AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 2000
---------
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
Schedule 14A Information
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
BNC MORTGAGE, INC.
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1. Title of each class of securities to which transaction applies: Common
Stock, $.001 per value per share
2. Aggregate number of securities to which transaction applies: 5,151,194
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: $10.00
4. Proposed maximum aggregate value of transaction: $52,564,566
5. Total fee paid: $10,513
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1. Amount Previously Paid:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
<PAGE>
[BNC MORTGAGE LOGO]
BNC MORTGAGE , INC.
1063 MCGAW AVENUE
IRVINE, CALIFORNIA 92614-5532
, 2000
---------------
Dear BNC Mortgage, Inc. Stockholder:
We invite you to attend a special meeting of stockholders of BNC Mortgage,
Inc. to be held at a.m., Pacific time, on , 2000, at
------- ---------
- ---------------------------.
At the special meeting, we will ask you to approve our merger with BNCM
Acquisition Co., a company formed by an investor group including Kelly W.
Monahan, our President, Peter R. Evans, our Chief Financial Officer, Al Lapena,
our Vice President of Operations, Gary Vander-Haeghen, our Vice President of
Sales, Marles M. Crow, our Director of Human Resources and Jamie Langford, our
Vice President of Funding, pursuant to a merger agreement that we entered into
on February 3, 2000. If we complete the merger, you will receive $10.00 in cash
for each share you own, and BNC Mortgage will be merged with BNCM Acquisition.
The $10.00 per share being paid in the merger represents a premium of
approximately 36% over the $7.375 closing price of our common stock on February
3, 2000, the last trading day before we announced the signing of the merger
agreement.
We cannot complete the merger unless the conditions to closing are
satisfied, including obtaining the approval of holders of a majority of the
outstanding shares of our common stock and satisfying various regulatory
requirements. We currently expect that the regulatory approvals will be
obtained, and that the closing of the merger will occur, by no later than the
end of July 2000.
A special committee consisting of the three independent members of our
Board of Directors carefully reviewed, considered and negotiated the terms and
conditions of the proposed merger. Based on its review, the special committee
has unanimously determined that the terms of the merger agreement and the merger
are advisable and fair to and in the best interests of BNC Mortgage and its
stockholders who are not affiliated with BNCM Acquisition. In making this
determination, the special committee considered, among other things, the opinion
received from Friedman, Billings, Ramsey & Co., Inc., the special committee's
independent financial advisor, to the effect that the $10.00 per share to be
received by you in the merger is fair to you from a financial point of view.
OUR BOARD OF DIRECTIONS, AFTER TAKING INTO ACCOUNT THE UNANIMOUS
RECOMMENDATION OF THE SPECIAL COMMITTEE, HAS UNANIMOUSLY DETERMINED (WITH THE
ONE DIRECTOR AFFILIATED WITH THE INVESTOR GROUP, MR. MONAHAN, RECUSING HIMSELF)
THAT THE MERGER AGREEMENT AND THE MERGER ARE ADVISABLE AND FAIR TO AND IN THE
BEST INTEREST OF BNC MORTGAGE AND ITS STOCKHOLDERS WHO ARE NOT AFFILIATED WITH
THE INVESTOR GROUP AND HAS APPROVED THE MERGER AGREEMENT AND THE MERGER.
ACCORDINGLY, OUR BOARD RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE MERGER
AGREEMENT AND THE MERGER.
The attached notice of special meeting and proxy statement explain the
proposed merger and provide specific information concerning the special meeting.
Please read these materials (including the appendices) carefully.
Your vote is important. Whether or not you plan to attend the special
meeting, you should complete, sign, date and promptly return the enclosed proxy
card to ensure that your shares will be represented at the meeting. If you
attend the special meeting and wish to vote in person, you may withdraw your
proxy and do so.
<PAGE>
If you have any questions regarding the proposed transaction, please
call _________________, our proxy solicitors, toll-free at __________________ or
collect at _________________, or Ms. Susan Christiansen, our investor relations
representative at (949) 260-6083.
Very truly yours,
/s/ Evan R. Buckley
--------------------------------------
Evan R. Buckley,
Chairman of the Board of Directors
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS: APPROVED OR DISAPPROVED OF THIS TRANSACTION; PASSED UPON THE
FAIRNESS OR THE MERITS OF THIS TRANSACTION; OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THE DISCLOSURE CONTAINED IN THIS PROXY STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement is dated ____________________, 2000 and was first
mailed to our stockholders on ________________, 2000.
<PAGE>
BNC MORTGAGE , INC.
1063 MCGAW AVENUE
IRVINE, CALIFORNIA 92614-5532
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2000
----------
To the Stockholders of BNC Mortgage, Inc.
A special meeting of stockholders of BNC Mortgage will be held at
a.m., Pacific time, on , 2000, at ,
- ---- ---------- ------------------------------
for the following purposes:
1. To consider and vote upon a proposal to approve an Agreement and Plan of
Merger, dated as of February 3, 2000, between BNCM Acquisition Co. and BNC
Mortgage and the merger of BNCM Acquisition Co. with and into BNC
Mortgage. In the merger:
o each issued and outstanding share of our common stock (other than
shares held by BNC Mortgage, BNCM Acquisition Co. and other than shares
held by stockholders who perfect dissenters' rights under Delaware law)
will be converted into the right to receive $10.00 per share in cash,
and
o the certificate of incorporation of BNCM Acquisition Co. will become
our Certificate of Incorporation.
We refer to this proposal in the proxy statement as the "merger proposal;"
and
2. To transact any other business that may properly come before the meeting
or any adjournment or postponement of the meeting.
The close of business on ____________________, 2000 has been selected as
the record date for determining stockholders entitled to notice of, and to vote
at, the special meeting and any adjournment or postponement of the meeting. A
list of stockholders entitled to vote at the special meeting will be available
for examination at BNC Mortgage's principal executive offices, during ordinary
business hours, from ___________, 2000 until the meeting.
You have the right to dissent from the proposed merger and, upon
compliance with the procedural requirements of the Delaware General Business
Corporation Law, to receive the "fair value" of your shares if the merger is
completed, which may be more or less than the $10.00 per share you would receive
in the merger. See "Special Factors--Dissenters' Rights of Stockholders" and
Appendix C (which contains the relevant provisions of Delaware law) in the
attached proxy statement.
You should not send any certificates representing common stock with your
proxy card.
Whether or not you plan to attend the special meeting, you should
complete, sign, date and promptly return the enclosed proxy card to ensure that
your shares will be represented at the meeting. If you attend the special
meeting and wish to vote in person, you may withdraw your proxy and vote in
person.
By Order of the Board Directors
/s/ Evan R. Buckley
-------------------------
Evan R. Buckley, Chairman of the Board
Dated: , 2000
---------------
<PAGE>
TABLE OF CONTENTS
SUMMARY TERM SHEET...........................................................7
SUMMARY.....................................................................11
The Parties...............................................................11
BNC Mortgage..............................................................11
BNCM Acquisition..........................................................12
THE SPECIAL MEETING.........................................................13
Date, Time, Place and Matters to be Considered............................13
Vote Required.............................................................13
Record Date for Voting....................................................13
Revocation of Proxies.....................................................13
THE MERGER..................................................................13
What You will Receive in the Merger.......................................13
Background of the Merger; Reasons for the Merger..........................13
Purpose of the Merger; Certain Effects of the Merger......................13
Recommendations of the Special Committee and the Board....................13
Opinion of Friedman, Billings, Ramsey....................................14
Interests in the Merger that Differ from Your Interests...................14
Merger Financing; Source of Funds.........................................14
Conditions to the Merger..................................................15
Regulatory Filings and Approvals..........................................16
Termination of the Merger Agreement.......................................16
Termination Fees..........................................................17
Dissenters' Rights........................................................17
Federal Income Tax Consequences...........................................17
SELECTED HISTORICAL FINANCIAL DATA OF BNC MORTGAGE, INC.....................18
INFORMATION CONCERNING THE SPECIAL MEETING..................................19
Date, Time and Place of the Special Meeting...............................19
Purpose of the Special Meeting............................................19
Record Date; Quorum; Outstanding Common Stock Entitled to Vote............19
Voting Rights.............................................................19
Voting And Revocation of Proxies..........................................19
Solicitation Of Proxies...................................................20
Other Matters.............................................................20
SPECIAL FACTORS.............................................................21
Background of the Merger..................................................21
Purpose of the Merger; Certain Effects of the Merger......................28
Position of Investor Group as to the Fairness of the Merger to You........29
Recommendations of the Special Committee and the Board of Directors;
Reasons for the Merger....................................................30
Recommendations of the Special Committee and the Board of Directors.......30
Reasons for the Merger....................................................30
Fairness Opinion of Friedman, Billings, Ramsey............................35
<PAGE>
Certain Projections Provided to Financial Advisor and the Investor Group..39
Interests in the Merger that Differ from your Interests...................41
Plans for the Surviving Company Following the Merger......................44
Merger Financing; Source of Funds.........................................44
Certain Federal Income Tax Consequences...................................45
Accounting Treatment......................................................46
Dissenters' Rights of Stockholders........................................46
THE MERGER AGREEMENT........................................................50
The Merger................................................................50
Representations and Warranties............................................51
Certain Covenants.........................................................52
Other Agreements..........................................................53
No Solicitation of Transactions...........................................53
Conditions to the Merger..................................................54
Termination of the Merger Agreement.......................................55
Termination Fees..........................................................56
Expenses..................................................................57
Amendment; Waiver.........................................................57
Regulatory Matters........................................................57
PARTIES TO THE MERGER.......................................................58
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..............60
PRICE RANGE OF COMMON STOCK AND DIVIDENDS...................................62
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS...................63
INDEPENDENT AUDITORS........................................................64
WHERE YOU CAN FIND MORE INFORMATION.........................................64
INCORPORATION BY REFERENCE..................................................66
APPENDIX A..................................................................67
APPENDIX B.................................................................102
APPENDIX C.................................................................106
APPENDIX D.................................................................111
APPENDIX E.................................................................113
<PAGE>
SUMMARY TERM SHEET
This term sheet is designed to provide you with a summary description of
the material aspects of the proposed merger described in this proxy statement.
You should also review the proxy statement and the appendices to the proxy
statement, so that you may gain a more complete understanding of the proposed
merger and its anticipated effect on you and on BNC Mortgage.
o WHO IS OFFERING TO ACQUIRE BNC MORTGAGE?
BNCM Acquisition, a company that was recently formed for this
purpose by an investor group that consists of Kelly Monahan, our
President, Peter Evans, our Chief Executive Officer, Al Lapena, our
Vice President of Operations, Gary Vander-Haeghen, our Vice
President of Sales, Marles M. Crow, our Director of Human Resources,
Jamie Langford, our Vice President of Funding and Mortgage Investco
LLC.
o WHAT EFFECT WILL THE MERGER HAVE ON BNC MORTGAGE?
BNC Mortgage will be merged with BNCM Acquisition and BNC Mortgage
will be the surviving company in the merger. After the merger has
been completed, all of the common stock of BNC Mortgage will be
owned by the members of our management team who are members of the
investor group and will no longer be publicly traded. In addition,
at the effective time of the merger, the certificate of
incorporation of BNCM Acquisition will become our certificate of
incorporation and will permit the issuance of preferred securities.
o HOW MUCH WILL I RECEIVE FOR MY SHARES AND WHAT IS THE FORM OF PAYMENT?
If the merger is completed, you will receive $10.00 in cash for each
share of our common stock that you own at the time of the merger.
This price represents a premium of approximately 36% over the $7.375
closing price of our common stock on February 3, 2000, the last
trading day before we announced the signing of the merger agreement
and a premium of approximately 53% over the average daily closing
price of our common stock for the 60-day period prior to the signing
of the merger agreement.
o DOES BNCM ACQUISITION HAVE THE FINANCIAL RESOURCES TO MAKE THE PAYMENT?
Yes. Lehman Commercial Paper Inc. has committed to provide BNCM
Acquisition with the financing necessary to complete the merger.
BNCM Acquisition will also receive $6 million from the purchase of
convertible preferred stock by Mortgage Investco. The merger has no
financing condition.
o WILL MEMBERS OF OUR MANAGEMENT WHO ARE STOCKHOLDERS RECEIVE ANYTHING
DIFFERENT IN THE MERGER?
Yes. The members of our management team who are members of the
investor group will contribute cash or shares of our stock they own
to BNCM Acquisition immediately prior to the merger in exchange for
common stock of BNCM
<PAGE>
Acquisition. Upon completion of the merger, they will own common
stock of the surviving company. In addition, all of the members of
our management team who are members of the investor group will have
employment contracts with the surviving company.
The Buckley Family Trust, a trust for which Evan Buckley, who serves
as our Chairman but is not part of the investor group, and his wife,
Karen Buckley, serve as trustees, will receive shares of the
non-voting 8% cumulative preferred stock of BNCM Acquisition in
exchange for 250,000 shares of our common stock. The surviving
company will be required to redeem this preferred stock over a
three-year period following the merger. In addition, Mr. Buckley
will have a consulting contract with the surviving company.
o WHAT WILL OTHER MEMBERS OF THE INVESTOR GROUP GET IN THE MERGER?
Mortgage Investco will purchase $6 million of non-voting 8%
cumulative preferred stock of BNCM Acquisition, which will be
convertible into 25% of the outstanding common stock of the
surviving company at any time after two years following the merger.
In connection with its financing of the merger, Lehman Commercial
Paper will receive warrants to purchase 50% of the outstanding stock
of the surviving company at an exercise price of $.01 per share.
These warrants will be exercisable after two years following the
merger.
For more information about what members of our management and other
members of the investor group will receive in the merger, you should
read "The Merger - Interest in the Merger that Differ from Your
Interests," "Special Factors - Purpose of the Merger; Certain
Effects of the Merger" and "Special Factors - Interest in the Merger
that Differ from Your Interests" in this proxy statement.
o HOW DOES THE BOARD RECOMMEND THAT I VOTE?
The Board has unanimously determined (with the one director
affiliated with the investor group, Mr. Monahan, recusing himself)
that the merger agreement and the merger are advisable and fair to
you and in your best interest and recommends that you vote "FOR"
approval of the merger proposal. In making this determination, the
Board took into account the recommendation of a special committee
consisting of the three independent members of the Board. Following
the special committee's review and evaluation of the fairness of the
merger, the Board approved the merger. The special committee and the
Board considered the opinion of their financial advisor, Friedman,
Billings, Ramsey, to the effect that the $10.00 per share to be
received by you in the merger is fair to you from a financial point
of view.
o WHAT VOTE OF STOCKHOLDERS IS REQUIRED TO APPROVE THE MERGER PROPOSAL?
The merger proposal must be approved by the affirmative vote of the
holders of a majority of our outstanding shares of common stock.
8
<PAGE>
o WHAT DO I NEED TO DO NOW?
You should complete, date and sign your proxy card and mail it in
the enclosed return envelope as soon as possible so that your shares
may be represented at the special meeting, even if you plan to
attend the meeting in person.
o IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
VOTE MY SHARES FOR ME?
Your broker will vote your shares only if you provide instructions
on how to vote. You should follow the procedures provided by your
broker as to how to vote your shares.
o WHAT HAPPENS IF I DO NOT SEND IN MY PROXY OR IF I ABSTAIN FROM VOTING?
If you do not send in your proxy or do not instruct your broker to
vote your shares or if you abstain from voting, it will have the
same effect as a vote against the merger proposal.
o MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
Yes. You may change your vote by sending in a later-dated, signed
proxy card or a written revocation before the special meeting or by
attending the special meeting and voting in person. Your attendance
at the meeting will not, by itself, revoke your proxy. If you have
instructed a broker to vote your shares, you must follow the
directions received from your broker to change those instructions.
o SHOULD I SEND MY STOCK CERTIFICATES NOW?
No. If the merger is completed, we will send you written
instructions for exchanging your stock certificates for the merger
consideration.
o WHAT REGULATORY APPROVALS AND FILINGS ARE NEEDED TO COMPLETE THE
MERGER?
The conduct of our mortgage business has required that we and our
subsidiaries obtain franchises, permits and licenses from mortgage
regulatory authorities in various states in which we operate, as
well as from the U.S. Department of Housing and Urban Development.
In connection with the merger, we will be required to obtain the
prior written consent to the merger of mortgage regulators in
Arizona, California, Massachusetts, Michigan, Pennsylvania and
Virginia. In addition, we may be required to file new licensing
applications in Delaware, Florida, Georgia, Illinois, Michigan and
Rhode Island prior to the merger. We will aso be required to notify
mortgage regulators in a number of additional states and at the
Department of Housing and Urban Development of the merger within
their prescribed time frames.
We currently expect that the above approvals will be obtained no
later than the end of July 2000. However, we cannot assure you that
all required approvals will be obtained by this time.
9
<PAGE>
o WHAT ARE THE TAX CONSEQUENCES OF THE MERGER?
The merger will be a taxable transaction to you for federal income
tax purposes. A brief summary of the possible tax consequences to
you appears on page 45 of this proxy statement. You should consult
your tax advisor as to the tax effect of your particular
circumstances.
o WHAT RIGHTS DO I HAVE TO DISSENT FROM THE MERGER?
If you wish, you may dissent from the merger and seek an appraisal
of the fair value of your shares, but only if you comply with all
requirements of Delaware law which are set forth in Appendix C and
summarized on pages 46-49 of this proxy statement. The appraised
fair value of your shares may be more or less than the price per
share to be paid in the merger.
o WHO CAN HELP ANSWER MY QUESTIONS?
If you have additional questions about the merger or would like
additional copies of the proxy statement, you should call
, our proxy solicitors, toll-free at or
---------- --------------
collect at , or Susan Christiansen, our investor
----------------
relations representative, at (949) 260-6083.
10
<PAGE>
SUMMARY
This summary highlights selected information from this proxy statement and
may not contain all of the information that is important to you. For additional
information concerning the merger and the terms and conditions of the merger
agreement, you should read this entire proxy statement, including the
appendices, and the other documents referred to or incorporated by reference
into this proxy statement. A copy of the merger agreement is attached to this
proxy statement as Appendix A.
THE PARTIEs
In this proxy statement, we refer to:
o BNC Mortgage, Inc. and, where applicable, its subsidiaries, as "BNC
Mortgage"; references in this proxy statement to us, "we," "our,"
"our company" and similar terms also refer to BNC Mortgage.
o BNCM Acquisition Co. as "BNCM Acquisition"
o Friedman, Billings, Ramsey & Co., Inc. as "Friedman, Billings,
Ramsey"
o Kirkpatrick & Lockhart LLP, including the lawyers from the law firm
of Freshman, Marantz, Orlanski, Cooper & Klein who merged their
legal practice with Kirkpatrick & Lockhart LLP effective February 1,
2000, as "Kirkpatrick & Lockhart"
o Weil, Gotshal and Manges LLP as "Weil, Gotshal"
o Milbank, Tweed, Hadley & McCloy LLP as "Milbank, Tweed"
o Akin, Gump, Strauss, Hauer & Feld, L.L.P. as "Akin, Gump"
o Kelly W. Monahan, our President, Peter R. Evans, our Chief Financial
Officer, Al Lapena, our Vice President of Operations, Gary
Vander-Haeghen, our Vice President of Sales, Marles M. Crow, our
Director of Human Resources and Jamie Langford, our Vice President
of Funding, collectively, as the "management investors"
o Mortgage Investco LLC as "Mortgage Investco."
o Mortgage Investco and the management investors, collectively, as the
"investor group"
o Greenlight Capital, Inc. as "Greenlight Capital"
BNC MORTGAGE
We are headquartered in Irvine, California and have approximately 400
employees. We are a specialty finance company and our business consists of
originating, purchasing and selling non-conforming and, to a lesser extent,
conforming, residential mortgage loans secured by one-to-four family residences.
We use the term "non-conforming loans" to describe: (a) sub-prime 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
11
<PAGE>
expedited basis, and (b) non-conforming loan products for primarily high-credit
borrowers where the loan itself fails to meet conventional mortgage guidelines.
We originate loans through both wholesale sub-prime and wholesale prime
operations and currently sell all of our mortgage loans to institutional
purchasers for cash through whole-loan sales.
We originate loans through a network of independent mortgage brokers with
whom we have a non-exclusive relationship. Mortgage loan brokers act as
intermediaries between property owners and us in arranging mortgage loans.
Because mortgage brokers generally submit individual loan files to several
prospective lenders simultaneously, we attempt to respond to each such
application as quickly as possible. Our account executives, therefore, are
trained to quickly review a loan application in order to identify the borrower's
probable risk classification and then assist the broker in identifying the
appropriate product for the borrower, thereby enhancing the likelihood that the
loan will be approved at the rate and on the terms anticipated by the borrower.
We review and underwrite each application submitted by a broker, approve
or deny the application, set the interest rate and other terms of the loan and,
upon acceptance by the borrower and satisfaction of all conditions imposed by
us, fund the loan. Because brokers conduct their own marketing and employ their
own personnel to obtain loan applications and maintain contact with borrowers,
originating loans through our wholesale subprime operations allows us to
increase our loan volume without incurring the higher marketing, labor and other
fixed overhead costs associated with retail originations.
All independent mortgage brokers who submit loan applications to us must
be registered or licensed as required by the jurisdictions in which they
operate and must be approved by us. We audit 100% of our brokers on an annual
basis in order to confirm the possession of a current license, updated
financials on file and any changes in broker staff or address.
We believe that our primary strengths are (i) the experience of our
management team, account executives and staff in the non-conforming lending
industry, which enhances our ability to establish and maintain long-term
relationships with mortgage brokers, (ii) our service oriented sales culture
whereby we strive to respond quickly and efficiently to customer needs and
market demands, (iii) our operating philosophy to create stable and deliberate
loan origination growth by utilizing consistent and prudent underwriting
guidelines designed to produce mortgage products readily sellable in the
secondary market and (iv) our ability to manage and control operating costs in
order to remain a low cost originator.
Our common stock is traded on the Nasdaq National Market under the symbol
"BNCM." Information about us and our subsidiary companies is available on the
Internet at Http://www.bncmortgage.com, but information at that site is
expressly not incorporated into this proxy statement.
BNCM ACQUISITION
BNCM Acquisition was formed as a Delaware corporation on January 31, 2000
by the investor group solely for the purpose of entering into the merger
agreement. BNCM Acquisition has not engaged in any business activity other than
in connection with the merger and related transactions.
