
continue to provide the requested Hosting Services and Support Services until
the last day of the month following the month in which Client provides TrueLink
with a written notice of its election to terminate this Agreement.
15. ASSIGNMENT OR TRANSFER. Neither party shall assign or
transfer any of its rights under this Agreement without the prior written
approval of the other party, except no such approval shall be required for an
assignment to a financially responsible affiliate.
16. MODIFICATIONS. This Agreement may be amended at any time
and from time to time, but any amendment must be in writing and signed by the
party to be charged.
17. WAIVER. No waiver of any provision of this Agreement
will be valid unless it is in writing and signed by the party against whom it is
sought to be enforced. No waiver at any time of any provision of this Agreement
will be deemed a waiver of any other provision of this
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Agreement at that time or a waiver of that or any other provision of this
Agreement at any other time.
18. UNDEFINED TERMS. Terms that are not specifically defined
in this Agreement are used as set forth in the California Uniform Commercial
Code.
19. POWER AND AUTHORITY. Each party represents to the other
that it has all necessary power and authority to enter into and perform its
obligations under this Agreement. The individuals executing this Agreement on
behalf of each party represent that they have authority to do so.
20. NOTICES. All notices required or permitted to be sent
under this Agreement shall be in writing and shall be sent to the parties at the
addresses set forth in the preamble of this Agreement, or to such other
addresses and to such other individuals of which either party may notify the
other in a notice which complies with the provisions of this subsection. All
notices will be deemed given (i) when delivered by hand, (ii) one (l) day after
delivery to a reputable overnight carrier, or (iii) three (3) days after
placement in first-class mail, postage prepaid, return receipt requested.
21. CUMULATIVE RIGHTS. The rights and remedies of the
parties hereunder are cumulative and are in addition to, and not in lieu of, all
rights and remedies available at law and in equity.
22. CAPTIONS. The captions in this Agreement are included
for convenience of reference only and will not be construed to define or limit
any of the provisions contained herein.
23. JOINT DRAFTING AND NEUTRAL CONSTRUCTION. This Agreement
is a negotiated document and shall be deemed to have been drafted jointly by the
Parties, and no rule of construction or interpretation shall apply against any
particular party based on a contention that the Agreement was drafted by one of
the Parties including, but not limited to California Civil Code section 1654,
the provisions of which are hereby waived. This Agreement shall be construed and
interpreted in a neutral manner.
24. VALIDITY OF AGREEMENT. If any term, provision, covenant,
or condition of this Agreement is held by a court of competent jurisdiction to
be invalid or unenforceable, the rest of the Agreement shall remain in full
force and effect and shall in no way be affected or invalidated. The provisions
of Sections 1 and 5 through 30 this Agreement will survive the expiration or
termination of this Agreement.
25. ENTIRE AGREEMENT. This Agreement, including all
Exhibits, contains the entire agreement of the Parties relating to the rights
granted and obligations assumed herein. Any oral representations or
modifications concerning this instrument shall be of no force or effect unless
contained in a subsequent written modification signed by the party to be
charged.
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26. APPLICABLE LAW. This Agreement shall be governed,
construed and interpreted in accordance with the laws of the State of California
(without respect to principles of conflicts of law).
27. VENUE. Any and all disputes between the parties that
cannot be settled by mutual agreement shall be resolved solely and exclusively
in the state or federal courts located within San Luis Obispo County,
California, and each party consents to the jurisdiction of such courts and
irrevocably waives any objections thereto, including without limitation, on the
basis of improper venue or forum non conveniens.
28. ATTORNEY FEES AND COSTS. In any action brought under
this Agreement, the prevailing party shall be entitled to recover its actual
costs and attorney fees pursuant to California Civil Code section 1717 and all
other litigation costs, including expert witness fees, and all actual attorney
fees and litigation costs incurred in connection with the enforcement of a
judgment arising from such action or proceeding. The provisions of the preceding
sentence shall be severable from the provisions of this Agreement and shall
survive the entry of any such judgment.