All shares of BNCM Acquisition are currently owned by Mortgage Investco, a
Delaware limited liability company which is a holding company for
mortgage-related investments. The sole member of Mortgage Investco is Lehman
Brothers Holdings Inc., a Delaware corporation, which is a global investment
bank. Prior to the merger, the management investors will become the holders of
all of the common stock of BNCM Acquisition. Mortgage Investco will subscribe to
a series of BNCM Acquisition's non-voting convertible preferred stock which will
be convertible two years after the merger into 25% of the common stock of the
surviving company, and in connection with the financing of the merger, an
affiliate of Mortgage Investco will receive warrants to purchase an additional
50% of the common stock of the surviving company which will be excercisable two
years after the merger. In addition, Mr. Buckley, our Chairman, will
beneficially own non-voting redeemable preferred stock of BNCM Acquisition,
which the surviving company will be required to redeem over a three-year period
following the merger.
12
<PAGE>
THE SPECIAL MEETING
DATE, TIME, PLACE AND MATTERS TO BE CONSIDERED
The special meeting will be held at a.m., Pacific time, on
---
, 2000, at the . At the special meeting, you
- ----------- ---------------------
will be asked to consider and vote upon the merger proposal.
VOTE REQUIRED
Approval of the merger proposal requires the affirmative vote of the
holders of a majority of the outstanding shares of our common stock. Each of
Messrs. Monahan, Evans, Lapena and Vander-Haeghen and Ms. Crow and Ms. Langford,
who are part of the investor group, and Evan Buckley, our Chairman of the Board,
who is not a member of the investor group, have entered into voting agreements
with BNCM Acquisition pursuant to which they have committed to vote all shares
of our common stock beneficially owned by them in favor of the merger proposal.
Collectively, these individuals beneficially own an aggregate of 1,920,617
shares of our common stock, or 37.28% of the shares outstanding as of the record
date.
RECORD DATE FOR VOTING
The close of business on , 2000 is the record date for
-----------
determining holders of shares of BNC Mortgage common stock entitled to vote at
the special meeting. Each share of common stock will be entitled to one vote. On
the record date, there were 5,151,194 shares entitled to vote at the special
meeting.
REVOCATION OF PROXIES
You may revoke your proxy at any time before the special meeting by
delivering a written notice of revocation to our corporate Secretary, by
executing and delivering a later-dated proxy or by attending the meeting and
giving oral notice of your intention to vote in person. Your attendance at the
meeting will not by itself constitute a revocation of your proxy. If you have
instructed a broker to vote your shares, you must follow the directions received
from your broker to change those instructions.
If you deliver a proxy, unless contrary instructions are indicated on your
proxy, all of your shares represented by valid proxies will be voted FOR the
approval of the merger proposal.
THE MERGER
WHAT YOU WILL RECEIVE IN THE MERGER (PAGES 28 AND 50)
You will receive $10.00 per share in cash in exchange for each share of
our common stock that you own at the time of the merger. This price represents
an approximately 36% premium over the $7.375 per share closing price of BNC
Mortgage common stock on February 3, 2000, the last trading day before we
announced the signing of the merger agreement and an approximately 53% premium
over the average daily closing price for the 60 days preceding the announcement
of the merger proposal.
BACKGROUND OF THE MERGER; REASONS FOR THE MERGER (PAGES 21-28 AND 30-35)
For a description of the events leading to the approval of the merger by
the Board, you should refer to "Special Factors -- Background of the Merger" and
"--Recommendations of the Special Committee and the Board of Directors; Reasons
for the Merger."
PURPOSE OF THE MERGER; CERTAIN EFFECTS OF THE MERGER (PAGES 28-29)
The principal purpose of the merger is to enable the members of the
investor group to acquire all of the outstanding common stock of BNC Mortgage
and to provide you with the opportunity to sell your shares for cash at a
premium over the market price at which our common stock traded before
announcement of the merger agreement.
The merger will terminate all common equity interests in BNC Mortgage held
by our current stockholders other than the management investors, and the members
of the investor group will be the sole beneficiaries of any earnings and growth
of BNC Mortgage following the merger.
Upon completion of the merger, our common stock will be delisted from the
Nasdaq National Market, where it currently trades, and will no longer be
publicly traded.
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD (PAGES 30-35)
The Board, taking into account the recommendation of the special committee
and the opinion of Friedman, Billings, Ramsey has unanimously determined (with
the one director affiliated with the investor
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group, Mr. Monahan, recusing himself) that the merger is advisable and fair to
you and in your and BNC Mortgage's best interests and recommends that you vote
FOR approval of the merger proposal.
OPINION OF FRIEDMAN, BILLINGS, RAMSEY (PAGES 35-39)
Friedman, Billings, Ramsey delivered an opinion to the special committee
and the Board to the effect that, as of the date of its opinion, the price per
share to be received by you in the merger was fair to you from a financial point
of view. We have attached a copy of this opinion as Appendix B to this proxy
statement. The opinion of Friedman, Billings, Ramsey is addressed to the special
committee and the Board and does not constitute a recommendation as to how you
should vote at the special meeting.
INTERESTS IN THE MERGER THAT DIFFER FROM YOUR INTERESTS (PAGES 41-44)
In considering the Board's recommendation that you vote in favor of the
merger proposal, you should be aware that some of our directors and officers
have interests in the merger that are different from your interests as a
stockholder, including the following:
o the management investors will contribute cash or shares of our common
stock they own to BNCM Acquisition immediately prior to the completion
of the merger in exchange for common stock of BNCM Acquisition. As a
result, the management investors will increase their equity ownership
from 7.2% prior to the merger to 25% after completion of the merger,
in each case on a fully-diluted basis;
o The Buckley Family Trust, a trust for which Evan Buckley, our
Chairman, and his wife, Karen Buckley, serve as trustees, will
receive, in exchange for 250,000 shares of our common stock, shares of
the 8% cumulative preferred stock of BNCM Acquisition, which the
surviving company will be required to redeem over a period of three
years following the merger;
o each of the management investors will enter into a three-year
employment agreement with the surviving company; and
o Mr. Buckley will enter into a consulting agreement with the surviving
company for an initial term of three months, which may be extended by
the surviving company at its sole discretion for additional
three-month periods, not to exceed an aggregate term of one year.
The special committee and the Board were aware of these interests and
considered them in making their recommendations.
MERGER FINANCING; SOURCE OF FUNDS (PAGES 44-45)
The maximum total amount of funds required to complete the merger,
including related costs and expenses, is expected to be approximately $48.5
million, assuming that no stockholders perfect their dissenters' rights under
Delaware law. This amount excludes $2.5 million of our shares (valued at the
merger price) which are expected to be contributed to BNCM Acquisition by the
management investors and $2.5 million of our shares (valued at the merger price)
which will be exchanged by The Buckley Family Trust for preferred stock of BNCM
Acquisition.
The proposed merger is not conditioned upon any financing arrangements. As
a result, BNCM Acquisition will be required, subject to satisfaction of all of
the conditions to its obligations under the merger agreement, to complete the
proposed merger.
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BNCM Acquisition expects to obtain the required funds from borrowings from
Lehman Commercial Paper Inc. and from the purchase of preferred stock of BNCM
Acquisition by Mortgage Investco.
CONDITIONS TO THE MERGER (PAGES 54-55)
Each party's obligation to complete the merger is subject to a number of
conditions, including the following:
o approval by our stockholders of the merger proposal; and
o the absence of any order, injunction or law that prevents the
completion of the merger.
BNCM Acquisition's obligation to complete the merger is also subject to
the following conditions:
o the holders of not more than 18% of our outstanding shares
perfecting dissenters' rights in connection with the merger;
o the absence of any event, other than events affecting the credit
markets generally or the ability of financial institutions to raise
capital, that would have, or could reasonably be expected to have, a
material adverse effect on us or on the completion of the merger,
except for a material adverse effect resulting from any action or
inaction taken by the management investors which was contrary to
directions given by the Board of Directors or any action or inaction
taken by the management investors which was inconsistent with the
business judgment rule or taken without the knowledge of a majority
of the special committee and out of the ordinary course of business
consistent with past practices.
o the absence of:
o a limitation (whether or not mandatory) by any governmental
entity which materially and adversely affects, or any other event
which materially affects, the extension of credit by banks or
other United States financial institutions, other than interest
rate increases and other than the implementation of any
previously announced proposed changes to capital requirements for
sub-prime originators and investors, the effect of which would be
to materially impair our ability to conduct our business;
o a material disruption or material adverse change in the financial
or capital markets generally, which effectively bars access by
financial services entities to these markets;
o an event or events that results in the effective absence of a
"repo market" or comparable lending market for financing debt
obligations secured by residential mortgage loans or the
inability of mortgage lenders generally to finance residential
mortgage loans through the repo market or lending market with
traditional counterparties; or
o an event or events that results in the effective absence of a
"securities market" for securities backed by residential mortgage
loans or mortgage lenders generally not being able to sell
securities backed by residential mortgage loans.
o the receipt of all material third party consents to the merger;
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o Mr. Monahan's continued service as one of our executive officers;
and
o the absence of litigation or the threat of litigation concerning the
merger.
REGULATORY FILINGS AND APPROVALS (PAGE 57)
We must receive consents and approvals of mortgage regulators in a number
of the states in which we conduct business and may be required to file new
application with mortgage regulators in certain other states before the merger
can be completed. In addition, we must also notify mortgage regulators in a
number of other states and the U.S. Department of Housing and Urban Development
of the merger.
TERMINATION OF THE MERGER AGREEMENT (PAGES 55-56)
The parties to the merger agreement can mutually agree to terminate the
merger agreement at any time, whether before or after receiving stockholder
approval, without completing the merger. The merger agreement may also be
terminated:
o by either BNCM Acquisition or BNC Mortgage:
o if the effective time has not occurred on or before July 31,
2000, except that the reason for the delay must not have been the
failure of the terminating party to take any of the actions it
was required to take under the merger agreement;
o if any permanent injunction or order or other action by any
governmental entity is final and nonappealable and prevents us
from completing the merger; or
o if our stockholders do not approve the merger proposal.
o by BNCM Acquisition:
o if our Board withdraws, modifies or changes its approval or
recommendation of the merger in a manner adverse to BNCM
Acquisition;
o if our Board recommends to our stockholders an alternative
takeover proposal;
o if a tender offer or exchange offer for at least 20% of our
outstanding capital stock is commenced and our Board fails to
recommend against acceptance of such tender offer or exchange
offer; or
o if we have materially breached any of our representations,
warranties or covenants and have failed to cure such breach.
o by us:
o prior to the stockholder vote, in order to accept a takeover
proposal that meets the requirements described under "--No
Solicitation of Transactions," if our Board, after considering
applicable law and consulting outside legal counsel, determines
that the failure to do so would cause the BNC Mortgage Board to
breach its fiduciary duties; or
o if BNCM Acquisition has materially breached any of its
representations, warranties or
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covenants and has failed to cure such breach.
TERMINATION FEES (PAGES 56-57)
We have agreed to pay BNCM Acquisition a termination fee of $1.5 million,
and to reimburse it up to $500,000 for expenses, if the merger agreement is
terminated:
o by us, to enter into an acquisition agreement in respect of an
alternative takeover proposal after our Board has determined that
failure to so do so would cause it to breach its fiduciary duties
under applicable law; or
o by BNCM Acquisition:
o because our Board withdraws or modifies in a manner adverse to
BNCM Acquisition its recommendation of the merger;
o because our Board approves or recommends an alternative takeover
proposal;
o because our stockholders fail to approve the merger proposal OR
we have materially breached our representations, warranties or
covenants, AND, in either case, at the time of termination, there
was a third-party takeover proposal pending and, within six
months after the termination, we are either acquired by a third
party or we enter into a definitive agreement to complete a
takeover proposal with a third party.
We have further agreed to reimburse BNCM Acquisition for up to $500,000 of
its expenses if BNCM Acquisition terminates the merger agreement due to a
material breach of certain of our representations and warranties.
BNCM Acquisition has agreed to reimburse us for up to $500,000 of our
expenses if we terminate the merger agreement due to BNCM Acquisition's material
breach of its representations, warranties or covenants.
DISSENTERS' RIGHTS (PAGES 46-49)
You are entitled to exercise dissenters' rights in connection with the
merger. If you elect to exercise dissenters' rights, you must deliver to us,
before the stockholder vote to approve the merger proposal is taken, written
notice of your intent to demand payment of the "fair value" of your shares if
the merger is completed, and you must not vote to approve the merger proposal.
FEDERAL INCOME TAX CONSEQUENCES (PAGES 45-46)
You will be taxed on the cash you receive in the merger to the extent that
the cash exceeds your tax basis in your shares. Conversely, you will recognize
loss to the extent that your tax basis exceeds the cash you receive. You should
consult your tax advisor regarding the U.S. federal income tax consequences of
the merger to you, as well as any tax consequences under state, local or foreign
laws.
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SELECTED HISTORICAL FINANCIAL DATA OF BNC MORTGAGE, INC.
The following selected historical financial data for each of the years
ended June 30, 1996 through 1999 have been derived from our audited consolidated
financial statements incorporated by reference into this proxy statement. The
selected historical financial data for each of the six-month periods ended
December 31, 1998 and 1999 have been derived from our unaudited consolidated
financial statements incorporated by reference into this proxy statement. This
information is only a summary and you should read it together with the
historical financial statements and related notes contained in the annual
reports and other information that we have filed with the SEC and incorporated
by reference. See "Where You Can Find More Information."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------- ------------
1996 1997 1998 1999 1998 1999
---- ---- ---- ---- ---- ----
(IN THOUSANDS EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues:
Gain on sale of mortgage loans............... $4,240 $21,855 $30,458 $34,860 $22,240 $15,845
Loan origination income...................... 1,978 5,473 5,399 8,412 3,688 5,263
Interest income.............................. 1,960 5,182 7,860 8,167 3,399 6,779
Other Income................................. 52 250 676 1,473 769 730
-- --- --- ----- --- ---
TOTAL REVENUES....................... 8,230 32,760 44,393 52,912 30,096 28,617
----- ------ ------ ------ ------ ------
Expenses:
Employees' salaries and commissions.......... 3,624 11,052 18,828 24,394 13,142 12,902
General and administrative expenses.......... 2,400 5,543 8,028 12,493 6,978 6,757
Interest expense............................. 1,452 3,693 5,486 5,608 2,208 5,044
----- ----- ----- ----- ----- -----
Total expenses....................... 7,476 20,288 32,342 42,495 22,328 24,703
Income before taxes.......................... 754 12,472 12,051 10,417 7,768 3,914
Income tax expense........................... 337 4,930 4,815 4,138 3,103 1,574
--- ----- ----- ----- ----- -----
Net income................................... $417 $7,542 $7,236 $6,279 $4,665 $2,340
---- ------ ------ ------ ------ ------
Net income per share:
Basic........................................ $0.14 $1.80 $1.55 $1.14 $0.82 $0.46
----- ----- ----- ----- ----- -----
Diluted...................................... $0.14 $1.80 $1.51 $1.14 $0.82 $0.46
----- ----- ----- ----- ----- -----
Shares used in computing net income
per share:
Basic........................................ 2,892 4,187 4,654 5,502` 5,709 5,115
Diluted...................................... 2,892 4,187 4,796 5,502 5,709 5,115
BALANCE SHEET DATA
Cash and cash equivalents.................... $2,452 $8,286 $25,890 $29,867 $33,494 $29,941
Restricted cash.............................. -- -- 638 1,105 600 1,113
Mortgage loans held for sale................. 42,723 55,145 98,717 141,749 76,620 122,289
Total assets................................. 46,352 65,713 130,555 181,979 115,985 162,797
Warehouse line of credit..................... 42,723 54,625 96,022 142,163 76,000 120,760
Total liabilities............................ 44,506 56,509 99,704 149,063 83,428 127,843
Total stockholders' equity................... 1,846 9,204 30,851 32,916 32,557 34,954
</TABLE>
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INFORMATION CONCERNING THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING
This proxy statement is furnished to you in connection with our
solicitation of proxies for the meeting of stockholders to be held at a.m.,
----
Pacific time, on , 2000, at
-----------
, or any postponement or adjournment
- --------------------------------------------
of the meeting. This proxy statement, the Notice of Special Meeting and the
accompanying form of proxy card are first being mailed to stockholders on or
about , 2000.
---------
PURPOSE OF THE SPECIAL MEETING
At the special meeting, you will be asked to consider and vote upon the
merger proposal.
RECORD DATE; QUORUM; OUTSTANDING COMMON STOCK ENTITLED TO VOTE
All record holders of our shares of common stock at the close of business
on , 2000 are entitled to notice of, and to vote at, the special
------------
meeting. The presence, in person or by proxy, of holders of a majority of the
outstanding shares of our common stock is required to constitute a quorum for
the transaction of business. A list of record holders will be available for
examination at our principal executive offices from , 2000 until the
-----------
special meeting. At the close of business on , 2000, there were
---------
5,151,194 shares of our common stock outstanding.
VOTING RIGHTS
You are entitled to one vote for each share of common stock that you held
as of the close of business on the record date. The affirmative vote of the
holders of a majority of the outstanding shares of our common stock is required
to approve the merger proposal. Under Delaware law, in determining whether
approval of the merger proposal has received the requisite number of affirmative
votes, abstentions and broker non-votes will have the same effect as a vote
against approval of the merger proposal. Each of Messrs. Monahan, Evans, Lapena
and Vander-Haeghen and Ms. Crow and Ms. Langford, who are part of the investor
group, and Evan Buckley, our Chairman, who is not a member of the investor
group, have entered into voting agreements with BNCM Acquisition pursuant to
which they have committed to vote all shares of our common stock beneficially
owned by them in favor of the merger proposal. Collectively, these individuals
beneficially own an aggregate of 1,920,617 shares of our common stock, or 37.28%
of the shares outstanding as of the record date.
VOTING AND REVOCATION OF PROXIES
A form of proxy card for your use at the special meeting accompanies this
proxy statement. All properly executed proxies that are received prior to or at
the special meeting and not revoked will be voted at the special meeting in the
manner specified. If you execute and return a proxy and do not specify
otherwise, the shares represented by your proxy will be voted "FOR" approval of
the merger proposal in accordance with the recommendation of our Board. In that
event, you will not have the right to dissent from the merger and seek an
appraisal of the fair value of your shares.
If you are a record holder of our common stock and you have given a proxy
pursuant to this solicitation, you may nonetheless revoke it by attending the
special meeting and giving oral notice of your intention to vote in person. In
addition, you may revoke any proxy you give at any time before the special
meeting by delivering to our Secretary a written statement revoking it or by
delivering a duly executed proxy bearing a later date. Your attendance at the
special meeting will not in and of itself constitute a
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<PAGE>
revocation of your proxy. If you have instructed a broker to vote your shares,
you must follow the directions provided by your broker to change those
instructions. If you vote in favor of the merger proposal, you will not have the
right to dissent and seek appraisal of the fair value of your shares. If you do
not send in your proxy or do not instruct your broker to vote your shares or if
you abstain from voting, it will have the same effect as a vote against the
merger proposal.
SOLICITATION OF PROXIES
We will bear the cost of the solicitation of proxies. We will solicit
proxies initially by mail. Further solicitation may be made by our directors,
officers and employees personally, by telephone or otherwise, but they will not
be specifically compensated for these services. Upon request, we will reimburse
brokers, dealers, banks or similar entities acting as nominees for their
reasonable expenses incurred in forwarding copies of the proxy materials to the
beneficial owners of the shares of common stock they hold of record. We have
retained to coordinate the solicitation of proxies for a fee of
-----------
[$5,000], plus reasonable out-of-pocket expenses.
OTHER MATTERS
We do not know of any matters other than those described in this proxy
statement which may come before the special meeting. If any other matters are
properly presented to the special meeting for action, we intend that the persons
named in the enclosed form of proxy card will vote in accordance with their best
judgment. These matters may include an adjournment or postponement of the
special meeting from time to time if our Board so determines, except that
proxies that are voted against the merger proposal may not be voted by the
persons named in the enclosed form of proxy card for an adjournment or
postponement of the special meeting. If any adjournment or postponement is made,
we may solicit additional proxies during the adjournment period.
YOUR VOTE IS IMPORTANT. PLEASE RETURN YOUR MARKED PROXY CARD PROMPTLY SO
YOUR SHARES CAN BE REPRESENTED, EVEN IF YOU PLAN TO ATTEND THE MEETING IN
PERSON.
You should not send any certificates representing common stock with your
proxy card. If we complete the merger, the procedure for the exchange of
certificates representing common stock will be as described on page 49 of this
proxy statement.
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SPECIAL FACTORS
BACKGROUND OF THE MERGER
On August 9, 1999, Kelly W. Monahan received an unsolicited phone call
from the chief executive officer of an unaffiliated third party to meet to
discuss the unaffiliated third party's possible interest in acquiring BNC
Mortgage. The interested party met with Mr. Monahan and engaged in preliminary
discussions regarding our current operations and that of the unaffiliated third
party. The parties did not exchange any materials at this meeting.
On August 10, 1999, at its regularly scheduled meeting, our Board
discussed the future direction of BNC Mortgage. Our Board noted that our stock
price had not performed in a manner consistent with the Board's expectation.
While the initial public offering price was $9.50, our stock price had declined
from a high of $14.13 in April 1998 to $6.38 as of the date of the Board
meeting. Our Board attributed this price decline to increased competition in the
sub-prime mortgage sector, higher yield spread premiums required to be paid to
mortgage originators, decreased pricing on secondary loan sales, and the failure
of the trading markets to fully understand our strategy and recognize our growth
prospects by applying a significantly higher multiple than the average multiples
applicable to traditional mortgage company stocks. Mr. Monahan informed our
Board of the unsolicited inquiry and reviewed the subject matter of the inquiry
at the meeting. Our Board discussed various ways to enhance stockholder value,
including possible acquisitions of other mortgage companies. After discussion,
our Board's consensus was to authorize Mr. Monahan and Evan Buckley, our
Chairman, to pursue discussions with the unaffiliated third party.
On August 18, 1999, Mssrs. Monahan and Buckley met with the chief
executive officer of the unaffiliated third party to engage in further informal
discussions regarding a possible acquisition of BNC Mortgage. The parties agreed
to further discuss a possible proposal.
On August 27, 1999, Mr. Monahan met with several executive officers of the
unaffiliated third party. The parties discussed the financial performance of BNC
Mortgage and that of the third party. No formal proposals were made and no
materials were exchanged at this meeting.
On September 2, 1999, we entered into a confidentiality agreement with the
unaffiliated third party and provided the third party with certain requested
information concerning our operations, including historical and financial data
and company projections. The unaffiliated third party indicated that it would
review the materials and contact Mr. Monahan with any further requests.
On September 14, 1999, our Board held a regularly scheduled meeting at
which Mr. Monahan reviewed the status of the discussions with the unaffiliated
third party. The Board reviewed the status of the Company's operations,
including secondary market sales of loans, loan production and loan pricing. The
Board was updated on the status of the discussions with the unaffiliated third
party. Mr. Monahan stated that he expected to field further expressions of
interest from the third party upon completion of the analysis of the information
provided. The Board discussed various methods of enhancing stockholder value,
including a possible sale of BNC Mortgage and authorized Mr. Monahan to continue
discussions with the unaffiliated third party.
On October 14, 1999, our Board held a regularly scheduled meeting at which
Mr. Monahan advised the Board that the unaffiliated third party had not yet
completed its analysis of the information provided. The Board reviewed the
financial position of BNC Mortgage and discussed strategic methods to enhance
stockholder value. In light of reduced loan production and increasing interest
rates, the Board concluded that future stockholder value may not be enhanced by
internal growth alone. The Board instructed Mr. Monahan to continue discussions
with the unaffiliated third party.
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<PAGE>
On October 15, 1999, Mr. Monahan telephonically discussed a possible
management-led buyout with representatives from Lehman Brothers. The parties
informally discussed parameters pursuant to which Lehman Brothers would finance
a management-led buyout. Mr. Monahan indicated that proposed members of the
management buyout group would most likely include himself and Messrs. Evans,
Lapena, Vander-Haeghen, and Ms. Crow and Ms. Langford. The parties agreed to
continue informal discussions and exchange information on an as requested basis
and executed a confidentially agreement on October 19, 1999.
On November 3, 1999, executive officers of the unaffiliated third party
telephonically informed Mr. Monahan of the results of their findings. These
officers pointed out synergies that could be achieved through the combination of
the two entities. However, the unaffiliated third party felt that eroding
margins and enhanced competition in the sub-prime marketplace did not justify an
offer in excess of 25% of the then current price of our common stock of $6.48.
Mr. Monahan expressed concern that such a proposed premium was not sufficient
considering the cash reserves held by BNC Mortgage and other pertinent factors.
Mr. Monahan also expressed concern that our Board might consider that a proposed
transaction at such price would not provide a sufficient return to stockholders.
Although Mr. Monahan suggested to the unaffiliated third party that it consider
increasing its preliminary indication of interest and formalize it in a written
proposal, no subsequent proposal was provided.
On or about November 4, 1999, Mr. Monahan met telephonically with an
unaffiliated third party to discuss the possibility of providing funding for a
proposed management buyout. No formal proposals were made and no materials were
exchanged at this meeting. The parties agreed to continue discussions.
Between November 4, 1999 and November 12, 1999, Mr. Monahan held a series
of discussions with representatives of Lehman Brothers regarding a proposed
management-led leveraged buyout.
On November 10, 1999, Mr. Monahan discussed the management buyout with
Peter R. Evans, our Chief Financial Officer, Al Lapena, our Vice President of
Operations, Gary Vander-Haeghen, our Vice President of Sales, Marles Crow, our
Director of Human Resources and Jamie Langford, our Vice President of Funding.
These parties agreed that Mr. Monahan should continue discussions with Lehman
Brothers and other third parties.
On November 10, 1999, Mr. Monahan met with the unaffiliated third party
with whom Mr. Monahan initially met on November 4, 1999. The third party
indicated a degree of interest in provided funding for a proposed management
buyout but indicated concern over future warehouse financing for subprime loans
and the ultimate sale of the mortgage production in the current and future
marketplace. The parties agreed to continue discussions.
On November 12, 1999, our Board of Directors held a regularly scheduled
meeting at which Mr. Monahan reviewed the status of his discussions with the
unaffiliated third party. After extensive discussion, the Board's consensus was
that the preliminary indication of interest did not merit further consideration
or effect unless the third party were to improve its proposal. Mr. Monahan
further informed the Board that he was considering the possibility of seeking to
formulate, with one or more other investors, a proposal to acquire BNC Mortgage.
Mr. Monahan described his reasons for desiring to make a proposal, including his
belief that the public trading markets undervalued BNC Mortgage's businesses and
that BNC Mortgage could experience greater long-term growth if it were no longer
a public company with institutional stockholders who, to various degrees, are
focused on maximizing their short-term returns at the expense of longer-term
investments by BNC Mortgage. Mr. Monahan then requested the Board's permission
to attempt to formulate such a proposal, which if deemed feasible, would be
presented to
22
<PAGE>
the Board for its consideration, and requested that Messrs. Evans, Lapena and
Vander-Haeghen be permitted to consider participating with him in making such a
proposal.
Mr. Monahan agreed to recuse himself from all the discussion of his
proposal at this and all subsequent Board meetings. Representatives of
Kirkpatrick & Lockhart were then invited by the remaining members of the Board
to advise the Board with respect to its legal duties in considering Mr.
Monahan's request. After an extensive discussion of the Board's alternatives,
the Board determined to permit Mr. Monahan and one or more other investors,
including Messrs. Evans, Lapena and Vander-Haeghen, to attempt to formulate a
proposal to acquire BNC Mortgage. Mr. Monahan indicated that such a proposal
would not be forthcoming immediately . The Board discussed the review and
evaluation process relating to a proposed offer, including whether the Board
would form a special committee to review and evaluate the offer, the composition
of such a special committee and whether an independent counsel and investment
banker would be retained by the special committee to assist in reviewing any
proposal. The Board reviewed whether to retain a financial advisor to evaluate,
as a matter of fairness, any offer or to seek out alternative offers. The Board
discussed the benefits of commencing an investigation and initiating an
interview process for potential candidates to serve as an independent financial
advisor. Joseph Tomkinson, an independent Board Member, was appointed to head
any such investigation and interview process in light of his previous experience
with such matters. The Board did not form a special committee at this time since
Mr. Monahan indicated that any proposal would not be immediately forthcoming.
During the month of November 1999 and the first half of December 1999, Mr.
Monahan, on behalf of the management investors, and representatives from Lehman
Brothers conducted a series of discussions regarding the terms on which an
affiliate of Lehman Brothers would provide financing for the buyout and Lehman
Brothers began to conduct its due diligence with respect to our company.
From November 13, 1999 through December 15, 1999 Mr. Tomkinson contacted
Friedman, Billings, Ramsey and two other investment banks regarding the possible
retention of such banks to advise the special committee. Mr. Tomkinson held
discussions with each bank to determine its activity in and familiarity with the
sub-prime mortgage market and its experience in management buyouts. Mr.
Tomkinson concluded that each of the three banks had sufficient expertise and
experience to warrant their submission of a proposal for retention as advisor to
the special committee.
On or about November 23, 1999, Mr. Evans met with another unaffiliated
third party and discussed the possibility of providing funding for a proposed
management buyout.
On or before November 24, 1999, Mr. Evans met telephonically with another
unaffiliated third party to discuss the possibility of providing financing for a
proposed management buyout. No formal proposals were made and no materials were
exchanged at this meeting.
On or about December 1, 1999, Mr. Monahan and Mr. Evans spoke with another
unaffiliated third party about the possibility of providing funding for a
proposed management buyout. Mr. Evans executed a confidentiality agreement with
this third party and forwarded historical and financial data and company
projections.
On or about December 10, 1999, Mr. Monahan and Mr. Evans met with the
unaffiliated third party with whom Mr. Evans initially met on November 23, 1999.
The third party indicated a degree of interest in providing funding for a
proposed management buyout but indicated concern over the volatility of the
subprime secondary market. The parties agreed to continue discussions.
On or about December 6, 1999, the unaffiliated third party with whom
Messrs. Monahan and Evans initially spoke on December 1, 1999 informed Mr. Evans
that it was not interested in participating in the proposed management buyout
due in large part to volatility and uncertainty in the sub-prime mortgage
industry.
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<PAGE>
On December 7, 1999 and December 8, 1999, representatives of Lehman
Brothers conducted due diligence at our company.
On or about December 13, 1999, Mr. Monahan called the unaffiliated third
party with whom Mr. Monahan initially met telephonically on November 4, 1999.
After discussion, Mr. Monahan concluded not to proceed with a financing by such
party.
On December 21, 1999, representatives of the third party with whom Mr.
Evans met on November 23, 1999 met with Messrs. Monahan and Evans and delivered
an informal indication of interest concerning the funding of a management
buyout. The management investors reviewed, but did not respond to, the
indication of interest. There were no further discussions between these parties
concerning this indication of interest.
From January 6, 2000 through January 24, 2000, the legal representatives
of members of the investor group engaged in extensive negotiations to attempt to
reach agreement in respect of the organization and funding of an acquisition
vehicle and the making of a formal acquisition proposal to the Board.
On January 13, 2000, at a regularly scheduled Board meeting, Mr. Monahan
stated that he and a group of our officers had identified a financial partner
and intended to be in a position to submit a written acquisition proposal for a
management buyout shortly. In light of the potential conflicts of interest
presented by the possibility of Mr. Monahan and other affiliates of BNC Mortgage
making a proposal to acquire BNC Mortgage, the Board appointed a special
committee of independent directors, consisting of Mr. Tomkinson, Keith Honig and
Richard Whiting, to evaluate any acquisition proposal that might be made by Mr.
Monahan or others and to negotiate the terms of such a proposal on behalf of BNC
Mortgage should any such proposal appear attractive.
On January 13, 2000, the special committee met telephonically. Mr.
Tomkinson was appointed Chairman of the special committee. After discussion,
including the necessity of hiring independent counsel, the special committee
appointed Kirkpatrick & Lockhart as its counsel. The special committee again
discussed its purpose, including the necessity of retaining a financial advisor
to assist in the analysis and evaluation of any buyout proposal and to highlight
possible alternatives to the proposed management buyout, including approaching
other third parties for a possible sale of BNC Mortgage. The committee
determined to conclude the selection process as soon as possible in light of the
timeliness of the proposed management buyout.
During the week of January 17, 2000, Mr. Tomkinson forwarded copies of the
proposals received from Friedman, Billings, Ramsey and the two other investment
banks to the other members of the special committee.
On or about January 20, 2000, the special committee met telephonically.
After discussions regarding the proposal and the relative strengths of each of
the investment banks, the special committee determined to retain Friedman,
Billings, Ramsey as its independent financial advisor and to provide a fairness
opinion if requested. At the meeting, the members of the special committee
reviewed with representatives of Kirkpatrick & Lockhart their duties in
connection with their consideration of any acquisition proposal that might be
made by Mr. Monahan or any other party. The special committee also determined to
instruct Friedman, Billings, Ramsey to prepare valuation analyses of BNC
Mortgage giving effect to certain adjustments to its assumptions, including
anticipated cost savings if BNC Mortgage were no longer subject to public
company reporting obligations, in order to assist the special committee in
evaluating any proposal that might be made by Mr. Monahan or others.
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On January 25, 2000, the management investors and Mortgage Investco
entered into a letter agreement pursuant to which Mortgage Investco and each of
the management investors agreed that, subject to the execution of mutually
acceptable documentation and satisfaction of various other conditions, they were
prepared to work together to acquire BNC Mortgage. Each management investor
further agreed that he or she would contribute shares of our common stock in
exchange for shares of common stock of BNCM Acquisition and would not sell,
convey, transfer, or otherwise dispose of any of our common stock or options to
purchase our common stock currently held by him without the prior consent of
Mortgage Investco until the earliest to occur of: (a) the date Mortgage Investco
notifies him or her that it has determined not to proceed with the proposed
acquisition of BNC Mortgage; (b) if a definitive agreement had not been executed
by us, February 29, 2000; or (c) the date of termination of such definitive
agreement. The letter refers to such period as the "Stand Off Period." Each
management investor further agreed that during the Stand Off Period he or she
would work exclusively with Mortgage Investco with respect to the proposed
acquisition of BNC Mortgage and that unless and until Mortgage Investco notifies
him or her that it has determined not to proceed with the proposed acquisition
of BNC Mortgage, neither such management investor nor his advisors or
representatives would: (1) solicit or encourage any third party with respect to
any such acquisition; (2) enter into any discussions or negotiations related to
such acquisition; or (3) provide any information to any third party with respect
to an acquisition except with respect to clauses (2) and (3), to the extent that
such management investor is directed by our Board to do so in order to permit
the Board to comply with its fiduciary duties under applicable law as advised by
counsel.
On January 25, 2000, Mr. Monahan delivered a letter to the Board of
Directors, proposing an acquisition of all of our outstanding common stock by
the investor group in a one-step merger at a price of $9.50 per share, in cash.
The proposal indicated, among other things, that it was subject to the receipt
of necessary funding and Mr. Buckley's agreement to (i) vote all shares of our
common stock beneficially owned by him in favor of the merger, (ii) exchange
250,000 of his common shares for preferred stock of BNCM Acquisition and (iii)
enter into a consulting agreement with the surviving company. A draft merger
agreement setting forth the terms of the proposed merger was attached to the
letter.
At a telephonic meeting of the special committee meeting held on January
28, 2000, the special committee discussed the terms of the investor group's
proposal with representatives of Friedman, Billings, Ramsey and Kirkpatrick &
Lockhart. Representatives of Friedman, Billings, Ramsey discussed the proposal
in light of their preliminary valuation analyses of BNC Mortgage, and
representatives of Kirkpatrick & Lockhart reviewed the duties of the members of
the special committee in connection with their consideration of the proposal.
Throughout the day on January 29 and January 30, 2000, representatives of
the special committee, Friedman, Billings, Ramsey and Kirkpatrick & Lockhart
discussed the investor group's proposed acquisition structure and the principal
contractual issues raised by the draft merger agreement, including the scope of
the representations and warranties and covenants, the conditions to closing, the
circumstances giving rise to termination fees and the ability of the Board to
provide information to and engage in negotiations with third parties making
competing acquisition proposals following the execution of a definitive merger
agreement. Throughout both days, representatives of Kirkpatrick & Lockhart
telephonically discussed and negotiated terms of the merger agreement with
representatives of Weil, Gotshal, counsel to Mortgage Investco.
On the morning of January 31, 2000, the special committee met to discuss
the investor group's revised draft merger agreement. Representatives of
Friedman, Billings, Ramsey reviewed their valuation analyses of BNC Mortgage and
discussed the $9.50 per share offer with the special committee. In connection
with their analysis, the representatives of Friedman, Billings, Ramsey also
reviewed BNC Mortgage's other alternatives, including continuing to operate as
an independent public entity, selling to
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another financial or strategic buyer (whether by negotiated purchase, auction or
otherwise), acquiring one or more other companies in the mortgage industry,
recapitalizing and paying a cash dividend on our common stock. Representatives
of Kirkpatrick & Lockhart reviewed the changes made to the draft merger
agreement as a result of discussions with Weil, Gotshal and reviewed the
directors' duties in connection with their evaluation of the revised proposal.
At the conclusion of the meeting, the special committee decided to continue
negotiations with the investor group in order to seek to increase the
acquisition price offered by the investor group and to continue to negotiate
other material provisions of the merger agreement.
Later on the day of January 31, 2000, Kirkpatrick & Lockhart delivered to
the investor group additional comments on the revised draft merger agreement and
telephonically met with Weil, Gotshal to discuss the remaining outstanding
issues raised by the draft merger agreement. Following these discussions, the
special committee met to discuss the status of the negotiations with the
investor group.
Later in the day on January 31, 2000, a meeting of the special committee
was held to provide Mr. Monahan and representatives of Mortgage Investco an
opportunity to discuss the investor group's proposal. After they left the
special committee meeting, the special committee engaged in an extensive
discussion of the investor group's proposal. Thereafter, the special committee
instructed the investor group that it would need to increase the price offered
and give additional flexibility to the Board to consider alternative acquisition
proposals following the signing of a definitive merger agreement.
Representatives of Mortgage Investco met with Mr. Monahan following the
special committee meeting to discuss the special committee's request. At the
conclusion of such discussions, Mr. Monahan and representatives of Mortgage
Investco indicated that the investor group would be willing to increase the
price offered from $9.50 to $10.00 per share and would agree to additional
changes to the merger agreement to give the Board the additional flexibility
sought.
Between January 31 and February 3, 2000, representatives of Weil Gotshal
and Milbank, Tweed, counsel to Mr. Buckley, negotiated the terms of Mr.
Buckley's voting agreement, consulting agreement and acquisition of the
preferred stock of BNCM Acquisition.
The special committee met on February 1, 2000 to consider the investor
group's revised offer. At this meeting, representatives of Friedman, Billings,
Ramsey and the special committee discussed the adequacy of the increased offer.
The special committee inquired whether Friedman, Billings, Ramsey was prepared
to issue an opinion to the special committee and the Board to the effect that
the $10.00 per share to be received in the proposed merger by our stockholders
was fair to such stockholders from a financial point of view. Following a
discussion, the special committee instructed Kirkpatrick & Lockhart to continue
discussions and negotiations regarding requested changes to the merger
agreement.
On February 2, 2000, representatives of Kirkpatrick & Lockhart and Weil,
Gotshal discussed changes to the merger agreement, and revised copies of the
draft merger agreement were circulated to the members of the special committee.
The special committee met on February 3, 2000 with representatives of
Friedman, Billings, Ramsey and Kirkpatrick & Lockhart. Representatives of
Kirkpatrick & Lockhart reviewed the directors' fiduciary duties in connection
with their consideration of the proposed transaction and summarized the terms of
the draft merger agreement which had previously been distributed to the
directors. Representatives of Friedman, Billings, Ramsey then delivered its oral
opinion, later confirmed in writing, to the effect that the $10.00 per share to
be received in the proposed merger by BNC Mortgage's public stockholders was
fair to such stockholders from a financial point of view. Following this
discussion, the special committee unanimously determined that the terms of the
proposed merger agreement and the merger were advisable and fair to and
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in the best interests of BNC Mortgage and its unaffiliated stockholders and
recommended to the Board that it approve the proposed merger agreement and
merger.
At a meeting of the Board following the special committee meeting, Mr.
Tomkinson informed the Board of the investor group's revised offer and the
special committee's recommendation of the merger agreement and the merger. After
further review and full discussion, the Board (with Mr. Monahan recusing
himself) determined that the merger agreement and the merger were advisable and
fair to and in the best interests of BNC Mortgage and its unaffiliated
stockholders and unanimously adopted resolutions approving the merger agreement
and the merger and determined to recommend to our stockholders that they vote to
approve the merger agreement and the merger.
Following the Board meeting, the parties finalized and executed the merger
agreement. Prior to the opening of trading on February 4, 2000, BNC Mortgage
issued a press release announcing that the merger agreement had been executed.
On February 18, 2000, the Board received a letter from Greenlight Capital
in which Greenlight Capital offered to acquire the outstanding shares of our
common stock for $11.00 per share in cash, net of any fees payable by BNC
Mortgage in connection with the termination of the February 3, 2000 agreement
with the investor group for the management-led buyout, and requesting a response
from the Board no later than 5:00 p.m. EST on February 22, 2000. Greenlight
Capital also filed a copy of the letter with the SEC. The special committee met
telephonically with representatives of Kirkpatrick & Lockhart, who reviewed with
the special committee their fiduciary duties and obligations under the merger
agreement, in light of the offer from Greenlight Capital. As required by the
merger agreement, representatives of Kirkpatrick & Lockhart contacted
representatives of BNCM Acquisition to inform them of the receipt of the
Greenlight Capital offer and that BNC Mortgage would seek to extend the
deadline. Through discussions between representatives of Kirkpatrick & Lockhart
and Akin, Gump, counsel to Greenlight Capital, Greenlight Capital agreed to
extend the response deadline contained in its letter to February 24, 2000.
On February 22, 2000, the Board received a letter from Milberg Weiss
Bershad Hynes & Lerach LLP informing it that, on February 15, 2000, a lawsuit
had been filed against us in California state court on behalf of one of our
stockholders alleging, among other things, that the price per share offered in
connection with the proposed merger was inadequate. The special committee met
telephonically to discuss the implications of the lawsuit and discussed their
obligations under the merger agreement with representatives of Kirkpatrick &
Lockhart. As required by the merger agreement, representatives of Kirkpatrick &
Lockhart contacted representatives of BNCM Acquisition to notify them of the
pending litigation.
On February 24, 2000, the special committee met telephonically and
determined to elicit additional information from Greenlight Capital regarding
its competing offer, pursuant to the terms of the merger agreement allowing it
to do so. At the direction of the special committee, representatives of
Kirkpatrick & Lockhart notified representatives of BNCM Acquisition of the
Board's intent to request such additional information, and notified
representatives of Greenlight Capital of the details of the Board's request in
that regard.
On February 29, 2000, we sent a letter to Greenlight Capital requesting
additional information regarding its proposal, with a view toward facilitating
the review of the proposal by the special committee and our Board in light of
our obligations under the merger agreement and the fiduciary duties of the Board
and the special committee.
On March 2, 2000, we received notice that a suit had been filed against us
in Delaware state court on behalf of one of our stockholders also alleging that
the price per share offered in connection with the
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proposed merger was inadequate. The special committee met telephonically to
discuss the implications of the suit and discussed their obligations under the
merger agreement with representatives of Kirkpatrick & Lockhart. As required by
the merger agreement, representatives of Kirkpatrick & Lockhart contacted
representatives of BNCM Acquisition to notify them of the pending litigation.
On March 7, 2000, the special committee received a written response to its
February 29, 2000 request for additional information from Greenlight Capital
regarding its offer. Representatives of Kirkpatrick & Lockhart discussed certain
aspects of the letter and Greenlight Capital's offer with representatives of
Akin, Gump.
On March 8, 2000 and March 9, 2000, the special committee met
telephonically to discuss Greenlight Capital's response. Representatives from
Kirkpatrick & Lockhart LLP discussed and sought clarification of Greenlight
Capital's response from representatives of Akin, Gump and communicated the
results of those discussions to the special committee. Representatives of
Kirkpatrick & Lockhart also reviewed with the members of the special committee
their fiduciary duties under applicable law and their duties under the merger
agreement, in light of the Greenlight Capital offer.
On March 13, 2000, representatives of Greenlight Capital and Akin, Gump
met with representatives of our company and Kirkpatrick & Lockhart to conduct
due diligence and review the terms of the Greenlight Capital offer. The special
committee met independently with representatives of Greenlight Capital to
further explore the parameters of the Greenlight Capital offer.