29. NO PARTNERSHIP OR JOINT VENTURE. The parties hereto
understand and agree that TrueLink is furnishing its services and the Interface
to Client on its own behalf and not on behalf of the System providers. Client
understands and agrees that authorization to use the System must be obtained
from the System providers. In no event will TrueLink offer the Systems without
such authorization from the System providers. Nothing contained herein will be
construed to create any association, partnership, joint venture or any agency
relationship between the parties hereto.
30. FORCE MAJEURE. TrueLink will be excused from delays in
performing or from failing to perform its obligations under this Agreement to
the extent the delays or failures result from causes beyond the reasonable
control or TrueLink. However, to be excused from delay or failure to perform,
TrueLink must act diligently to remedy the cause of the delay or failure.
Dated: TRUELINK, INC.
--------------------------
By
-------------------------------------
Title:
Dated: MORTGAGE LOGIC.COM, INC.
--------------------------
By
-------------------------------------
Title:
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Exhibit "A"
Charges for Hosting Services
[To be agreed to by and between TrueLink and Client prior to the Closing]
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Exhibit "B"
Charges for Support Services
[To be agreed to by and between TrueLink and client prior to the Closing]
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EXHIBIT 10.5
AGREEMENT FOR SERVICE
Client_________________________________ Account #_______________________________
Address ________________________________________________________________________
City __________________________________ State ________________ Zip _____________
Additional locations covered by this agreement: ________________________________
Intended use of credit reports: ________________________________________________
The undersigned Client, desiring to receive consumer credit reports from
TrueLink, Inc. ("TrueLink") utilizing consumer credit information from Equifax
Credit Information Services ("ECIS") and/or Trans Union Credit Information
Services ("TU"), and/or EXPERIEN Information Services (formerly known as TRW)
("EXPERIEN") (hereinafter "Repository(ies)"), agrees that all consumer credit
reports will be received subject to the following conditions:
I. Client certifies that consumer credit information, as defined by the
Fair Credit Reporting Act ("FCRA") 15 U.S.C. 1681 et seq., will be
ordered only in connection with a business transaction involving a
consumer. This transaction must be a "permissible purpose" under the
FCRA. Consumer credit information will be requested only for our
exclusive use and held in strict confidence, and will not be disclosed
to any third party, except as required by law, and will not be resold.
Our employees will be forbidden from attempting to obtain credit reports
on themselves, associates or any other persons, except in the exercise
of their official duties. Credit reports will not be ordered for
employment purposes. Client will receive and retain a signed
authorization form from each consumer before Client orders a credit
report.
Client agrees to direct any credit report consumer inquiries to TrueLink
and to the applicable Repository(ies), all pursuant to the FCRA.
Client has read and acknowledged TrueLink's access security
requirements.
Client agrees to hold TrueLink, Repositories, and their agents harmless
from any expense or damage arising or resulting from the improper use or
disclosure of consumer credit information contrary to these conditions
or the FCRA, by Client, our employees or agents.
II. TrueLink, Repositories, and their agents, employees, and independent
contractors will use good faith efforts in attempting to obtain consumer
credit information from sources deemed reliable but does not guarantee
the accuracy of the reported information. TRUELINK AND THE
REPOSITORY(IES) WILL NOT BE RESPONSIBLE OR LIABLE FOR ANY LOSS OR
DAMAGES CAUSED BY ANY OF ITS AGENTS AND EMPLOYEES IN CONNECTION WITH THE
PREPARATION OF CREDIT REPORTS EXCEPT FOR INSTANCES OF GROSS NEGLECT,
RECKLESSNESS OR WILFUL MISCONDUCT.
<PAGE> 2
III. If Client elects to communicate with TrueLink's computer system, Client
will have equipment that enables it to order and/or receive credit
reports from TrueLink, and agree that such equipment will be operated
only by Client's designated employees who shall have read and understood
the training information provided by TrueLink. Client agrees to take all
necessary measures to prevent unauthorized use of this equipment by any
person other than our designated employees. CLIENT AGREES THAT, WITH
REGARD TO THE OPERATION OF OUR EQUIPMENT, TRUELINK AND REPOSITORY(IES)
AND ALL OF THEIR AGENTS SHALL NOT BE LIABLE FOR TRANSMISSION DISTORTION,
INTERRUPTIONS OR FAILURE, OR FOR ANY RESULTING CONSEQUENTIAL OR SPECIAL
DAMAGES WHATSOEVER.