On March 21, 2000, at a regularly scheduled meeting, our Board discussed
the parameters of the Greenlight Capital offer and the proposed timing of that
transaction.
PURPOSE OF THE MERGER; CERTAIN EFFECTS OF THE MERGER
BNCM Acquisition is engaging in the merger transaction in order to acquire
all of our equity. Upon completion of the merger, our current stockholders will
have the right to receive $10.00 net in cash per share, the management investors
will own all issued and outstanding common stock of the surviving company, and
Mortgage Investco and its affiliates will hold warrants and convertible
preferred stock representing the right to acquire 75% of the surviving company's
common stock on a fully diluted basis. The warrants and the preferred stock will
not be exercisable or convertible, as applicable, until two years after the
merger. In addition, The Buckley Family Trust, a trust for which Evan Buckley,
our Chairman, and his wife, Karen Buckley, serve as trustees, will hold shares
of convertible preferred stock, which the surviving company will be required to
redeem over a period of three years following the merger.
Mortgage Investco and its affiliates are funding the merger transaction in
order to establish a strategic alliance with an originator of residential
mortgage loans. This alliance will provide Mortgage Investco affiliates with
continued access to residential mortgage loans having characteristics acceptable
to them. During calendar year 1999, Mortgage Investco affiliates purchased on a
whole-loan basis in excess of 70% of the residential mortage loans originated by
us. This relationship allowed Mortgage Investco and its affiliates to work
closely with the management investors and to evaluate the quality of our
mortgage products and management. Mortgage Investco expects that after the
merger, a substantial portion of the loans sourced by us will be purchased,
financed or made by its affiliates.
The management investors are participating in the merger transaction
because the merger will allow them to increase their ownership interest in BNC
Mortgage from approximately 7.2 % to 25%, in each case on a fully diluted basis.
The management investors believe that the value of BNC Mortgage is not
recognized by the public equity markets and that our prospects for growth would
improve by becoming a
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private company. As a private company, the management investors believe that BNC
Mortgage will be able to pursue a growth strategy that focuses on long-term
value and is not constrained by the public market's emphasis on quarterly
results and fluctuations in short-term earnings. The management investors also
believe that, upon consummation of the merger, we will benefit from having
Mortgage Investco as a partner, including by having better access to financing
and a continued market for the sale of our mortgage loans.
Approval of the merger proposal requires the affirmative vote of the
holders of a majority of the outstanding shares of our common stock, but does
not require a separate approval of the holders of a majority of the common stock
held by stockholders other than the members of the investor group. The investor
group and Mr. Buckley have contractually agreed to vote all shares beneficially
owned by them in favor of the merger. The shares held by these individuals
represent approximately 37.28% of our outstanding common stock.
The merger is structured as a one-step transaction. If the merger proposal
is approved by our stockholders and all other conditions to the merger are
satisfied, BNCM Acquisition will merge with and into BNC Mortgage, all common
shares of BNC Mortgage held by our current stockholders, other than the shares
contributed to BNCM Acquisition by the management investors and Mr. Buckley and
shares owned by our stockholders who exercise dissenters' rights, will convert
into the right to receive $10.00 per share, in cash. Accordingly, BNC Mortgage
stockholders whose shares will be converted into cash in the merger will no
longer benefit from any increase in the value of BNC Mortgage, nor will they
bear the risk of any decrease in the value of BNC Mortgage following the merger.
Our common stock is currently registered under the Securities Exchange Act
of 1934 and is listed for trading on the Nasdaq National Market under the symbol
"BNCM." Upon the completion of the merger, our common stock will be delisted
from Nasdaq and its registration under the Exchange Act will be terminated.
Because our common stock will be privately held, we will enjoy certain
efficiencies, such as the elimination of the time devoted by management and
other employees to comply with the reporting obligations of the Exchange Act
with respect to our common stock, and the directors, officers and beneficial
owners of more than 10% of our common stock will be relieved of their reporting
requirements and restrictions under Section 16 of the Exchange Act. We expect
that the delisting and deregistration of our common stock will result in
combined savings of approximately $287,000 per year, including the costs of
preparing, printing and mailing annual reports and proxy statements, the fees
and expenses of a transfer agent and registrar, the costs associated with the
number of members of our Board and the costs of our investor relations
activities.
POSITION OF INVESTOR GROUP AS TO THE FAIRNESS OF THE MERGER TO YOU
The investor group believes that the terms of the merger, including the
price you will be paid for your shares, are fair to you. This belief is based on
the following factors:
o the $10.00 per share that you will be paid for your shares in the
merger represents a substantial premium to the market price of our
common stock prior to the announcement of the merger (approximately
53% over the average closing price of our common stock during the 60
days preceding the announcement of the merger);
o the merger provides you with the opportunity to receive cash for all
your shares and to gain liquidity in what has been essentially an
illiquid stock;
o the terms of the merger, including the price you will be paid for your
shares, were negotiated at arm's length with the members of the
special committee, which consisted solely of independent
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members of our Board;
o the special committee determined that the merger is advisable and fair
and in the best interest of our stockholders (other than the investor
group) and unanimously approved the merger agreement and the merger;
o the special committee received an opinion from Friedman, Billings,
Ramsey that the merger consideration is fair to our stockholders
(other than the investor group) from a financial point of view;
o our Board unanimously approved and recommended the merger and the
merger agreement (with Mr. Monahan recusing himself as a result of the
conflict of interest presented by the fact that he is a member of the
investor group);
o the merger is not conditioned upon the receipt of financing by BNCM
Acquisition, increasing the likelihood that the merger will be
consummated;
o the investor group's review and assessment of our business,
operations, financial condition and prospects; and
o the investor group's review of the historical trading performance of
our common stock and the market performance of comparable companies in
our industry.
The investor group has not assigned any relative value or specific weights
to the foregoing factors. However, the investor group believes that each of the
factors is material to its determination that the transaction is fair.
Individual members of the investor group may have given differing weights to
different factors and may have viewed certain factors more positively or
negatively than others.
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS; REASONS FOR
THE MERGER
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS
On February 3, 2000, the special committee unanimously determined that the
merger agreement and the merger were advisable and fair to and in the best
interests of BNC Mortgage and its unaffiliated stockholders and unanimously
voted to recommend that our Board approve the merger agreement and the merger
and recommend to our stockholders that they vote to approve the merger proposal.
Following the special committee meeting on February 3, 2000, the Board
unanimously determined (with Mr. Monahan recusing himself) that the terms of the
merger are advisable and fair to and in the best interest of BNC Mortgage and
its unaffiliated stockholders and approved the merger agreement and the merger.
Accordingly, our Board unanimously recommends that our stockholders vote "FOR"
the approval of the merger proposal.
REASONS FOR THE MERGER
The Special Committee. In reaching its determination that the merger
agreement and the merger are advisable and fair to, and in the best interests
of, BNC Mortgage and its unaffiliated stockholders, and in recommending that our
Board approve the merger and recommend to our stockholders that they vote to
approve the merger proposal, the special committee consulted with our executive
officers (other than Messrs. Monahan, Evans, Lapena and Vander-Haeghen) and its
financial and legal advisors and considered
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the following factors:
o Possible alternatives to the merger, including continuing to operate
BNC Mortgage as an independent public entity, restructuring BNC
Mortgage through a stock repurchase or implementation of a dividend
policy, acquiring one or more other companies in the mortgage
industry, selling specific assets of BNC Mortgage, spinning off
certain assets or selling BNC Mortgage to a financial or strategic
buyer. Based on a variety of factors, including presentations by
Friedman, Billings, Ramsey as to alternatives, various valuation
matters and the factors relating to such alternatives, which are
described under "- Background of the Merger" above, the special
committee concluded that none of the alternatives considered was
reasonably likely to provide greater value to our stockholders than
the merger;
o The $10.00 per share to be paid in the merger represents an
approximately 36% premium over the closing price per share of common
stock on February 3, 2000, the last trading day before announcement of
the signing of the merger agreement and an approximately 53% premium
over the average daily closing price for the 60 days prior to the
announcement of the merger proposal;
o The financial presentations made by Friedman, Billings, Ramsey,
including its opinion, dated February 3, 2000, that as of such date
the consideration to be received by our non-affiliated stockholders in
the merger was fair from a financial point of view to such
stockholders;
o The special committee's belief that the $10.00 per share to be
received in the merger was advisable and fair relative to its own
assessment of our current and expected future financial condition,
earnings, business opportunities, strategies and competitive position
and the nature of the regulatory environment in which we operate. In
this regard, the special committee believed that, based on the
analyses presented by its financial advisor, the present value of the
merger consideration (with an assumed regulatory approval time frame
of three months) was more attractive on a risk-adjusted basis than
both the present value of our reasonably achievable possible future
stock price based on our future projected earnings growth described
under "Certain Projections Provided to Financial Advisor and the
Investor Group" and the present value on a risk-adjusted basis of
reasonably feasible alternative acquisition transactions. Further, the
special committee believed that the attainment of our projected future
earnings would be subject to a variety of risks based on the
uncertainties associated with:
o Our future performance in light of recent and anticipated
increases in interest rates, continued deterioration of loan
pricing in sales of originated mortgage loans in the secondary
market and further anticipated decreases in loan origination
levels;
o the possibility of increasing regulatory action in the United
States relating to the mortgage business;
o the increasingly competitive nature of the mortgage markets in
which we operate; and
o the anticipation that further consolidation in these mortgage
markets would result in larger and financially stronger
competitors;
o The arm's-length negotiations between the special committee and the
investor group with respect to the price per share to be paid in the
merger to our stockholders and the other material
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terms of the merger agreement. As a result of its negotiations, the
special committee believed that the investor group would not be
willing to pay more than $10.00 per share;
o The per share price to be received in the merger is payable in cash,
thereby eliminating any uncertainties in valuing the consideration to
be received by our stockholders;
o The terms and conditions of the merger agreement, including provisions
which are designed to ensure that our Board could fulfill its
fiduciary duties if presented with an acquisition proposal that is
more favorable to our stockholders than the merger. In particular, the
special committee considered that the merger agreement:
o permits our Board, upon compliance with certain conditions, to
provide information to and engage in negotiations with third
parties who have made a proposal to acquire BNC Mortgage, to
modify or withdraw its recommendation of the merger and to
terminate the merger agreement in order to pursue a more
favorable transaction;
o contains termination fee and expense reimbursement obligations of
BNC Mortgage that the special committee does not believe would
discourage competing third party offers to acquire BNC Mortgage;
and
o does not contain a financing condition to the investor group's
obligation to complete the merger;
o The investor group's financial ability to complete the merger,
including the fact that all of the funds necessary to complete the
merger have been committed and that affiliates of Lehman Brothers, a
highly credit-worthy company, were providing a substantial majority of
the financing required by the investor group;
o The relatively higher likelihood and greater speed of obtaining all
necessary regulatory approvals in connection with the merger as
compared to a sale of BNC Mortgage to other third parties, in light of
the proposed ownership structure and financing arrangements of the
merger. In view of the increased likelihood and speed of closing, the
special committee considered that the discounted present value of the
merger consideration compared favorably to the discounted present
value of merger consideration that might have been offered by other
third party acquirors;
o The investor group's stated intention to preserve our management team,
maintain our headquarters in Irvine, California and not lay off
employees following the merger;
o The extensive experience and substantial success of Mortgage Investco
as a member of the investor group in structuring and completing
transactions similar to the merger, its affiliation with Lehman
Brothers and the reputation of Lehman Brothers and its affiliates as
long-term investors not interested in maximizing short-term gain at
the expense of employees of a company or the communities in which a
company operates;
o To a lesser extent, the views expressed by Mr. Monahan that the
investor group's proposal, in contrast to other strategic
alternatives, was the most effective means of maximizing stockholder
value. In this regard, the special committee considered the
possibility that, if the Board were to reject the investor group's
proposal, Mr. Monahan could perceive the rejection as evidence of a
significant philosophical difference between him and the Board. The
Board
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accordingly recognized that one possible outcome of its rejection of
the investor group's proposal could be Mr. Monahan's unwillingness to
continue to serve as President of BNC Mortgage. The special committee
also considered that the potential negative impact of such a loss
would be mitigated in substantial part by the continued service of
other experienced members of senior management who were expected to
remain with BNC Mortgage if the merger were not approved.
The special committee believed that each of the above factors generally
supported its determination and recommendation, other than the last factor,
which the Board viewed as part of the general mix of information available
without being clearly favorable or unfavorable to its determination. The special
committee did, however, consider the following potentially negative factors in
its deliberations concerning the merger:
o The fact that our common stock has, on 103 trading days since its
initial public offering on March 10, 1998, closed at a trading price
above $10.00 per share, including a high closing price of $14.125 per
share on each of April 20, April 21 and April 22, 1998;
o The fact that, following the proposed merger, our current
stockholders, other than the members of the investor group, will no
longer participate in our future earnings or growth or benefit from
any increases in the value of our stock or assets;
o The actual or potential conflicts of interest which certain of our
officers and directors have in connection with the merger, including
the fact that following the merger, Messrs. Monahan, Evans, Lapena and
Vander-Haeghen and Ms. Crow and Ms. Langford would own all of the
common stock of the surviving company. The special committee believed,
however, that these conflicts of interests were mitigated in
substantial part by the establishment of the special committee to
negotiate the terms of the merger agreement and to evaluate the
advisability and fairness of the merger; and
o The fact that our stockholders may, depending on their tax basis in
their BNC Mortgage stock, recognize a taxable gain upon the completion
of the merger.
The above discussion concerning the information and factors considered by
the special committee is not intended to be exhaustive, but includes all of the
material factors considered by the special committee in making its
determination. In view of the variety of factors considered in connection with
its evaluation of the merger agreement and the proposed merger, the special
committee did not quantify or otherwise attempt to assign relative weights to
the specific factors it considered. In addition, individual members of the
special committee may have given different weight to different factors and
therefore may have viewed certain factors more positively or negatively than
others.
The Board of Directors. In determining to approve the merger and recommend
the merger proposal, and in reaching its determination that the merger agreement
and the merger are advisable and fair to, and in the best interests of, us and
our stockholders, our Board consulted with our executive officers (other than
Messrs. Monahan, Evans, Lapena and Vander-Heaghen) and the special committee's
financial and legal advisors, and considered the following factors:
o The determination and recommendation of the special committee;
o Each of the factors referred to above under "--The Special Committee"
which were taken into account by the special committee in its
deliberations;
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o The nature of the arm's-length negotiations between the special
committee and its advisors, on the one hand, and the investor group
and its advisors, on the other hand. In considering the arm's-length
nature of the negotiations and the procedural fairness of the merger,
our Board noted that:
o the special committee, which consisted solely of independent
directors of the Board, represented the interests of our
unaffiliated stockholders;
o the members of the special committee were experienced and
sophisticated in business and financial matters and were well
informed about our business and operations;
o the special committee retained and was advised by independent
legal counsel experienced in advising on transactions similar to
the merger;
o the special committee retained and was advised by Friedman,
Billings, Ramsey to assist the special committee in its
evaluation of the merger; and
o the special committee met on a number of occasions and engaged in
extensive deliberations to evaluate the merger and potential
alternatives to the merger.
In connection with its consideration of the determination by the special
committee, and as part of its determination with respect to the fairness of the
consideration to be received by the stockholders in the merger, the Board
adopted the conclusion and underlying analysis of the special committee, based
upon the Board's view that such analysis was reasonable.
In considering the fairness of the merger, the special committee and the
Board did not consider our net book value or liquidation value because they
believed those values were not material indicators of our value as a going
concern. Our book value per outstanding share as of December 31, 1999 was $6.93
per share, substantially below the $10.00 per share consideration to be paid in
the merger.
Except as noted above, all of the factors described above which were
considered by the special committee and the Board supported their conclusions
that the merger is advisable and fair to and in the best interests of our
unaffiliated stockholders.
The special committee and the Board also considered the fact that although
the merger is conditioned upon the approval of the affirmative vote of a
majority of the shares of BNC Mortgage common stock, it was not structured to
require the approval of a majority of the votes entitled to be cast by
stockholders unaffiliated with the investor group. The special committee and the
Board did not seek to structure the transaction to require the approval of a
majority of the common stock held by stockholders unaffiliated with the investor
group because such approval is not required under Delaware law and because the
special committee and the Board believed that the substantive and procedural
fairness of the transactions was established by the factors described above.
The above discussion concerning the information and factors considered by
our Board is not intended to be exhaustive, but includes all of the material
factors considered by the Board in making its determination. In view of the
variety of factors considered in connection with its evaluation of the merger
agreement and the proposed merger, the Board did not quantify or otherwise
attempt to assign relative weights to the specific factors it considered in
reaching its determination. In addition, individual members of the Board may
have given different weight to different factors and therefore may have viewed
certain
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factors more positively or negatively than others.
FAIRNESS OPINION OF FRIEDMAN, BILLINGS, RAMSEY
Pursuant to a February 3, 2000 letter, the special committee retained
Friedman, Billings, Ramsey to conduct a financial evaluation of the merger
proposal. At a meeting of our Board on February 3, 2000, Friedman, Billings,
Ramsey delivered its oral opinion to our Board to the effect that as of that
date, a fixed price of $10.00 per share of our common stock, payable in cash,
subject to the terms and conditions set forth in the merger agreement, was fair,
from a financial point of view, to our stockholders. Friedman, Billings, Ramsey
confirmed its opinion in writing immediately following the February 3, 2000
meeting and has reconfirmed its February 3, 2000 opinion by delivery of its
written opinion to our Board which states that as of the date of this proxy
statement, the $10.00 per share to be received by the holders of shares of our
common stock is fair to those stockholders from a financial point of view.
THE FULL TEXT OF THE FRIEDMAN, BILLINGS, RAMSEY OPINION, WHICH SETS FORTH
THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITS ON THE
REVIEW UNDERTAKEN, IS ATTACHED TO THIS PROXY STATEMENT AS APPENDIX B AND IS
INCORPORATED INTO THIS PROXY STATEMENT. YOU ARE URGED TO READ THE FRIEDMAN,
BILLINGS, RAMSEY OPINION IN ITS ENTIRETY.
Friedman, Billings, Ramsey is a nationally recognized investment banking
firm and was selected by us based on its reputation and experience in investment
banking in general, its recognized expertise in the valuation of specialty
finance businesses and its familiarity with BNC Mortgage. Friedman, Billings,
Ramsey, as part of its investment banking business, is frequently engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes.
In connection with the rendering of its opinion, Friedman, Billings,
Ramsey reviewed, among other things:
o BNCM Acquisition's financing proposal provided by the investor group
and the pro-forma capitalization of the surviving company.
o our Annual Report to Stockholders for the fiscal years ended June 30,
1997, 1998 and 1999; our Annual Report on Form 10-K filed with the SEC
for the fiscal years ended June 30, 1997, 1998 and 1999; our Annual
Proxy Statement dated October 29, 1999; and our Quarterly Reports on
Form 10-Q filed with the SEC for the quarters ended September 30, 1999
and December 31, 1999;
o our unaudited financial statements for the six months ended December
31, 1999 and discussions between representatives of Friedman,
Billings, Ramsey and our management with regard to those financial
statements;
o the reported market prices and trading activity for our common stock
for the period June 30, 1998 through February 2, 2000;
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o the secondary market for sub-prime mortgage loans, and the respective
pricing trends, from June 30, 1998 through February 2, 2000;
o our financial condition, results of operations, earnings projections,
business and prospects;
o a comparison of our results of operations and financial condition with
those of certain publicly-traded financial services organizations (or
their holding companies) that Friedman, Billings, Ramsey deemed to be
reasonably comparable to us;
o the financial terms, to the extent publicly available, of certain
acquisition transactions that Friedman, Billings, Ramsey deemed to be
reasonably comparable to the merger;
o the financial terms, to the extent publicly available, of certain
management buyout transactions effected pursuant to SEC Rule 13E-3
that Friedman, Billings, Ramsey deemed to be reasonably comparable to
the merger; and
o a copy of the merger agreement.
In addition, Friedman, Billings, Ramsey performed such other financial analyses
and reviewed and analyzed such other information as it deemed appropriate,
including an assessment of general economic, market and monetary conditions.
In connection with rendering its opinion, Friedman, Billings, Ramsey
assumed and relied upon, without independent verification, the accuracy and
completeness of all the financial information, analyses and other information
reviewed by and discussed with it, and did not make an independent evaluation or
appraisal of our specific assets, collateral securing assets or liabilities or
any of our subsidiaries, or the collectability of any such assets (relying,
where relevant, on our analyses and estimates). With respect to the financial
projections Friedman, Billings, Ramsey reviewed with our management, Friedman,
Billings, Ramsey assumed that they reflect the best currently available
estimates and judgments of our management of the future financial performance of
our company, and that we will achieve such performance. Friedman, Billings,
Ramsey also assumed that there has been no material change in our assets,
financial condition, results of operations, business or prospects since the date
of our last financial statements noted above.
The forecasts and projections we furnished to Friedman, Billings, Ramsey
were prepared by our management. As a matter of policy, we do not publicly
disclose internal management forecasts, projections or estimates of the type
furnished to Friedman, Billings, Ramsey in connection with its analysis of the
merger, and we did not prepare such forecasts, projections and estimates with a
view towards public disclosure. These forecasts, projections and estimates were
based on numerous variables and assumptions which are inherently uncertain and
which may not be within the control of our management including, without
limitation, general economic, regulatory and competitive conditions.
Accordingly, our actual results could vary materially from those described in
our forecasts, projections and estimates.
Our Board imposed no limitations on Friedman, Billings, Ramsey with
respect to the investigation made or procedures followed by Friedman, Billings,
Ramsey in rendering its opinion. In connection with rendering its fairness
opinion to our Board, Friedman, Billings, Ramsey performed a variety of
financial analyses. The following is a summary of the material financial
analyses Friedman, Billings, Ramsey performed, but does not purport to be a
complete description of its analyses or presentations at the February 3, 2000
meeting of our Board. Friedman, Billings, Ramsey believes that its analyses must
be considered as a whole and that selecting portions of such analyses and the
factors considered therein, without considering all factors and analyses, could
create an incomplete view of the analyses and the processes underlying its
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opinion. The preparation of a fairness opinion is a complex process involving
subjective judgments and is not necessarily susceptible to partial analyses or
summary description. In its analyses, Friedman, Billings, Ramsey made numerous
assumptions with respect to industry performance, business and economic
conditions and various other matters, many of which are beyond the control of
BNCM Acquisition and us. Any estimates contained in Friedman, Billings, Ramsey's
analyses are not necessarily indicative of our future results or values, which
may be significantly more or less favorable than such estimates. Estimates of
values of companies do not purport to be appraisals or necessarily reflect the
prices at which the companies or their securities may actually be sold.
SUMMARY OF TERMS OF PROPOSED TRANSACTIONS. Friedman, Billings, Ramsey
reviewed the terms of the proposed merger, including the merger consideration
and the percentage of premium to our market price at February 2, 2000. Based on
the merger agreement, the consideration to be received by our stockholders will
be a fixed price of $10.00 per share of our common stock, payable in cash. As of
February 3, 2000, this price represented a percentage premium to the current
market price per share of $6.94 for our common stock (the closing price for such
stock on February 2, 2000) of 44.1%.
The price of $10.00 per share of our common stock on a fully diluted basis
represented a multiple of:
o 12.99 times our earnings per share for the twelve months ended
December 31, 1999;
o 10.93 times analyst consensus estimates of our 2000 fiscal year
earnings per share;
o 8.47 times analyst consensus estimates of our 2001 fiscal year
earnings per share;
o 149% of our book value per share as of December 31, 1999; and
o 155% of our tangible book value per share as of December 31, 1999.
COMPARABLE PUBLIC COMPANY ANALYSIS. Based on publicly available
information, Friedman, Billings, Ramsey analyzed the trading multiples of a
comparison group of seven publicly traded non-conforming home equity and
mortgage companies, using current pricing information and analyst consensus
earnings estimates as of February 2, 2000 and financial data as of December 31,
1999. The results of this analysis are reflective of an industry that has been
under significant downward pressure during the latest twelve month period. Of
the seven companies in the sample, as of February 2, 2000, every company was
trading significantly below its 52-week high, with a median of 37% below such
52-week high. Friedman, Billings, Ramsey also analyzed trading multiples of 1999
earnings per share, 2000 analyst consensus estimated earnings per share, and
book value per share as of September 30, 1999. Friedman, Billings, Ramsey's
analysis indicated median trading multiples for the seven company sample of 5.7
times 1999 earnings, 5.4 times 2000 earnings estimates and 65% of book value as
of February 2, 2000. Our common stock was trading at 4% below its 52-week high,
6.1 times 1999 fiscal earnings, 7.3 times 2000 fiscal year analyst consensus
earnings estimates, and at 100% of book value. The merger price is very
favorable relative to pricing levels of comparable public companies in the
non-conforming home equity and mortgage industry.
COMPARABLE TRANSACTIONS ANALYSIS. Friedman, Billings, Ramsey reviewed
certain information relating to comparable transactions announced between
October 1, 1998 and January 31, 2000, involving the acquisition of sub-prime
mortgage companies. The universe of comparable transactions announced since
October 1, 1998 consisted of eight (8) transactions. In conjunction with its
analysis, Friedman, Billings, Ramsey reviewed valuation multiples based on price
to book value, price to latest twelve months reported earnings per share, price
to current year consensus estimated earnings per share, and price to latest
twelve months reported origination volume. Friedman, Billings, Ramsey compared
the median multiples in the
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proposed acquisition of BNC Mortgage to the comparable transactions multiples.
Friedman, Billings, Ramsey computed the foregoing ratios for the merger based on
the $10.00 price per share. Friedman, Billings, Ramsey's computations yielded
the following median multiples at announcement for the comparable transactions,
as compared with the following indicated multiples for BNC at announcement of
the merger:
o median price to book value multiples of 337%, compared with 149% for the
merger;
o median price to latest twelve months earnings multiples of 8.0 times,
compared with 12.99 times for the merger; and
o median price to current year consensus estimated earnings per share of
10.7 times, compared with 10.9 times for the merger.
No other company or transaction used in a comparable company or comparable
transaction analysis as a comparison is identical to us or the merger.
Accordingly, an analysis of the results of the merger is not mathematical;
rather, it involves complex considerations and judgments concerning differences
in financial and operating characteristics of the companies and other factors
that could affect the public trading value of the companies to which we and the
merger are being compared.
PREMIUM PAID ANALYSIS. Friedman, Billings, Ramsey used all publicly
available transactions of specialty lending companies since January 1, 1999 to
analyze pricing information and the premiums paid compared to our stock price at
one month to the date, one week to the day, and one day prior to the
announcement of the acquisition. The analysis was based on comparable
transactions announced since January 1, 1999. The figures produced:
o a median premium to the seller's stock price one month to the date
prior to announcement of 22.1%;
o a median premium to the seller's stock price one week to the date
prior to announcement of 18.2%; and
o a median premium to the seller's stock price one day prior to
announcement of 14.2%.
The pricing of the BNC Mortgage transaction described in this proxy statement
represented premiums to our stock price one month prior, one week prior, and one
day prior of 60%, 45.5% and 35.6%, respectively, which compares favorably to the
premiums paid for all other specialty lending companies during 1999.
DISCOUNTED EARNINGS STREAM AND TERMINAL VALUE ANALYSIS. Using a discounted
earnings stream and terminal value analysis, Friedman, Billings, Ramsey
estimated the future stream of earnings flows that we could be expected to
produce through the year 2004, under various circumstances, assuming we
performed in accordance with the earnings forecasts of our management. To
approximate the terminal value of our common stock at the end of a five-year
period (June 30, 2004), Friedman, Billings, Ramsey applied price to earnings
multiples ranging from 6.0 times to 10.0 times. The net income streams and
terminal values were then discounted to present values using a discount rate
ranging from 19% to 15%. When a discount rate range of 19% to 15% and terminal
earnings multiple range of 6.0 times to 10.0 times, respectively, were applied
to earnings forecasts of our management, the analysis indicated a reference
range between $6.64 and $10.04 per share of our common stock.
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In connection with rendering its opinion, Friedman, Billings, Ramsey
confirmed the appropriateness of its reliance on the analyses used to render its
February 3, 2000 opinion by performing procedures to update certain of such
analyses and by reviewing the assumptions upon which such analyses were based
and the factors considered in connection therewith. Friedman, Billings, Ramsey's
opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to it as of, the date of such
opinion. Events occurring after the date of Friedman, Billings, Ramsey's opinion
could materially affect the assumptions used in preparing such opinion.
Under the terms of the agreement pursuant to which we retained Friedman,
Billings, Ramsey to act as our independent financial advisor in connection with
the merger, we paid Friedman, Billings, Ramsey a non-refundable retainer of
$50,000, in addition to a $75,000 fairness opinion fee. If the merger is
consummated, we will pay Friedman, Billings, Ramsey a success fee equal to
$143,187. The success fee will be due to Friedman, Billings, Ramsey in
immediately available funds at the closing of the merger. We also agreed to
reimburse Friedman, Billings, Ramsey for its reasonable out-of-pocket expenses
not to exceed $25,000 in connection with its engagement and to indemnify
Friedman, Billings, Ramsey and its affiliates and their respective partners,
directors, officers, employees, agents and controlling persons against certain
expenses and liabilities, including liabilities under applicable securities
laws.
Friedman, Billings, Ramsey has advised us that, in the ordinary course of
its business as a full-service securities firm, it may, subject to certain
restrictions, actively trade our equity securities for its own account or for
the accounts of its customers, and, accordingly, may at any time hold a long or
short position in such securities.
CERTAIN PROJECTIONS PROVIDED TO FINANCIAL ADVISOR AND THE INVESTOR GROUP
In the normal course of our business, our management prepares internal
budgets, plans, estimates, forecasts or projections as to future revenues,
earnings or other financial information in order to be able to anticipate our
financial performance. We do not, as a matter of course, publicly disclose these
internal documents.
We provided financial projections to Friedman, Billings, Ramsey in
connection with their review of strategic alternatives for the special
committee's and Board's February 3, 2000 meetings. These projections reflected
management's best estimates and good faith judgments as to our future
performance and reflected a number of assumptions, including the following
material assumptions:
o that we could expect to realize loan production and loan sales for
fiscal years 1999 and 2000 and for the first and second quarters of
fiscal year 2001 as follows:
<TABLE>
<CAPTION>
FISCAL FISCAL FIRST SECOND
YEAR YEAR QUARTER QUARTER
1999 2000 2001 2001
------ ------ ------- -------
(In thousands)
<S> <C> <C> <C> <C>
LOAN PRODUCTION
Subprime $975,000 $1,350,000 $375,000 $415,000
Prime 119,000 87,000 30,000 30,000
------- ------ ------ ------
Total $1,094,616 $1,437,000 $405,000 $445,000
LOAN SALES
Subprime $940,000 $1,374,000 $382,000 $390,000
Prime 125,000 82,000 30,000 30,000
------- ------ ------ ------
Total $1,065,000 $1,456,000 $412,000 $420,000
</TABLE>
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o that we could expect to sell subprime loans at a gross premium as a
percentage of loans sold of 103.75% on 98% of the subprime loans sold
and of 100.0% on 2% of the subprime loans sold;
o that we could expect to pay yield spread premiums to brokers and
lenders as a percentage of subprime loans sold of 0.85%;
o that we could expect to generate origination fee revenue as a
percentage of subprime loans sold of 0.75%;
o that we could expect to sell prime loans at a net premium as a
percentage of loans sold of 100.75% on 100% of the prime loans sold;
o that we will employ a total of 432 persons in our subprime operations
in December 2000, as compared to 388 persons in December 1999;
o that the weighted average interest rates on subprime mortgage loans
held for sale would be 9.7% and that the blended cost of funds on
our warehouse lines of credit would be LIBOR plus 1.5% or 7.0%;
o that we would earn 5.0% interest on cash and cash equivalents;
o that the ratio of expenses to total loan production and the net gain
on loan sales for fiscal years 1999 and 2000 and for the first
and second quarters of 2001 would be as follows:
FISCAL FISCAL FIRST SECOND
YEAR YEAR QUARTER QUARTER
1999 2000 2001 2001
------ ------ ------- -------
EXPENSES TO
TOTAL LOAN 3.22 2.69 2.74 2.61
PRODUCTION
NET GAIN ON
LOAN SALES 3.94 2.99 3.09 3.10
The projections that we provided to Friedman, Billings, Ramsey reflected
the following as to our projected net income and earnings per share, which may
be material:
FISCAL FISCAL FIRST SECOND
YEAR YEAR QUARTER QUARTER
1999 2000 2001 2001
------ ------ ------- -------
NET INCOME
AFTER TAX $6,278,000 $4,991,000 $1,526,000 $1,138,000
FULLY DILUTED
EARNINGS PER
SHARE $1.13 $0.98 $0.30 $0.22
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We do not intend to update or otherwise revise the financial projections
to reflect circumstances existing after the date the projections were prepared
or to reflect the occurrence of unanticipated events. The financial projections
should be read together with the opinion of Friedman, Billings, Ramsey attached
to this proxy statement as Appendix B.
INTERESTS IN THE MERGER THAT DIFFER FROM YOUR INTERESTS
In considering the recommendations of the special committee and the Board
with respect to the merger, you should be aware that some of our directors and
officers have interests in the merger that are different from your interests as
a stockholder. The special committee and the Board were aware of these actual
and potential conflicts of interest.
Continued Ownership. Mr. Monahan, our President, Mr. Evans, our Chief
Financial Officer, Mr. Lapena, our Vice President of Operations, Mr.
Vander-Haeghen, our Vice President of Sales, Ms. Crow, our Director of Human
Resources, and Ms. Langford, our Vice President of Funding, are members of the
investor group and will contribute cash or shares of our common stock owned by
them to BNCM Acquisition immediately prior to completion of the merger in
exchange for common stock of BNCM Acquisition. This common stock will convert
into common stock of the surviving company upon completion of the merger. Mr.
Monahan will initially own approximately 80% of the common stock of the
surviving company following the merger; Mr. Evans will own 3%, Mr. Lapena will
own 6%, Mr. Vander-Haeghen will own 6%, Ms. Crow will own 2%, and Ms. Langford
will own 3%. The shares that will be held by the management investors will be
subject to dilution upon the exercise or conversion by Mortgage Investco and its
affiliates of warrants and convertible preferred stock representing the right to
acquire 75% of the surviving company's common stock on a fully-diluted basis.
The warrants and the preferred stock will not be exercisable or convertible, as
applicable, until two years after the merger.
In addition, The Buckley Family Trust, a trust for which Evan Buckley, our
Chairman, and his wife, Karen Buckley, serve as trustees, will contribute
250,000 shares of our common stock in exchange for 250 shares of 8% cumulative
preferred stock of BNCM Acquisition, which the surviving company will be
required to redeem over a period of three years following the merger. The
Buckley Family Trust currently owns 1,549,717 shares of our common stock, or
approximately 30.1% of our outstanding shares.
Stockholders Agreement. Each of the management investors, Mortgage
Investco and Lehman Commercial Paper Inc. will enter into a stockholders
agreement prior to the consummation of the merger relating to the governance of
the surviving company and the disposition of the stockholders' shares. This
agreement provides that Mortgage Investco and Lehman Commercial Paper Inc., on
one hand, and the management investors as a group on the other hand, will each
have the right to designate two of the four members of the surviving company's
board of directors. Major operating decisions relating to the surviving company
will require approval by three-fourth of its board. In the event of a deadlock
in the board relating to certain fundamental corporate matters, Mortgage
Investco and Lehman Commercial Paper Inc. on the one hand and the management
investors as a group on the other hand will be entitled to initiate a buy/sell
procedure for the sale of their respective shares of the surviving company or
the purchase of the other party's shares.
Pursuant to the stockholders agreement, the management investors will have
the right to require Mortgage Investco and Lehman Commercial Paper Inc. to (i)
purchase one-half of their shares at fair market value during a 30-day period
following the third anniversary of the effective date and (ii) purchase all or
any portion of any remaining shares at fair market value during a 30-day period
following the seventh anniversary of the effective time of the merger. In the
event that the management investors do not exercise this right, Mortgage
Investco and Lehman Commercial Paper Inc. will have the right to require all
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management investors to (i) sell one-half of their shares of common stock at
fair market value during a 60-day period following the forty-third month after
the effective time of the merger and (ii) all or any portion of any remaining
shares at fair market value during a 60-day period following the ninety-first
month after the effective time of the merger. If a management investor's
employment with the surviving company is terminated for any reason, such
investor may be required to sell his or her shares to other management investors
or, if the other management investors decline to purchase such shares, to the
company.
Voting Agreements. Each management investor has entered into a voting
agreement with BNCM Acquisition which provides that such investor will vote all
shares of our common stock owned by such investor in favor of approval of the
merger proposal. This agreements restrict the management investors' ability to
solicit third-party proposals for the acquisition of BNC Mortgage, but it
permits each management investor to take any action in his or her capacity as a
director or officer of BNC Mortgage as our Board or the special committee
directs him or her to take in order to permit our Board or the special committee
to respond, in accordance with the terms of the merger agreement, to what it
reasonably believes is a proposal superior to the proposal made by BNCM
Acquisition or to otherwise permit our Board to comply with its fiduciary duties
under applicable law as advised by counsel. The voting agreements relate to an
aggregate of 370,930 shares (including shares issuable upon the exercise of
stock options) or 7.2% of our outstanding common stock and any shares that any
management investor may subsequently acquire.
The Buckley Family Trust and Mr. Buckley have also entered into a voting
agreement with BNCM Acquisition, pursuant to which the Trust has agreed to vote
the 1,549,717 shares owned by it, representing approximately 30.1% of our
outstanding common stock, to approve the merger proposal and both the Trust and
Mr. Buckley have agreed not to solicit third party proposals for the acquisition
of BNC Mortgage. The agreement, however, permits Mr. Buckley to take any action
in his capacity as a director or officer of BNC Mortgage as our Board or the
special committee directs him to take in order to permit our Board or the
special committee to respond, in accordance with the terms of the merger
agreement, to what it reasonably believes is a proposal superior to the proposal
made by BNCM Acquisition or to otherwise permit our Board to comply with its
fiduciary duties under applicable law as advised by counsel.
Treatment of Options. Certain directors, officers and employees have
options to acquire shares of our common stock under our stock option plan. All
outstanding options to purchase our common stock, whether vested or unvested,
will be canceled at the time of the merger and the holders will receive the same
consideration per share paid to holders of our common stock less the exercise
price per share of the option. As a result of the change in control of BNC
Mortgage, the merger will result in the accelerated vesting of options to
purchase 137,000 shares of our common stock held by the management investors.
The table below shows the number of options currently held by each of BNC
Mortgage's executive officers and directors, and all other individuals as a
group.
NAME OUTSTANDING OPTIONS PAYMENT AT EFFECTIVE TIME
INDEPENDENT DIRECTORS:
- ---------------------
Keith C. Honig 37,000 $ 99,750
Joseph R. Tomkinson 37,000 $ 99,750
Richard B. Whiting 25,000 $ 89,063
EXECUTIVE OFFICERS:
- ------------------
Evan Buckley 30,000 $ 108,750
Kelly W. Monahan 42,500 $ 115,000
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Peter R. Evans 35,000 $ 80,000
Al Lapena 32,500 $ 78,750
Gary Vander-Haeghen 15,000 $ 20,000
All Other Individuals As
a Group 365,058 $ 361,563
The actual amounts to be paid to these persons will be reduced by any applicable
federal and state income and payroll tax withholding.
Employment Agreements. BNCM Acquisition has entered into employment
agreements with each of the management investors that will become effective upon
the completion of the merger. Under his new employment agreement, which has a
three-year term, Mr. Monahan will receive an annual base salary of $400,000 plus
an incentive bonus based on certain performance criteria. Additionally, he will
receive a $500,000 payment upon the commencement of his employment with the
surviving company, which will be considered earned pro-rata over the first two
years of his employment. If Mr. Monahan's employment with the surviving company
is terminated within two years, either by the company for "cause" or by Mr.
Monahan without "good reason", he will be required to repay the surviving
company a pro-rata portion of the $500,000 payment. Additionally, pursuant to
the terms of the existing indebtedness, the surviving company will forgive the
$100,000 loan that BNC Mortgage made to Mr. Monahan on August 25, 1997,
effective as of the effective time of the merger.
Mr. Monahan's employment agreement with BNCM Acquisition also contains
certain provisions relating to the termination of his employment with the
surviving company under a variety of different scenarios. If Mr. Monahan is
terminated for "cause" or voluntarily terminates his employment without "good
reason", he will receive his base pay through the termination date and any fully
accrued but unpaid incentive bonus amounts at the rate in effect on the day
preceding the termination. If Mr. Monahan is terminated without "cause" or
voluntarily terminates his employment with "good reason," the surviving company
will pay Mr. Monahan in a lump sum an amount equal to his base salary for the
lesser of the balance of the contract period and two years, but in any case an
amount equal to one year's base salary. Additionally, Mr. Monahan will receive a
further lump sum payment of $200,000 and all amounts due to the company under
Mr. Monahan's loan agreement (described below), will be forgiven.
The employment agreement also contains a non-competition/non-solicitation
provision that restricts the ability of Mr. Monahan to compete with the
surviving company or solicit employees of the surviving company for periods
ranging from the expiration date of the employment agreement to two years after
the termination of his employment.
In addition, BNCM Acquisition has entered into a loan agreement, effective
as of the completion of the merger, with Mr. Monahan, pursuant to which it will
make available to Mr. Monahan a loan in the principal sum of $400,000. This loan
will be secured by Mr. Monahan's shares in the surviving company or any
successor to the surviving company. This loan will mature on the third
anniversary of the merger unless extended by mutual agreement or at the time Mr.
Monahan sells his shares of the surviving company.
Each other management investor has also entered into an employment
agreement with BNCM Acquisition, in each case for a three-year term, and
conditioned upon the merger becoming effective. In each case, the employee is to
receive a base salary and be eligible for a discretionary annual bonus,
contingent on the surviving company achieving the goals established by the board
of directors and the employee's performance during the year meeting or exceeding
expectations. The target bonus for each management investor (other than Mr.
Monahan) is 50% of his or her base salary.
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Under the terms of the employment agreements, if a management investor is
terminated for "cause" or voluntarily terminates his or her employment without
"good reason," he or she will receive his or her base pay through the
termination date and any bonus amounts already determined by the board of
directors but unpaid. If such management investor is terminated without "cause"
or voluntarily terminates his or her employment with "good reason," the
surviving company will pay the him or her a lump sum amount equal to his or her
base salary for the lesser of the balance of the contract period and one year
(but not less than one year), and any bonus amounts already determined by the
board of directors but unpaid. These employment agreements contain restrictions
on solicitation of other employees of the surviving company.
Consulting Agreement. Mr. Buckley has entered into a consulting agreement
with BNCM Acquisition that will become effective as of the completion of the
merger. The agreement has an initial term of three months, which may be renewed
by the surviving company at its sole discretion for three additional three-month
periods, not to exceed the aggregate term of one year. Pursuant to the
agreement, Mr. Buckley is to receive $50,000 in compensation during the initial
three-month term, $50,000 for the second three-month term and $75,000 for each
of the third and fourth terms.
Indemnification and Insurance. We have agreed in the merger agreement to
indemnify and hold harmless, to the fullest extent permitted by applicable law,
each of our present and former directors and officers against all losses,
claims, damages, liabilities, costs and expenses, judgments, fines, losses and
amounts paid in settlement (if the settlement is consented to by us) arising out
of actions or omissions occurring at or prior to the effective time of the
merger of BNC Mortgage that (1) are wholly or partly based on the fact that the
person is or was a director or officer or (2) arise out of or pertain to the
transactions contemplated by the merger agreement. In addition, the surviving
company will be required to maintain in effect the indemnification provisions
contained in our existing articles of incorporation and by-laws.
For a period of five years after the effective time, the surviving company
will be required to keep our existing directors' and officers' liability
insurance or, at its option, will provide substitute policies with coverage in
amount and scope at least as favorable as its existing policies. However, we
will not be required to pay annual premiums for the directors' and officers'
insurance in excess of 500% of the annual premiums paid by us as of the date of
the merger agreement or $250,000, but in that case will be required to purchase
as much coverage as possible for that amount.
PLANS FOR THE SURVIVING COMPANY FOLLOWING THE MERGER
The investor group is currently evaluating our business, assets,
practices, personnel and operations to determine what, if any, changes are
desirable after the merger. Subject to the foregoing, the investor group expects
that after the merger, our day-to-day operations will be conducted substantially
as currently conducted and that there will be no change in the composition of
our existing management, except that our current chairman, Evan Buckley, will
retire, but will continue to acting as a consultant for the surviving company
pursuant to a consulting agreement which will have a term of between three
months and one year. In addition, although we have no specific plans, we expect
that after the merger we will work more closely with Mortgage Investco and its
affiliates in growing our current business and developing new business
opportunities.