IV. Client agrees that any creditworthiness score ("Score") received from
TrueLink is not intended to be and shall not be the only factor in
deciding to grant or deny credit. CLIENT UNDERSTANDS THAT THE ACCURACY
OF ANY SCORE IS NOT GUARANTEED BY TRUELINK AND, EXCEPT FOR AN AMOUNT
EQUAL TO WHAT CLIENT PAID TRUELINK FOR SUCH SCORE, CLIENT RELEASES
TRUELINK AND ITS AGENTS, EMPLOYEES AND INDEPENDENT CONTRACTORS FROM
LIABILITY FOR NEGLIGENCE IN THE PREPARATION AND DELIVERY OF THE SCORE
AND FROM ANY LOSS OR EXPENSE SUFFERED BY US RESULTING DIRECTLY OR
INDIRECTLY FROM THAT SCORE EXCEPT FOR INSTANCES OF GROSS NEGLECT.
V. Client agrees to pay in full, according to TrueLink's payment terms, as
they may vary from time to time, plus interest at 10% per annum for
overdue amounts and all attorney fees for collecting from us.
VI. If applicable, Client agrees to comply with the Real Estate Settlement
Procedures Act ("RESPA"), 27 U.S.C. 2601 et. seq., and specifically with
the anti-kickback prohibitions contained therein.
VII. A five day written notice by either party sent first class mail will
cancel this agreement, but the obligations and agreements of the
undersigned set forth in sections I, II, III, IV and V above will remain
in force.
VIII. No changes may be made to this agreement and the addendum hereto, except
in writing by the parties hereto. The person signing this agreement on
behalf of the Client is a duly authorized representative of Client with
all powers required to execute this agreement.
2
<PAGE> 3
FCRA REQUIREMENTS
Federal Fair Credit Reporting Act (FCRA - Public Law 91-508)
Although the FCRA primarily regulates the operations of consumer credit
reporting agencies, it also affects you as the user of information. We suggest
that you and your employees become familiar with the following sections of the
FCRA in particular:
Section 604. Permissible Purposes of Reports.
Section 610. Conditions and form of disclosure to consumers.
Section 615. Requirements on users of consumer reports.
Section 616. Civil liability for willful noncompliance.
Section 617. Civil liability for negligent noncompliance.
Section 619. Obtaining information under false pretenses.
Section 620. Unauthorized disclosures by officers or employees.
Each of these is of direct consequence to users who obtain reports on consumers.
As directed by law, credit reports may be issued only if they are to be used for
extending credit, review or collection of an account, underwriting insurance or
in connection with some other legitimate business transaction such as an
investment, partnership, etc.
TrueLink strongly endorses the letter and spirit of the Federal Fair Credit
Reporting Act. We believe that this law and similar state laws recognize and
preserve the delicate balance between the rights of the consumer and the
legitimate needs of commerce.
In addition to the Federal Fair Credit Reporting Act, other federal and state
laws addressing such topics as computer crime and unauthorized access to
protected databases have also been enacted. As a prospective user of consumer
reports, we expect that you and your staff will comply with all relevant federal
statutes and the statutes and regulations of the states in which you operate.
We support consumer reporting legislation that will ensure fair and equitable
treatment for all consumers and users of credit information.
ACCESS SECURITY REQUIREMENTS
It is a requirement that all end users take precautions to secure any system or
device used to access consumer credit information. To that end, the following
requirements have been established:
o Your account number and password must be protected in such a way
that this sensitive information is known only to key personnel.
Under no circumstances should unauthorized persons have
knowledge of your password. The information should not be posted
in any manner within your facility.
o Any system access software you may use, whether developed by
your company or purchased from a third party vendor, must have
your account number and password "hidden" or embedded so that
the password is known only to supervisory personnel. Each user
of your system access software must then be assigned unique
log-on passwords.