MERGER FINANCING; SOURCE OF FUNDS
We estimate that the total amount of funds required to complete the
merger, including related costs and expenses, will be approximately $48.5
million. This amount assumes that no stockholders perfect their dissenters'
rights under Delaware law, but excludes $2.5 million of our shares (valued at
the merger price) which the management investors have agreed to contribute to
BNCM Acquisition and $2.5 million of our shares (valued at the merger price)
which The Buckley Family Trust has agreed to exchange for preferred
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stock of BNCM Acquisition. Upon completion of the merger, we will assume the
investor group's costs and expenses and the borrowings of BNCM Acquisition
described below.
BNCM Acquisition expects to obtain the required funds from borrowings from
Lehman Commercial Paper Inc., an affiliate of Mortgage Investco, and from the
purchase of preferred stock in BNCM Acquisition by Mortgage Investco. Lehman
Commercial Paper Inc. has committed to provide BNCM Acquisition with a $25.5
million acquisition loan facility, a $14.0 million seven-year term loan
facility, and a $5 million three-year revolving credit facility. In connection
with these loans, Lehman Commercial Paper Inc. will receive warrants to purchase
50% of the surviving company's common stock on a fully-diluted basis at a price
of $.01 per share. The warrants will be exercisable after two years from the
date of the merger. In addition, Mortgage Investco will purchase $6 million of
non-voting 8% cumulative convertible preferred stock of BNCM Acquisition which
will be convertible, at any time after two years from the date of the merger,
into 25% of the surviving company's common stock on a fully-diluted basis.
Borrowings under the acquisition loan facility will bear interest at a
rate equal to LIBOR plus a margin of 200 basis points. Borrowings under the term
loan facility will bear interest at a rate equal to LIBOR plus a margin of 400
basis points, and borrowings under the revolving credit facility will bear
interest at a rate equal to LIBOR plus a margin of 600 basis points. The credit
facilities will generally require the following financial covenants: (1)
quarterly positive net income; (2) quarterly positive cash flow; (3) minimum net
worth requirements; (4) maximum ratio of total debt to stockholder's equity; and
(5) limitations on the payment of dividends. The closing of the credit
facilities are subject to certain conditions including (A) the negotiation and
execution of definitive loan documentation; (B) the consummation of the merger
in accordance with its terms; and (C) BNCM Acquisition not waiving any
conditions precedent to the merger in the merger agreement.
The credit facilities will be secured by a first priority security
interest in all of the existing and after-acquired real and personal, tangible
and intangible assets of the surviving company other than assets and proceeds
pledged pursuant to warehouse line of credit facilities. The acquisition loan
facility will be repaid immediately upon consummation of the merger from cash on
hand of the surviving company. The term loan facility will be repaid with cash
from operations of the surviving company. No portion of the revolving credit
facility may be used to pay costs associated with the merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of U.S. federal income tax consequences of the
merger to you and other BNC Mortgage stockholders receiving cash merger
consideration. This summary does not address all aspects of federal income
taxation that may be relevant to holders of our stock. This discussion applies
only to holders of our stock in whose hands shares of our stock are capital
assets within the meaning of the Internal Revenue Code of 1986, as it has been
amended, and may not apply to stock received pursuant to the exercise of
employee stock options or otherwise as compensation, or to holders of stock
otherwise subject to special tax treatment (such as insurance companies, banks,
regulated investment companies, tax-exempt organizations and broker-dealers, who
may be subject to special rules and regulations). In addition, this discussion
does not address the federal income tax consequences to a holder who, for United
States federal income tax purposes, is a non-resident alien individual, foreign
corporation, foreign partnership or foreign estate or trust, nor does it
consider the effect of any foreign, state or local tax laws.
The receipt of cash in exchange for BNC Mortgage common stock in the
merger will be a taxable transaction for federal income tax purposes and may
also be a taxable transaction under applicable state, local and foreign tax
laws. The income tax consequences of the merger may vary depending on, among
other thing, your particular circumstances. In general, you and our other BNC
Mortgage stockholders
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receiving cash in exchange for common stock in the merger will recognize gain or
loss for federal income tax purposes in an amount equal to the difference
between the adjusted tax basis in your shares of common stock and the amount of
the cash you receive in exchange for your shares. Gain or loss must be
determined separately for each block of stock (i.e., stock acquired at the same
cost in a single transaction) converted into cash pursuant to the merger. Your
gain or loss will generally be a capital gain or loss if you hold BNC Mortgage
common stock as a capital asset, and will be a long-term capital gain or loss
if, at the effective time of the merger, you have held your BNC Mortgage common
stock for more than one year.
The capital gains of an individual holder who has held shares of stock for
more than one year will be subject to a maximum federal income rate of 20%. If
you have held you shares for 12 months or less, the capital gains, if any, will
be subject to federal income tax at rates applicable to ordinary income. Capital
gains of a corporate holder are subject to tax at normal corporate federal
income tax rates.
It is important for you to remember that the Internal Revenue Code limits
the deductibility of capital losses. For corporate taxpayers, capital losses for
a tax year may only be used to offset capital gains for that tax year, and
unused capital losses may, in general, be carried back three years or carried
forward five years. For individual taxpayers, capital losses are deductible in
each taxable year to the extent of any capital gains and as an ordinary
deduction up to an additional $3,000 ($1,500 in the case of a married individual
filing on a separate return), and any unused capital losses may be carried
forward indefinitely.
You may be subject to "backup withholding" at a rate of 31% on payments
received in connection with the merger unless you (1) provide a correct taxpayer
identification number ("TIN") (which, if you are an individual, is your social
security number) and any other required information to the paying agent, or (2)
are a corporation or come within specified exempt categories and, when required,
demonstrate this fact, and otherwise comply with applicable requirements of the
backup withholding rules. If you do not provide a correct TIN, you may be
subject to penalties imposed by the IRS. Any amount paid as backup withholding
does not constitute an additional tax and will be creditable against your
federal income tax liability. You should consult with your own tax advisor as to
your qualification for exemption from backup withholding and the procedure for
obtaining such exemption. You may prevent backup withholding by completing a
Substitute Form W-9 and submitting it to the paying agent for the merger when
you submit your stock certificate(s) following the consummation of the merger.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, YOU ARE URGED TO CONSULT YOUR
TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE MERGER, INCLUDING THE
EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS.
ACCOUNTING TREATMENT
The merger will be accounted for using the purchase method of accounting.
Under this method of accounting, the purchase price will be allocated to the
fair value of the net assets acquired. The excess purchase price over the fair
value of the assets acquired will be allocated to goodwill.
DISSENTERS' RIGHTS OF STOCKHOLDERS
Under Delaware law, any holder of our common stock who does not wish to
accept the merger consideration in respect of his or her shares of common stock
has the right to dissent from the merger and to seek an appraisal of and to be
paid the judicially-determined fair cash value (exclusive of any element of
value arising from the accomplishment or expectation of the merger) for his or
her shares, provided that the stockholder fully complies with the requirements
of Delaware General Corporation Law.
The following is intended as a brief summary of the material provisions of
the statutory procedures
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required to be followed by you in order to dissent from the merger and perfect
your appraisal right. You should also refer to the applicable provisions of
Delaware law, the complete text of which is attached hereto as Appendix C. All
references in such provision and in this summary to a "stockholder" are to the
record holder of the common stock as to which appraisal rights are asserted. If
you have a beneficial interest in shares of common stock held of record in the
name of another person, such as a broker or nominee, you must act promptly to
cause the record holder to follow properly the steps summarized below to perfect
appraisal rights in a timely manner.
If you elect to demand appraisal of your shares, you must satisfy each of
the following conditions:
o you must deliver to us a written demand for appraisal of your shares
of common stock before the vote with respect to the merger is taken
(this written demand for appraisal must be in addition to and separate
from any proxy or vote abstaining from or against the merger; voting
against or failing to vote for the merger by itself does not
constitute a demand for appraisal);
o you must not vote in favor of the merger (a vote against the merger,
an abstention or failure to vote will satisfy this requirement, but a
vote in favor, by proxy or in person, will constitute a waiver of your
appraisal right and will nullify any written demands for appraisal
previously filed by you); and
o you must continuously hold your shares from the date of making the
demand through the effective time of the merger.
A demand for appraisal by you should be executed by you, as your name
appears on the stock certificate. The demand should also specify your name and
mailing address, the number of shares of common stock owned by you and that you
intend to demand appraisal of your common stock. An authorized agent may execute
a demand for appraisal on your behalf; however, the agent must identify you and
expressly disclose the fact that in executing the demand, the agent is serving
as agent for you. If you hold shares in brokerage accounts or other nominee
forms and wish to exercise appraisal rights, you are urged to consult with your
broker to determine the appropriate procedures for the making of a demand for
appraisal by a nominee.
All demands for appraisal should be addressed to ,
------------------------
at , before
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the vote on the merger is taken and should be executed by, or on behalf of, the
holder of record of the shares.
Within ten days after the effective time of the merger, we must give
written notice that the merger has become effective to each former holder of our
common stock who filed a written demand for appraisal and who did not vote in
favor of the merger. Within 120 days we or any stockholder who has complied with
the requirements of the Delaware General Corporation Law may file a petition in
the Delaware Court of Chancery demanding a determination of the fair value of
the shares of common stock held by all stockholders entitled to appraisal. We do
not currently intend to file such a petition in the event there are dissenting
stockholders. INASMUCH AS WE HAVE NO OBLIGATION TO FILE SUCH A PETITION, OUR
FAILURE TO DO SO WITHIN THE PERIOD SPECIFIED COULD NULLIFY YOUR PREVIOUSLY
WRITTEN DEMAND FOR APPRAISAL. At any time within 60 days after the effective
time of the merger, any stockholder who has demanded appraisal has the right to
withdraw the demand and to accept payment of the merger consideration in respect
of his or her shares of common stock. Within 120 days after the effective time
of the merger, any stockholder who has complied with the requirement of the
Delaware General Corporation Law is entitled, upon written request, to receive
from us a statement setting forth the aggregate number of shares of common stock
not voted in favor of the merger and with respect to which demands for appraisal
have been received and the aggregate
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number of holders of such shares.
If you fail to comply with the above provisions and the merger becomes
effective, you will be entitled to receive the merger consideration for your
shares of common stock as provided for in the merger agreement and will have no
appraisal rights with respect to such shares.
If a petition for appraisal is duly filed by a stockholder and a copy of
such petition is delivered to us, we will then be obligated within 20 days
thereafter to provide the Court of Chancery with a duly verified list containing
the names and addresses of all stockholders who have demanded an appraisal of
their shares of common stock and with whom agreements as to the value of their
shares have not been reached. After notice to such stockholders, the Court is
empowered to conduct a hearing upon the petition to determine those stockholders
who have complied with Delaware law and who have become entitled to appraisal
rights. The Court may require the stockholders who have demanded payment for
their shares of common stock to submit their stock certificates to the Register
in Chancery for notation on the certificates of the pendency of the appraisal
proceedings, and if any stockholder fails to comply with such direction, the
Court may dismiss the proceedings as to such stockholder.
After determining the stockholders entitled to an appraisal, the Court of
Chancery will appraise the shares of common stock, determining their fair value
exclusive of any element of value arising from the accomplishment or
expectations of the merger. When the value is so determined, the Court of
Chancery will direct the payment by the Company of such value, with interest
thereon accrued during the pendency of the proceeding if the Court of Chancery
so determines, to the stockholders entitled to receive the same, upon surrender
to us by such holders of the certificates representing such shares of common
stock. In determining fair value, the Court of Chancery is required to take into
account all relevant factors.
IF YOU ARE CONSIDERING SEEKING APPRAISAL, YOU SHOULD BE AWARE THAT THE
FAIR VALUE OF YOUR SHARES OF COMMON STOCK DETERMINED UNDER DELAWARE LAW COULD BE
MORE, THE SAME OR LESS THAN THE $10.00 PER SHARE THAT YOU ARE ENTITLED TO
RECEIVE PURSUANT TO THE MERGER AGREEMENT IF YOU DO NOT SEEK APPRAISAL.
Costs of the appraisal proceeding may be imposed upon the parties by the
Court of Chancery as it deems equitable in the circumstances. Upon the
application of a stockholder, the Court of Chancery may order all or a portion
of the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorneys fees and the
fees and expenses of experts, to be charged pro-rata against the value of all
shares of common stock entitled to appraisal.
If you demand appraisal rights, you will not, after the effective time of
the merger, be entitled to vote shares of common stock subject to such demand
for any purpose or to receive payments of dividends or any other distribution
with respect to such shares of common stock or to receive the $10.00 per share
that you are entitled to receive pursuant to the merger agreement for those
shares; however, if no petition for appraisal is filed within 120 days after the
effective time, or if you deliver a written withdrawal of your demand for
appraisal within 60 days after the effective time, then your right to appraisal
will cease and you will be entitled to receive the $10.00 per share that you are
entitled to receive pursuant to the merger agreement, without interest.
FAILURE TO FOLLOW THE STEPS REQUIRED BY DELAWARE LAW FOR PERFECTING
APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS. IN VIEW OF THE
COMPLEXITY OF THESE PROVISIONS, YOU SHOULD CONSULT YOUR LEGAL ADVISOR IF YOU ARE
CONSIDERING DISSENTING FROM THE MERGER.
Any cash received from the exercise of dissenters' rights may be subject
to federal or state income
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tax. See "Special Factors--Certain Federal Income Tax Consequences."
If the holders of more than 18% of the shares of common stock exercise
their dissenters' rights, BNCM Acquisition will not be required to complete the
merger. See "The Merger Agreement--Conditions."
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THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the merger
agreement. This summary is qualified in its entirety by reference to the merger
agreement, which we have attached as Appendix A to this proxy statement and
which we incorporate by reference into this document. We encourage you to read
the merger agreement in its entirety.
THE MERGER
The merger agreement provides that, following the approval of the merger
agreement by stockholders and the satisfaction or waiver of the other conditions
to the merger, including obtaining the requisite approvals and consents of
mortgage regulators, BNCM Acquisition will be merged with and into us, and we
will be the surviving company. The merger will become effective upon the filing
of a certificate of merger with the Secretary of State of the State of Delaware
or at such later time agreed to by the parties and specified in the certificate
of merger.
When the merger becomes effective, the certificate of incorporation of
BNCM Acquisition will become our certificate of incorporation.
Conversion of Capital Stock. At the effective time of the merger, each
share of BNC Mortgage common stock, issued and outstanding immediately prior to
the effective time, other than any shares (1) owned by us or BNCM Acquisition,
which will be canceled without consideration, or (2) held by a dissenting
stockholder exercising and perfecting dissenters' rights, will be converted into
the right to receive $10.00 in cash, without interest. Each share of common
stock and each share of preferred stock of BNCM Acquisition outstanding
immediately prior to the merger will be converted into and become one share of
common stock and one share of preferred stock (with the same rights, limitations
and preferences) of the surviving company, and those shares will constitute the
only shares of the surviving company.
Exchange of Common Stock Certificates. We will designate a bank or trust
company to act as exchange agent and, as soon as possible after the effective
time of the merger, mail a letter of transmittal to you. The letter of
transmittal will tell you how to surrender your BNC Mortgage common stock
certificates in exchange for the $10.00 per share merger payment. You should not
send in your BNC Mortgage common stock certificates until you receive the letter
of transmittal. You should send your certificates only pursuant to instructions
contained in the letter of transmittal. In all cases, the merger payment will be
made only in accordance with the procedures specified in the merger agreement
and such letter of transmittal.
We strongly recommend that certificates for common stock and letters of
transmittal be transmitted only by registered United States mail, return receipt
requested, appropriately insured. Holders of common stock whose certificates are
lost will be required to make an affidavit identifying such certificate or
certificates as lost, stolen or destroyed and, if required by the surviving
company, to post a bond in such amount as the surviving company may reasonably
require to indemnify it against any claim that may be made against it with
respect to such certificate.
Any merger consideration not validly claimed by our stockholders for one
year after the effective time and any interest and other income received by the
exchange agent will be delivered to BNC Mortgage upon demand and any holders of
shares of common stock who have not complied with the terms and
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conditions for the exchange of certificates contained in the merger agreement
and letter of transmittal will thereafter look only to the surviving company,
and only as general creditors, for the payment of their claim to the merger
payment.
Stock Options. We have agreed to take all actions necessary so that,
immediately prior to the completion of the merger, all options to acquire shares
of our common stock will become fully vested and exercisable and at the
effective time, will be canceled and converted into the right to receive a cash
payment from us equal to $10.00 minus the exercise price of the option,
multiplied by the number of shares subject to the option (less any applicable
income or employment tax withholding). The terms of our option plan already
provide for this result.
Warrants. Under the terms of our existing warrants, upon a merger, the
warrant holders are entitled to receive the difference between the merger
consideration and the exercise price per share. Because all of our outstanding
warrants have an exercise price of $10.45, the warrant holders are not entitled
to payment, and their warrants will be canceled upon the occurrence of the
merger.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties by
us relating to, among other things:
o our and our subsidiaries' organization, qualification, capital
structure and similar corporate matters;
o our authorization, execution and delivery of the merger agreement and
its binding effect on us;
o the absence of violation of organizational documents, law or
contracts;
o the required regulatory and statutory filings and approvals;
o the receipt by us of a fairness opinion from Friedman, Billings,
Ramsey;
o the Board's approval of the merger agreement and its recommendation to
stockholders to approve the merger proposal;
o our taking of all actions to render our rights agreement inapplicable
to the merger;
o the accuracy of the information contained in the reports and financial
statements that we file with the SEC and other governmental
authorities;
o our compliance with applicable laws, permits and agreements;
o the absence of material adverse changes, undisclosed liabilities and
litigation;
o certain labor matters;
o the accuracy of information supplied by us for use in this proxy
statement; and
o the absence of undisclosed broker's fees.
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The merger agreement contains customary representations and warranties by
BNCM Acquisition relating to, among other things:
o its organization and similar corporate matters;
o its authorization, execution and delivery of the merger agreement and
its binding effect on BNCM Acquisition;
o the absence of violation of organizational documents, law or
contracts;
o the required regulatory and statutory filings and approvals;
o the absence of undisclosed broker's fees;
o its financing arrangements for the merger;
o the accuracy of information provided by it for inclusion in this proxy
statement; and
o its employment agreement with Kelly Monahan, which is to become
effective at the effective time of the merger.
The foregoing representations and warranties are subject, in some cases,
to specified exceptions and qualifications. The representations and warranties
of each of the parties will expire upon completion of the merger.
CERTAIN COVENANTS
We have agreed under the merger agreement that, until the effective time
of the merger or the earlier termination of the merger agreement, we will
conduct our business only in the ordinary course consistent with past practice,
use all reasonable efforts to preserve our business organization, goodwill and
third party relationships and generally maintain the services of our officers
and employees. In addition, we have agreed that we will not take any of the
following actions without BNCM Acquisition's prior written consent, subject to
certain exceptions:
o alter the fundamental nature of our business or enter into new lines
of business or;
o incur or commit to any capital expenditures outside of the ordinary
course of business;
o declare or pay dividends or make distributions in respect of our
capital stock;
o split, combine, reclassify, redeem or repurchase our capital stock, or
issue, propose to issue, or authorize the issuance of any securities
in respect of our capital stock;
o authorize, issue, sell or encumber any shares of our capital stock,
voting debt or convertible securities, other than intercompany
issuances and issuances pursuant to outstanding stock options;
o amend our certificate of incorporation, bylaws or other governing
documents;
o acquire or purchase a substantial equity interest or a substantial
portion of the assets of any other entity;
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o sell, lease, encumber or dispose of any material assets;
o make loans, advances or capital contributions to or investments in any
entity;
o pay or discharge any liabilities or obligations or settle any
litigation except in the ordinary course of business;
o take or refrain from taking any action to cause our representations
and warranties to be materially untrue or any condition to the merger
to not be satisfied;
o change our method of accounting;
o enter into or amend employment agreements and employee benefit plans
or increase the amounts payable to our directors, officers, and
employees;
o make or rescind any election relating to taxes; or
o enter into or amend the severance arrangements of any of our
directors, officers, or employees.
In addition, we and BNCM Acquisition have agreed, as to ourselves and our
respective subsidiaries, that, from the date of the merger agreement until the
effective time or earlier termination of the merger agreement, we will use best
efforts to take all appropriate actions as are necessary to cause the merger to
be consummated.
OTHER AGREEMENTS
In addition to our agreements regarding the conduct of our business, we
have also agreed to take several other actions:
o we have agreed to furnish access to our facilities and any information
concerning us in connection with the merger agreement to BNCM
Acquisition as it may reasonably request; and
o we have agreed to give BNCM Acquisition prompt notice of any material
breach or threatened breach, or failure or threatened failure of any
condition, under the merger agreement.
NO SOLICITATION OF TRANSACTIONS
In the merger agreement, we have agreed not to directly or indirectly
solicit, initiate or encourage any inquiries, or proposals with respect to any
merger, consolidation or other business combination involving us or any of our
subsidiaries, any such proposal being referred to in this proxy statement as a
"takeover proposal." We have also agreed that we will not have any discussions,
provide any information or engage in negotiations relating to a takeover
proposal involving us or our subsidiaries or enter into any agreement or
understanding requiring us to abandon, terminate or fail to consummate the
merger. We may, however, make disclosures that are required under applicable
laws. We may also, at any time prior to the stockholder vote to approve the
merger proposal, furnish information to and engage in discussions or
negotiations with any party who seeks, without any solicitation on our part, to
engage in such discussions or negotiations or enter into any agreements, if:
o a third party has made a takeover proposal that may reasonably be
expected to be more
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favorable to you than the merger, after taking into account all legal,
regulatory and financial factors, and for which financing to the
extent required, is committed; and
o the Board concludes in good faith, after consulting its legal
advisors, that it is advisable to do so in order to act in a manner
consistent with the Board's fiduciary duties to you under applicable
law.
Prior to engaging in negotiations or furnishing information under the
preceding paragraph, we must promptly notify BNCM Acquisition that we are doing
so and must receive from the party making the acquisition proposal an executed
confidentiality agreement.
CONDITIONS TO THE MERGER
The parties' respective obligations to complete the merger are each
subject to the following conditions:
o the approval of the merger proposal by the holders of a majority of
the outstanding shares of our common stock; and
o the absence of any order, injunction or law that prevents the
completion of the merger.