3
<PAGE> 4
o Your account number and passwords are not to be discussed by
telephone to any unknown caller, even if the caller claims to be
an employee.
o The ability to obtain credit information must be restricted to a
few key personnel.
o Any terminal devices used to obtain credit information should be
placed in a secure location within your facility. Access to the
devices should be difficult for unauthorized persons.
o Any devices/systems used to obtain consumer reports should be
turned off and locked after normal business hours, when
unattended by your key personnel.
o Hard copies and electronic files of consumer reports are to be
secured within your facility and protected against release or
disclosure to unauthorized persons.
o Hard copy consumer reports are to be shredded or destroyed,
rendered unreadable, when no longer needed and when it is
permitted to do so by applicable regulation(s).
o Electronic files containing consumer report data and/or
information will be completely erased or rendered unreadable
when no longer needed and when destruction is permitted by
applicable regulation(s).
o Software cannot be removed or copied. Software is issued
explicitly to the company for credit reporting purposes only.
ANY PERSON WHO KNOWINGLY AND WILLFULLY OBTAINS INFORMATION ON A CONSUMER FROM A
CONSUMER REPORTING AGENCY UNDER FALSE PRETENSES, SHALL BE FINED NOT MORE THAN
$5,000 OR IMPRISONED NOT MORE THAN ONE YEAR, OR BOTH.
TO BE COMPLETED BY CLIENT
Accepted by:______________________________________ Title:_______________________
Mortgage Logic.com, Inc.
Signature_________________________________________ Date:________________________
TO BE COMPLETED BY CLIENT
Accepted by:______________________________________ Title:_______________________
BNC Mortgage, Inc.
Signature_________________________________________ Date:________________________
TO BE COMPLETED BY TRUELINK, INC.
Accepted by:______________________________________ Title:_______________________
Signature_________________________________________ Date:________________________
4
<PAGE> 5
CONTRACT ADDENDUM
[To be added as required by each investor]
Date:___________________________________
5
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------- ---------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic earnings per common share
Net income for calculating basic earnings
per common share ...................... $ 642,000 $1,526,000 $5,307,000 $5,057,000
========== ========== ========== ==========
Average common shares outstanding ....... 5,418,000 4,486,000 5,613,000 4,229,000
---------- ---------- ---------- ----------
Basic earnings per common share ......... $ 0.12 $ 0.34 $ 0.94 $ 1.20
========== ========== ========== ==========
Diluted earnings per common share
Net income for calculating basic earnings
per common share ...................... $ 642,000 $1,526,000 $5,307,000 $5,057,000
========== ========== ========== ==========
Average common shares outstanding ....... 5,418,000 4,635,000 5,613,000 4,378,000
Add exercise of options and warrants .... -- -- -- --
---------- ---------- ---------- ----------
Diluted common shares outstanding ....... 5,418,000 4,635,000 5,613,000 4,378,000
========== ========== ========== ==========
Diluted earnings per common share ................... $ 0.12 $ 0.33 $ 0.94 $ 1.16
========== ========== ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<CAPTION>
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
<S> <C>
BNC Trustee Services, Inc. Missouri
Equity Credit Corporation California
Mortgage Logic.com, Inc. California
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 28,162,000
<SECURITIES> 1,100,000
<RECEIVABLES> 5,430,000
<ALLOWANCES> 0
<INVENTORY> 129,390,000
<CURRENT-ASSETS> 164,082,000
<PP&E> 3,543,000
<DEPRECIATION> 1,474,000
<TOTAL-ASSETS> 166,151,000
<CURRENT-LIABILITIES> 132,952,000
<BONDS> 0
0
0
<COMMON> 6,000
<OTHER-SE> 33,193,000
<TOTAL-LIABILITY-AND-EQUITY> 166,151,000
<SALES> 40,368,000
<TOTAL-REVENUES> 40,368,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 27,792,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,756,000
<INCOME-PRETAX> 8,820,000
<INCOME-TAX> 3,513,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,307,000
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0.94
</TABLE>