Additionally, the obligation of BNCM Acquisition to complete the merger is
subject to the following conditions:
o the accuracy of our representations and warranties as of the effective
time of the merger, other than such inaccuracies which have not had,
and would not reasonably be expected to have, a material adverse
effect on us or on the ability to complete the merger;
o the performance by us of our obligations under the merger agreement in
all material respects;
o the holders of not more than 18% of our outstanding shares perfecting
dissenters' rights in connection with the merger;
o the absence of any events, other than events affecting the credit
markets generally or the ability of financial institutions to raise
capital, that would have, or could reasonably be expected to have, a
material adverse effect on us or on the completion of the merger
except for a material adverse effect which is significantly the result
of an action or inaction taken by the management investors which was
contrary to directions given by the Board or was inconsistent with the
business judgment rule or taken without the knowledge of a majority of
the special committee and out of the ordinary course of business
consistent with past practices. Events affecting the credit markets
general or the ability of financial institutions to raise capital
include (1) a limitation by any government entity which affects the
extension of credit by banks or other United States financial
institutions; (2) interest rate increases; (3) the implementation of
previously announced proposed changes to capital requirements for
sub-prime originators and investors; (4) a disruption or adverse
change in the financial or capital markets generally; (5) an event or
events that affects the "repo market" or comparable lending market for
financing debt obligations secured by residential mortgage loans or
that affects the ability or mortgage lenders generally to finance
residential mortgage loans through the "repo market" or lending market
with traditional counterparties; or (6) an event or events that
affects the securities market for securities backed by residential
mortgage loans or results in mortgage
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lenders generally not being able to sell securities backed by
residential mortgage loans;
o the absence of (1) a limitation (whether or not mandatory) by any
governmental entity which materially and adversely affects, or any
other event which materially affects, the extension of credit by banks
or other United States financial institutions, other than interest
rate increases, and other than the implementation of any previously
announced proposed changes to capital requirements for sub-prime
originators and investors the effect of which would be to materially
impair BNC Mortgage's ability to conduct its business; (2) a material
disruption or material adverse change in the financial or capital
markets generally, the effect of which effectively bars access by
financial services entities to said markets; (3) an event or events
that results in the effective absence of a "repo market" or comparable
lending market for financing debt obligations secured by residential
mortgage loans or in the inability of mortgage lenders generally to
finance residential mortgage loans through the "repo market" or
lending market with traditional counterparties; or (4) an event or
events that results in the effective absence of a "securities market"
for securities backed by residential mortgage loans or in mortgage
lenders generally not being able to sell securities backed by
residential mortgage loans;
o the receipt of all material third party consents to the merger;
o Mr. Monahan's continued service as one of our executive officers;
o the absence of litigation or the threat of litigation concerning the
merger; and
o receipt of customary officers' certificates.
Additionally, our obligation to complete the merger is subject to the
following conditions:
o the accuracy, in all material respects, of BNCM Acquisition's
representations and warranties as of the effective time of the merger
except with respect to (i) changes specifically permitted under the
merger agreement and (ii) those representations and warranties which
address matters only as of a particular date;
o the performance by BNCM Acquisition of its obligations under the
merger agreement in all material respects; and
o our receipt of customary officers' certificates.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time before the effective
time of the merger under the following circumstances:
o Written Mutual Consent - by mutual agreement of BNCM Acquisition and
us;
o Delay - by either BNCM Acquisition or us if the effective time has not
occurred on or before July 31, 2000, except that the reason for the
delay must not have been the failure of the terminating party to take
any of the actions it was required to take under the merger agreement;
o Legal Impediments - by either BNCM Acquisition or us if any permanent
injunction or order or other action by any governmental entity is
final and nonappealable and prevents us from
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completing the merger;
o Failure to Obtain Stockholder Approval - by either BNCM Acquisition or
us if our stockholders do not approve the merger proposal;
o Recommendation by BNCM Acquisition - if (1) our Board withdraws,
modifies or changes its approval or recommendation of the merger in a
manner adverse to BNCM Acquisition, (2) our Board recommends to our
stockholders another takeover proposal, or (3) a tender offer or
exchange offer for at least 20% of our outstanding capital stock is
commenced and our Board fails to recommend against acceptance of such
tender offer or exchange offer;
o Breach - by BNCM Acquisition if we have materially breached any of our
representations, warranties or covenants and have failed to cure such
breach; or by us if BNCM Acquisition has materially breached any of
its representations, warranties or covenants and has failed to cure
such breach; or
o Fiduciary Termination - by us if, prior to the stockholder vote, as a
result of an a takeover proposal that meets the requirements described
under "--No Solicitation of Transactions," our Board, after
considering applicable law and consulting outside legal counsel,
determines that the failure to terminate the merger agreement would
cause the Board to breach its fiduciary duties. We may terminate on
this ground, however, only if we notify BNCM Acquisition of our
determination and during the five business days following this
notification we and our advisors seek to negotiate in good faith with
BNCM Acquisition with a view toward enabling us to proceed with the
merger.
If the merger agreement is terminated under any of the circumstances
described above (except for willful breaches), none of us, BNCM Acquisition or
any of our or their officers, members or directors will have any liability other
than for expenses we or they incur or as described under "--Termination Fees,"
if applicable.
TERMINATION FEES
We have agreed to pay BNCM Acquisition a termination fee of $1.5 million,
and to reimburse up to $500,000 of its expenses, if the merger agreement is
terminated:
o by us to enter into an acquisition agreement in respect of another
takeover proposal after our Board has determined that failure to so do
so would cause the Board to breach its fiduciary duties under
applicable law;
o by BNCM Acquisition because our Board (1) withdraws or modifies in a
manner adverse to BNCM Acquisition its recommendation of the merger,
or (2) approves or recommends another takeover proposal; or
o by BNCM Acquisition because (1) our stockholders fail to approve the
merger proposal or we have materially breached our representations,
warranties or covenants, and (2) at the time of the termination, there
was another takeover proposal pending and (3) within six month after
the termination, we are either acquired by a third party or we enter
into a definitive agreement to complete another takeover proposal with
a third party.
We have further agreed to reimburse BNCM Acquisition for up to $500,000 of
its expenses if the
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merger agreement is terminated due to a material breach of certain of our
representations and warranties in a manner that gives rise to BNCM Acquisition's
ability to terminate the merger agreement.
BNCM Acquisition has agreed to reimburse us for up to $500,000 of our
expenses if the merger agreement is terminated due to a material breach of BNCM
Acquisition's representations, warranties or covenants in a manner that gives
rise to our ability to terminate the merger agreement.
EXPENSES
Except as described above, all fees and expenses incurred connection with
the merger will be paid by the party incurring such expense.
AMENDMENT; WAIVER
The merger agreement may be amended by mutual agreement of the parties.
However, after stockholder approval of the merger agreement, the parties may not
amend the merger agreement if such amendment would have otherwise required
stockholder approval. Any party may extend the time for the other party to
perform its obligations, waive any inaccuracy in the other party's
representations and warranties or waive the other party's obligation to comply
with any agreement or condition.
REGULATORY MATTERS
Set forth below is a summary of the regulatory requirements affecting
completion of the merger.
Antitrust Considerations
No pre-merger notification filing is required under the Hart-Scott-Rodino
Act to complete the merger.
Other Regulatory Matters
The conduct of our mortgage business has required that we and our
subsidiaries obtain franchises, permits and licenses from mortgage regulatory
authorities in various states in which we operate, as well as from the U.S.
Department of Housing and Urban Development. In connection with the merger, we
will be required to obtain the prior written consent to the merger of mortgage
regulators in Arizona, California, Massachusetts, Michigan, Pennsylvania and
Virginia. In addition, we may be required to file new licensing applications in
Delaware, Florida, Georgia, Illinois, Michigan and Rhode Island prior to the
merger. We will also be required to notify mortgage regulators in a number of
additional states and at the Department of Housing and Urban Development of the
merger within their prescribed time frames.
We are not aware of any material governmental or regulatory approvals or
actions that may be required for completion of the merger other than as
described above. If any other governmental or regulatory approval or action is
or becomes required, we currently contemplate that we would seek that additional
approval or action.
We currently expect that these consents and approvals will be obtained no
later than the end of July 2000. However, we cannot assure you all required
approvals will be obtained by this time.
Litigation
Two of our stockholders have filed class action derivative suits against
us, one in the Superior Court for Orange County, California and one in the Court
of Chancery for New Castle County, Delaware, alleging,
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among other things, that the merger price is inadequate and that the merger is
not in the best interests of BNC Mortgage and its stockholders. Both of these
suits request monetary damages and injunctive relief. For the reasons described
in this proxy statement, both the special committee and our Board have
determined that the merger is advisable and fair to our stockholders and to BNC
Mortgage.
In addition, we occasionally become involved in litigation arising from
the normal course of our business. Our management believes that any liability
with respect to such pending legal actions, individually or in the aggregate,
will not have a material adverse effect on our financial position or results of
operations.
PARTIES TO THE MERGER
BNC Mortgage. We are headquartered in Irvine, California, and have
approximately 400 employees. Our common stock is quoted on the Nasdaq National
Market under the symbol "BNCM." Information about us and our subsidiary
companies is available on the Internet at http://www.bncmortgage.com, but the
information included in that site is expressly not incorporated into this proxy
statement. Our principal address is 1063 McGaw Avenue, Irvine, California
92614-5532, and our telephone number is (949) 260-6000.
BNCM Acquisition. BNCM Acquisition is a Delaware corporation with no
business operations. It was organized for the sole purpose of effecting the
merger. BNCM Acquisition's principal offices are located at c/o BNC Mortgage,
1063 McGaw Avenue, Irvine, California 92614-5532.
Mortgage Investco. Mortgage Investco LLC is a Delaware limited liability
company and is currently the sole stockholder of BNCM Acquisition. Mortgage
Investco is a holding company for mortgage-related investments. The sole member
of Mortgage Investco is Lehman Brothers Holdings, Inc., a Delaware corporation.
The principal offices of Mortgage Investco and Lehman Brothers Holdings, Inc.
are located at 3 World Financial Center, 200 Vesey Street, New York, New York
10285.
Kelly W. Monahan is a United States citizen whose principal occupation is
acting as our President. Mr. Monahan has been our President since December 1997
and a director since October 1997. From our inception through March 1999, Mr.
Monahan was our Chief Financial Officer, and from our inception through December
1997, he was our Executive Vice President. From July 1992 to July 1995, Mr.
Monahan served as Vice President and Chief Financial Officer of Quality Mortgage
USA, Inc., a residential mortgage lender. His principal address is c/o BNC
Mortgage, Inc., 1063 McGaw Avenue, Irvine, California 92614-5532.
Peter R. Evans is a United States citizen whose principal occupation is
acting as our Chief Financial Officer. Mr. Evans has been our Chief Financial
Officer since March 1999. From March 1998 to March 1999, Mr. Evans was our Vice
President of Finance. Mr. Evans served as Senior Vice President of Kroll Real
Estate Group, Inc., a publicly-traded commercial and residential land developer
and home builder (Nasdaq-KREG), where he was responsible for the accounting, tax
and financing of its joint venture and development projects from June 1996 to
February 1998 and served as Vice President of Corporate Finance from April 1994
to June 1996. His principal address is c/o BNC Mortgage, Inc., 1063 McGaw
Avenue, Irvine, California 92614-5532.
Al Lapena is a United States citizen whose principal occupation is acting
as our Vice President of Operations. Mr. Lapena has been our Vice President of
Operations since January 1998. From July 1997 to January 1998, Mr. Lapena served
as our Director of Secondary Marketing. From 1992 to 1997, Mr. Lapena was the
Vice President of the Real Estate Finance Group of the Taxable Fixed Income
Division for Donaldson, Lufkin & Jenrette, Inc. where he was responsible for the
management of whole loan trades involving prime and sub-prime mortgage loans
purchased from sellers/originators with contractual relationships with DLJ
Mortgage Capital, Inc. His principal address is c/o BNC Mortgage, Inc., 1063
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McGaw Avenue, Irvine, California 92614-5532.
Gary Vander-Haeghen is a United States citizen whose principal occupation
is acting as our Vice President of Sales. Mr. Vander-Haeghen joined us as a
non-executive employee in November 1995 and became our Vice President of Sales
in September 1996. From December 1991 to November 1995, Mr. Vander-Haeghen was a
Branch Manager for Quality Mortgage USA, Inc., a residential mortgage lender,
where he opened and managed its San Diego branch. His principal address is c/o
BNC Mortgage, Inc., 1063 McGaw Avenue, Irvine, California 92614-5532.
Marles M. Crow is a United States citizen whose principal occupation is
acting as our Director of Human Resources. Prior to joining us in September
1995, Ms. Crow was the Director of Human Resources at Quality Mortgage USA,
Inc., a residential mortgage lender. Her principal address is c/o BNC Mortgage,
Inc., 1063 McGaw Avenue, Irvine, California 92614-5532.
Jamie Langford is a United States citizen whose principal occupation is
acting as our Vice President of Funding. Prior to joining us in August 1995, Ms.
Langford was the Vice President of Funding at Quality Mortgage USA, Inc., a
residential mortgage lender. Her principal address is c/o BNC Mortgage, Inc.,
1063 McGaw Avenue, Irvine, California 92614-5532.
None of BNC Mortgage, BNCM Acquisition, the members of the investor group,
nor to our knowledge or that of the investor group, any of the persons listed on
Appendix E to this proxy statement, has effected any transactions in our common
stock during the 60 day period ended March 24, 2000.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides certain information regarding the beneficial
ownership of our common stock based on the most recent information available to
us, by (1) each person known by us to own beneficially more than 5% of the
outstanding common stock, (2) each of our directors and executive officers, (3)
each of our "named executive officers" (as defined in Item 402(a)(3) of
Regulation S-K) for our last full fiscal year and (4) all of our directors and
executive officers as a group (8 persons). Except as noted in the table, the
business address of each person is c/o BNC Mortgage, Inc., 1063 McGaw Avenue,
Irvine, California 92614-52232.
Pursuant to Rule 13d-3 under the Exchange Act, a person is deemed to be a
"beneficial owner" of a security if that person has or shares "voting power"
(which includes the power to vote or to direct the voting of such security) or
"investment power" (which includes the power to dispose of or to direct the
disposition of such security). A person is also deemed to be a beneficial owner
of any security of which that person has a right to acquire beneficial ownership
(such as by the exercise of options or pursuant to a conversion feature of a
security) on or within 60 days after the date of this proxy statement. In
addition, more than one person may be deemed to be a beneficial owner of the
same securities, and a person may be deemed to be a beneficial owner of
securities as to which he or she disclaims any beneficial interest. The
percentages of common stock indicated on this table are based on the 5,151,194
shares of our common stock outstanding as of the record date. Any common stock
not outstanding which the beneficial owner had the right to exercise on or
within 60 days is deemed outstanding for purposes of computing the percentage of
common stock owned by such beneficial owner but is not deemed outstanding for
purposes of computing the percentage of outstanding common stock owned by any
other beneficial owner.
AMOUNT AND NATURE
OF BENEFICIAL PERCENTAGE OF
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS (1)
------------------------ ----------------- -------------
Evan Buckley (2) 1,559,717(1) 30.28%
Greenlight Capital LLC (3) 665,400 12.92%
Safeco Asset Mngmt Company (4) 540,100 10.48%
Safeco Common Stock Trust (4) 417,300 8.10%
BNCM Acquisition Co. (5) 370,930 7.20%
Kelly W. Monahan (6) 225,113(1) 4.37%
Peter R. Evans (6) 16,000(1) 0.31%
Al Lapena (6) 34,451(1) 0.67%
Gary Vander-Haegan (6) 48,569(1) 0.94%
Mortgage Investco LLC (7) 0 0%
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All directors and executive
officers as a group (8 persons) 1,849,183 35.90%
- -----------------------------------
(1) Voting and dispositive power is shared between the reporting party and
BNCM Acquisition, pursuant to the voting agreements described in "Special
Factors - Background of the Merger" and in "Special Factors - Purpose of the
Merger; Certain Effects of the Merger" in this proxy statement.
(2) All of these shares are owned directly by The Buckley Family Trust, a
trust created for the benefit of Mr. Buckley and his family of which Mr. Buckley
and his wife are co-trustees.
(3) Based on information contained in the Schedule 13D/A filed by
Greenlight Capital L.L.C., David Einhorn and Jeffrey Keswin on February 18,
2000. The mailing address for Greenlight Capital L.L.C. is 420 Lexington Avenue,
Suite 1740, New York, New York 10170.
(4) The number of shares represented is based upon filings with the SEC as
of December 31, 1999. SAFECO Asset Management Company and SAFECO Corporation
have both shared voting power and shared dispositive power with respect to such
shares. The shares are owned beneficially by registered investment companies for
which SAFECO Asset Management Company and SAFECO Corporation serve as
independent advisors, and the shares represented include 417,300 shares reported
as owned by SAFECO Common Stock Trust. Both of such entities disclaim beneficial
ownership of said shares. SAFECO Corporation can be reached at SAFECO Plaza,
Seattle, Washington 98185. SAFECO Asset Management Company can be reached at 601
Union Street, Suite 2500, Seattle, Washington 98101.
(5) BNCM Acquisition's beneficial ownership is derived solely from the
Management Letter Agreement, the Stock Purchase Agreement with the Management
Group Investors, and the Voting Agreements between BNCM Acquisition and each of
the management investors and The Buckley Family Trust, each of which is
described in "Special Factors - Interests in the Merger that Differ from Your
Interests" in this proxy statement.
(6) By virtue of their status as a "group" for purposes of Rule 13d-5,
each member of the investor group may be deemed to have shared voting and
dispositive power over the shares owned by the other members of the investor
group. Each member of the investor group, however, disclaims beneficial
ownership of the shares held by other members of the investor group.
(7) The mailing address for Mortgage Investco LLC is 3 World Financial
Center, 200 Vesey Street, New York, New York 10285.
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PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Our common stock began trading on the Nasdaq National Market under the
symbol "BNCM" on March 10, 1998. The following table sets forth the range of
high and low closing sale prices of our common stock for the periods indicated:
HIGH LOW
YEAR ENDING JUNE 30, 2000:
- -------------------------
Quarter ended: September 30, 1999...................$ 6.875 $ 5.875
Quarter ended: December 31, 1999...................$ 7.125 $ 6
Quarter ended: March 31, 2000
(through March 23, 2000)............................$ 9.687 $ 6.125
YEAR ENDED JUNE 30, 1999:
- ------------------------
Quarter ended: September 30, 1998..................$ 10 7/8 $ 6
Quarter ended: December 31, 1998...................$ 6 $ 4 1/2
Quarter ended: March 31, 1999..................... $ 6 11/16 $ 4 7/16
Quarter ended: June 30, 1999...................... $ 8 5/8 $ 4 1/2
YEAR ENDED JUNE 30, 1998
Period from March 10, 1998 to March 31, 1998........$ 13 1/8 $ 11 5/8
Quarter ended: June 30, 1998...................... $ 14 1/8 $ 10 5/8
- ---------------------
Our initial public offering of 3,173,196 shares of common stock at $9.50
per share went effective on March 10, 1998. Of these shares, 1,400,000 were sold
by us and the balance were sold by selling shareholders. On March 11, 1998, the
underwriters purchased from us an additional 475,979 shares of common stock at a
price of $9.50 per share following their exercise of the over allotment option.
We received aggregate proceeds from our initial public offering of approximately
$12.3 million. In connection with our initial public offering, we issued
warrants to the representatives of the underwriters to purchase up to 317,319
additional shares of common stock at an exercise price of $10.45 per share,
exercisable over a period of four years, commencing March 10, 1999.
On April 6, 1999, our Board of Directors authorized us to repurchase up to
$5 million of the Company's common stock, in open market purchases from time to
time at the discretion of our management. As of the date of this proxy
statement, we had repurchased 833,629 shares of common stock at a cost of $4.5
million. Information about these repurchases is provided in Appendix D to this
proxy statement.
On February 3, 2000, the last full trading day prior to the public
announcement of the signing of the merger agreement, the closing sale price of
our common stock reported on the Nasdaq National Market was $7.375 per share and
the high and low trading prices per share of our common stock as quoted on the
Nasdaq National Market were $7.375 and $7.25, respectively. On , 2000,
-------
the most recent practicable date prior to the date of this proxy statement, the
closing price of our common stock reported on the Nasdaq National Market was
$ . We urge you to obtain current market quotations for our common stock
------
prior to making any decision with respect to the merger.
We have not paid cash dividends on our common stock. We intend to continue
this policy for the foreseeable future and retain funds for repayment of
indebtedness and investment in our business. In addition, the merger agreement
restricts our ability to pay dividends.
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Except as described above or in Appendix D to this proxy statement, none
of BNC Mortgage, BNCM Acquisition or any member of the investor group has
purchased any shares of common stock during the two years preceding this proxy
statement.
On December 31, 1999, we had approximately 16 stockholders of record of
our common stock, including holders who are nominees for an undetermined number
of beneficial owners.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The following statements in this proxy statement constitute
forward-looking statements:
o statements with respect to our possible or assumed future results of
operations contained in "Special Factors--Background of the Merger;"
"--Recommendation of the Special Committee and the Board of Directors;
Reasons for the Merger," "--Opinions of Financial Advisors" and
"--Certain Projections Provided to Financial Advisors," and any
forecasts, projections and descriptions of anticipated cost savings
referred to in those sections, and any statements made in this proxy
statement or in the documents by reference in this proxy statement
with respect to future cash flows, future business prospects,
revenues, working capital, liquidity, capital needs, interest costs,
income or the effects of the merger;
o any statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "intends," "estimates,"
"projects" or similar expressions; and
o other statements contained or incorporated by reference into this
proxy statement regarding matters that are not historical facts.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. You are cautioned not to place undue reliance on
such statements, which speak only as of the date of this proxy statement.
Among the factors that could cause actual results to differ materially
are:
o increases in interest rates;
o increased regulatory restrictions or requirements in the United States
relating to the mortgage business;
o the increasingly competitive nature of the mortgage markets in which
we operate and further consolidation of our competitors in these
markets;
o other uncertainties relating to our operations; and
o other risks detailed from time to time in our reports filed with the
SEC.
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The cautionary statements contained or referred to in this proxy statement
should be considered in connection with any subsequent written or oral
forward-looking statements that may be issued by us or persons acting on our
behalf. Except for our ongoing obligations to disclose material information as
required by the federal securities laws, we undertake no obligation to release
publicly any revisions to any forward-looking statements to reflect events or
circumstances after the date of this proxy statement or to reflect the
occurrence of unanticipated events. Please refer to our SEC filings, including
the Current Report on Form 8-K dated February 3, 2000, incorporated into this
proxy statement by reference. Because the proposed merger is a "going private"
transaction within the meaning of Rule 13e-3 under the Exchange Act, the safe
harbor provided in Section 21E of the Private Securities Litigation Reform Act
of 1995 does not apply to this proxy statement or to information incorporated in
this proxy statement by reference to other documents.
If the merger is not completed, any stockholder proposal that is submitted
to us for inclusion in our proxy statement for our annual meeting in 2000
pursuant to Rule 14a-8 under the Exchange Act must be received by us before the
close of business on Ju1y 29, 2000.
If you intend to present a proposal at our annual meeting in 2000 but do
not intend to have your proposal included in our proxy statement, you must
notify us on a timely basis of your intent to present such proposal at the
meeting. To be timely, your notice must be delivered to us either by personal
delivery or by U.S. mail, postage prepaid, to our Secretary at the address under
"Incorporation by Reference," not later than 120 days before the meeting. If we
give notice of the meeting or publicly disclose the meeting date later than 120
days before the meeting, your notice must be delivered to us no later than the
close of business on the seventh day after we notify stockholders of the meeting
date. In addition, your notice must otherwise comply with the requirements of
our bylaws. If you would like a copy of our bylaws, we will furnish one without
charge upon your written request to our Secretary.
SEC rules establish standards as to which stockholder proposals are
required to be included in a proxy statement for an annual meeting. We will only
consider proposals meeting the requirements of applicable SEC rules.
INDEPENDENT AUDITORS
The consolidated financial statements incorporated in this proxy statement
by reference from our Annual Report on Form 10-K for the year ended June 30,
1999 have been audited by Ernst & Young LLP, independent accountants, as stated
in its reports with respect to our financial statements.
WHERE YOU CAN FIND MORE INFORMATION
As required by law, we file reports, proxy statements and other
information with the SEC. Because the proposed merger is a "going private"
transaction, we, BNCM Acquisition and the members of the investor group have
filed a Rule 13e-3 Transaction Statement on Schedule 13E-3 with respect to the
proposed merger. The Schedule 13E-3 and the reports, proxy statements and other
information that we file with the SEC contain additional information about us.
You may access this information via the SEC's web site at http://www.sec.gov.
You may also read and copy this information at the following offices of the SEC:
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Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661
For further information concerning the SEC's public reference rooms, you
may call the SEC at 1-800-SEC-0330. You may obtain copies of this information by
mail from the public reference section of the SEC, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, at prescribed rates.
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INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" information into this
proxy statement. This means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is considered to be part of this proxy statement, and
information filed with the SEC after the date of this proxy statement will
update and supercede the information in this proxy statement.
We incorporate by reference each document we file pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this proxy
statement and prior to the special meeting. All such documents will be deemed to
be incorporated by reference into this proxy statement and to be a part of the
proxy statement from their date of filing. We also incorporate by reference into
this proxy statement the following documents that we filed with the SEC (File
No. 000-23725) under the Exchange Act:
o our Annual Report on Form 10-K for the year ended June 30, 1999, as
amended;
o our Quarterly Reports on Form 10-Q for the quarters ended September
30, 1999 and December 31, 1999; and
o our Current Report on Form 8-K, filed on February 3, 2000.
You should rely only on the information contained in (or incorporated by
reference into) this proxy statement. We have not authorized anyone to give any
information different from the information contained in (or incorporated by
reference into) this proxy statement. This proxy statement is dated ,
----------
2000. You should not assume that the information contained in this proxy
statement is accurate as of any later date, and the mailing of this proxy
statement to you shall not create any implication to the contrary.
Documents incorporated by reference are available from us without charge,
excluding all exhibits (unless we have specifically incorporated by reference an
exhibit into this proxy statement). You may obtain documents incorporated by
reference by requesting them in writing or by telephone as follows:
BNC Mortgage, Inc., 1063 McGaw Avenue, Irvine, California 92614-5532:
Assistant Corporate Secretary Telephone: (949) 260-6000
If you would like to request documents from us, please do so by ,
---------
2000 in order to ensure timely receipt before the special meeting.
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APPENDIX A
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
BETWEEN
BNC MORTGAGE, INC.
AND
BNCM ACQUISITION CO
Dated as of February 3, 2000
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 3, 2000 (the "AGREEMENT"),
between BNC MORTGAGE, INC., a Delaware corporation (the "COMPANY"), and BNCM
ACQUISITION CO., a Delaware corporation (the "MERGER SUB").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of this Agreement and in
accordance with the General Corporation Law of the State of Delaware (the
"DGCL"), Merger Sub will merge with and into the Company (the "MERGER") pursuant
to which each outstanding share of common stock, par value $0.001 per share, of
the Company (the "COMMON STOCK") other than shares owned by Merger Sub), shall
be converted into the right to receive $10.00 in cash per share of Common Stock,
as more fully set forth herein;
WHEREAS, the Board of Directors of the Company, based on the unanimous
recommendation of the Special Committee (as defined in Section 3.07), has
determined that the Merger is advisable and fair to and in the best interests of
the Company and its stockholders (other than Merger Sub and its affiliates and
members of the Management Group (as defined in Section 9.03)) and has approved
this Agreement, the Merger and the other transactions contemplated hereby and
has recommended approval and adoption of this Agreement by the stockholders of
the Company.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the DGCL, at the
Effective Time (as defined in Section 1.02), Merger Sub shall be merged
with and into the Company. Following the Merger, the separate existence
of Merger Sub shall cease and the Company shall continue as the surviving
corporation of the Merger (the "Surviving Corporation").
SECTION 1.02. EFFECTIVE TIME. As soon as practicable after the satisfaction
or, if permissible, waiver of the conditions set forth in Article VII,
the parties hereto shall cause the Merger to be consummated by filing a
certificate of merger (the "CERTIFICATE OF MERGER") with the Secretary of
State of the State of Delaware and by making any related filings required
under the DGCL in connection with the Merger. The Merger shall become
effective at such time as the Certificate of Merger is duly filed with
the Secretary of State of the State of Delaware or at such later time as
is agreed to by the parties hereto and as is specified in the Certificate
of Merger (the "EFFECTIVE TIME" or the "CLOSING").
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SECTION 1.03. EFFECTS OF THE MERGER. From and after the Effective Time, the
Merger shall have the effects set forth in the DGCL (including, without
limitation, Sections 259, 260 and 261 thereof).
SECTION 1.04. CERTIFICATE OF INCORPORATION. The certificate of incorporation
of Merger Sub immediately prior to the Effective Time shall be the
certificate of incorporation of the Surviving Corporation (the "SURVIVING
CERTIFICATE") until thereafter amended in accordance with the DGCL. At
the Effective Time, such certificate shall be amended to change the name
of the Surviving Corporation to "BNC Mortgage Inc."
SECTION 1.05. BYLAWS. The bylaws of Merger Sub immediately prior to the
Effective Time shall be the bylaws of the Surviving Corporation until
thereafter amended in accordance with the Surviving Certificate and the
DGCL.
SECTION 1.06. DIRECTORS AND OFFICERS. From and after the Effective Time,
until their respective successors are duly elected or appointed and
qualified in accordance with applicable law, (a) the directors of Merger
Sub at the Effective Time shall be the directors of the Surviving
Corporation and (b) the officers of the Company at the Effective Time
shall be the officers of the Surviving Corporation.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. CONVERSION OF SECURITIES. At the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, the Company
or the holders of any of the following securities:
(a) Each share of the Common Stock issued and outstanding immediately prior
to the Effective Time (other than any shares of Common Stock to be
canceled pursuant to Section 2.01(b) and any Dissenting Shares to the
extent provided in Section 2.06) shall be converted into the right to
receive $10.00 in cash, without interest (the "MERGER CONSIDERATION"). At
the Effective Time, each share of Common Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall
cease to exist, and each certificate previously evidencing any such share
(other than shares to be canceled pursuant to Section 2.01(b) and any
Dissenting Shares) shall thereafter represent only the right to receive,
upon the surrender of such certificate in accordance with the provisions
of Section 2.02, an amount in cash per share equal to the Merger
Consideration. The holders of such certificates previously evidencing
such shares of Common Stock outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such shares
of Common Stock except as otherwise provided herein or by law.
(b) Each share of capital stock of the Company (i) held in the treasury of
the Company or by any wholly owned subsidiary of the Company or (ii)
owned by Merger Sub or any of its subsidiaries shall automatically be
canceled, retired and cease to exist without any conversion thereof and
no payment shall be made with respect thereto.
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(c) Each share of common stock and each share of preferred stock of Merger
Sub outstanding immediately prior to the Effective Time shall be
converted into and become one share of common stock and one share of
preferred stock (with the same rights, limitations and preferences),
respectively, of the Surviving Corporation and such shares shall
constitute the only outstanding shares of capital stock of the Surviving
Corporation.
SECTION 2.02. EXCHANGE OF CERTIFICATES AND CASH. EXCHANGE AGENT. On or before
the Closing Date, Merger Sub shall enter into an agreement providing for
the matters set forth in this Section 2.02 with a bank or trust company
selected by Merger Sub and reasonably acceptable to the Company (the
"EXCHANGE AGENT"), authorizing such Exchange Agent to act as Exchange
Agent in connection with the Merger. Immediately prior to the Effective
Time, Merger Sub shall deposit or shall cause to be deposited with or for
the account of the Exchange Agent, for the benefit of the holders of
shares of Common Stock (other than Dissenting Shares and shares to be
canceled pursuant to Section 2.01(b)), an amount in cash equal to the
Merger Consideration payable pursuant to Section 2.01(a) (such cash funds
are hereafter referred to as the "EXCHANGE FUND").
(a) EXCHANGE PROCEDURES. As soon as practicable after the Effective Time, the
Surviving Corporation will cause the Exchange Agent to mail to each
holder of record of a certificate or certificates which immediately prior
to the Effective Time evidenced outstanding shares of Common Stock (other
than Dissenting Shares and shares to be canceled pursuant to Section
2.01(b)) (the "CERTIFICATES"), (i) a form letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent and shall be in such form and have
such other provisions as Merger Sub may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in
exchange for the Merger Consideration. Upon surrender of a Certificate
for cancellation to the Exchange Agent or to such other agent or agents
as may be appointed by Merger Sub or the Surviving Corporation, together
with a letter of transmittal, duly executed, and such other customary
documents as may be required pursuant to such instructions (collectively,
the "TRANSMITTAL DOCUMENTS"), the holder of such Certificate shall be
entitled to receive in exchange therefor the Merger Consideration for
each share of Common Stock formerly represented by such Certificate,
without any interest thereon, less any required withholding of taxes, and
the Certificate so surrendered shall thereupon be canceled. In the event
of a transfer of ownership of shares of Common Stock which is not
registered in the transfer records of the Company, the Merger
Consideration may be issued and paid in accordance with this Article II
to the transferee of such shares if the Certificate evidencing such
shares of Common Stock is presented to the Exchange Agent and is properly
endorsed or otherwise in proper form for transfer. The signature on the
Certificate or any related stock power must be properly guaranteed and
the person requesting payment of the Merger Consideration must either pay
any transfer or other taxes required by reason of the payment to a person
other than the registered holder of the Certificate so surrendered or
establish to the Surviving Corporation that such tax has been paid or is
not applicable. The Merger Consideration will be delivered by the
Exchange Agent as soon as practicable following surrender of a
Certificate and the related Transmittal
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Documents. Cash payments may be made by check unless otherwise required
by a depositary institution in connection with the book-entry delivery of
securities. No interest will be payable on such Merger Consideration.
Until surrendered in accordance with this Section 2.02, each Certificate
shall be deemed at any time after the Effective Time to evidence only the
right to receive, upon such surrender, the Merger Consideration for each
share of Common Stock formerly represented by such Certificate. The
Exchange Fund shall not be used for any purpose other than as set forth
in this Article II. Any interest, dividends or other income earned on the
investment of cash held in the Exchange Fund shall be for the account of
the Surviving Corporation.
(b) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund (including
the proceeds of any investments thereof) which remains undistributed to
the holders of Common Stock for six months following the Effective Time
shall be delivered to the Surviving Corporation, upon demand. Any holders
of Common Stock who have not theretofore complied with this Article II
shall thereafter look only to the Surviving Corporation for payment of
the Merger Consideration. Any amounts remaining unclaimed by holders of
Common Stock five years after the Effective Time (or such earlier date
immediately prior to such time as such amounts would otherwise escheat to
or become property of any Governmental Entity) shall, to the extent
permitted by applicable law, become the property of the Surviving
Corporation, free and clear of any claims or interest of any Person
previously entitled thereto.
(c) NO LIABILITY. Notwithstanding anything to the contrary in this Article
II, none of Merger Sub, the Surviving Corporation or the Company shall be
liable to any holder of Common Stock for any cash delivered to a public
official pursuant to any applicable abandoned property, escheat or
similar law.
(d) WITHHOLDING RIGHTS. The Surviving Corporation and the Exchange Agent
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Common
Stock such amounts as the Surviving Corporation or the Exchange Agent is
required to deduct and withhold with respect to the making of such
payment under the United States Internal Revenue Code of 1986, as amended
(the "CODE"), or any provision of state, local or foreign tax law. To the
extent that amounts are so withheld by the Surviving Corporation or the
Exchange Agent, such withheld amounts shall be treated for all purposes
of this Agreement as having been paid to the holder of the shares of
Common Stock in respect of which such deduction and withholding was made
by the Surviving Corporation or the Exchange Agent.
(e) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates
evidencing shares of Common Stock shall have been lost, stolen or
destroyed, the holder of such lost, stolen or destroyed Certificate(s)
shall execute an affidavit of that fact upon request. The holder of any
such lost, stolen or destroyed Certificate(s) shall also deliver, if
reasonably required by the Surviving Corporation, a reasonable indemnity
against any claim that may be made against Merger Sub, the Surviving
Corporation or the Exchange Agent with respect to the Certificate(s)
alleged to have been lost, stolen or destroyed. The affidavit and any
indemnity which may be required hereunder shall be delivered to
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the Exchange Agent, who shall be responsible for making payment for such
lost, stolen or destroyed Certificates(s) pursuant to the terms hereof.
SECTION 2.03. STOCK TRANSFER BOOKS. At the Effective Time, the stock transfer
books of the Company shall be closed, and there shall be no further
registration of transfers of shares of Common Stock thereafter on the
records of the Company. Any Certificates presented to the Exchange Agent
or the Surviving Corporation for any reason at or after the Effective
Time shall be exchanged for the Merger Consideration pursuant to the
terms hereof.
SECTION 2.04. STOCK OPTIONS; PAYMENT RIGHTS. Prior to the Effective Time, the
Board of Directors of the Company (or, if appropriate, any committee
thereof) shall adopt appropriate resolutions and take all other actions
necessary to provide that each outstanding Option heretofore granted
under the Company's 1997 Stock Option, Deferred Stock and Restricted
Stock Plan (the "STOCK OPTION PLAN") or any other plan, whether or not
then vested or exercisable, shall, at or immediately prior to the
Effective Time, be canceled, and each holder thereof shall be entitled to
receive a payment in cash from the Company (which amount shall be subject
to any applicable withholding taxes and shall be paid without interest,
the "CASH Payment"), upon cancellation, equal to the product of (x) the
total number of Shares subject or related to such Option, whether or not
then vested or exercisable, and (y) the excess, if any, of the Merger
Consideration over the exercise price or purchase price, as the case may
be, per Share subject or related to such Option. Each such Cash Payment
to be paid to each holder of an outstanding Option shall be paid by the
Surviving Corporation as soon as practicable after the Effective Time.
The Stock Option Plan (and any other plan, program or arrangement other
than the Company's tax-qualified defined contribution plan) providing for
the issuance or grant of any other interest in respect of the capital
stock of the Company or any subsidiary shall terminate as of the
Effective Time.
SECTION 2.05. OUTSTANDING WARRANTS. As soon as practicable following the date
of this Agreement, the Company shall use its reasonable best efforts to
cause all outstanding warrants for Common Stock to be canceled in
exchange for the right to receive at the Effective Time an amount in cash
equal to the product of (i) the total number of shares of Common Stock
subject to such warrant, multiplied by (ii) the excess, if any, of the
Merger Consideration over the exercise price per share of Common Stock
subject to such warrant.
SECTION 2.06. DISSENTING SHARES. Notwithstanding any other provision of this
Agreement to the contrary, shares of Common Stock that are outstanding
immediately prior to the Effective Time and which are held by
stockholders (i) who shall not have voted in favor of adoption of this
Agreement and (ii) who shall be entitled to and shall have demanded
properly in writing appraisal for such shares in accordance with Section
262 of the DGCL ("DISSENTING SHARES"), shall not be converted into or
represent the right to receive the Merger Consideration unless such
stockholders fail to perfect, withdraw or otherwise lose their right to
appraisal. Such stockholders shall be entitled to receive payment of the
appraised value of such Dissenting Shares in accordance with the
provisions of the DGCL. If, after the Effective Time, any such
stockholder fails to perfect, withdraws or loses its right to appraisal,
such shares of Common Stock shall be
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treated as if they had been converted as of the Effective Time into a
right to receive the Merger Consideration, without interest thereon, upon
surrender of the Certificate or Certificates that formerly evidenced such
shares of Common Stock in the manner set forth in Section 2.02.
(a) The Company shall give Merger Sub prompt notice of any demands for
appraisal received by it, withdrawals of such demands, and any other
instruments served pursuant to the DGCL and received by the Company and
relating thereto. Merger Sub shall direct all negotiations and
proceedings with respect to demands for appraisal under the DGCL. The
Company shall not, except with the prior written consent of Merger Sub,
make any payment with respect to any demands for appraisal, or offer to
settle, or settle, any such demands.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Merger Sub that:
SECTION 3.01. ORGANIZATION AND QUALIFICATIONS; SUBSIDIARIES. The Company is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware and has all corporate power and all
material licenses, consents, permits and other approvals necessary to
carry on its business as it is now being conducted. The Company is
licensed, qualified, and in good standing in each state in which it
originates mortgages if the laws of such state require licensing or
qualification in order to originate mortgage loans and otherwise conduct
business of the type conducted by the Company, except where the failure
to be so qualified or licensed or in good standing has not had and could
not reasonably be expected to have a Company Material Adverse Effect. The
Company has delivered to Merger Sub complete and correct copies of its
Certificate of Incorporation and Bylaws, each as amended to date.
(a) The only subsidiaries of the Company are those set forth in SECTION 3.01
OF THE COMPANY DISCLOSURE SCHEDULE. Except as set forth in SECTION 3.01
OF THE COMPANY DISCLOSURE SCHEDULE, each subsidiary of the Company is a
corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation and has all corporate power
to carry on its business as it is now being conducted. Each subsidiary of
the Company is duly qualified as a foreign corporation or licensed to do
business, and is in good standing, in each jurisdiction where the
character of its properties owned or leased or the nature of its
activities makes such qualification or licensing necessary, except where
the failure to be so qualified or licensed or in good standing has not
had and could not reasonably be expected to have a Company Material
Adverse Effect. The Company has delivered to Merger Sub complete and
correct copies of the organizational documents of each subsidiary, each
as amended to date.
(b) All of the outstanding shares of capital stock of each such subsidiary
have been validly issued and are fully paid and non-assessable and are
owned by the Company, by another wholly owned subsidiary of the Company
or by the Company and another such wholly owned subsidiary, free and
clear of all pledges, claims, equities, options, liens, charges,
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rights of first refusal, encumbrances and security interests of any kind
or nature whatsoever (collectively, "LIENS"). Except for the capital
stock of its subsidiaries, the Company does not own, directly or
indirectly, any capital stock or other ownership interest in any
corporation, partnership, limited liability company, joint venture or
other entity.
SECTION 3.02. CAPITALIZATION. (a) The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock and 5,000,000 shares of
preferred stock, par value $0.001 per share ("PREFERRED STOCK") of which
570,000 shares have been designated Series A Junior Participating
Preferred Stock. As of December 31, 1999, (i) 5,042,350 shares of Common
Stock were outstanding, all of which were validly issued, fully paid and
nonassessable and not subject to preemptive rights; (ii) no shares of
Preferred Stock were issued and outstanding; (iii) no shares of Common
Stock and no shares of Preferred Stock were held in the treasury of the
Company; (iv) 800,000 shares of Common Stock were reserved for issuance
upon the exercise of outstanding stock options granted pursuant to the
Stock Option Plan; (v) 317,319 shares of Common Stock were reserved for
issuance upon the exercise of outstanding warrants; (vi) 570,000 shares
of Series A Junior Participating Preferred Stock were reserved for
issuance upon exercise of the rights associated with the Common Stock;
(vii) no Company Subsidiary owned any shares of the Company's capital
stock; and (viii) there were no securities of any subsidiary of the
Company or any other Person outstanding which are convertible into or
exercisable or exchangeable for capital stock of the Company. Except as
set forth above, no shares of capital stock or other voting securities of
the Company have been issued, are reserved for issuance or are
outstanding.
(b) Except as otherwise disclosed in SECTION 3.02 OF THE COMPANY
DISCLOSURE SCHEDULE, there are no existing rights, options, warrants,
calls, subscriptions, convertible securities or other securities,
agreements, commitments, or obligations which would require the Company
or any of its subsidiaries to issue or sell shares of Common Stock,
Preferred Stock or any other equity securities, or securities convertible
into or exchangeable or exercisable for shares of Common Stock, Preferred
Stock or any other equity or debt securities of the Company or any of its
subsidiaries. Except as disclosed in SECTION 3.02 OF THE COMPANY
DISCLOSURE SCHEDULE, the Company has no commitments or obligations to
purchase or redeem any shares of Common Stock. SECTION 3.02 OF THE
COMPANY DISCLOSURE SCHEDULE contains a complete and accurate list of all
outstanding Options and warrants and the exercise price thereof.
(c) Upon the Company taking the actions referred to in Sections 2.04 and
2.05, no holder of Options and no holder of warrants will have any rights
to receive shares of capital stock of the Surviving Corporation upon
exercise of outstanding Options or warrants.
SECTION 3.03. AUTHORITY RELATIVE TO THIS AGREEMENT The Company has all
necessary corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action by the Company (other than, with respect
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to the Merger, the adoption of this Agreement by the holders of a
majority of the aggregate voting power of the issued and outstanding
shares of Common Stock (such vote being collectively referred to as the
"COMPANY STOCKHOLDER APPROVAL"), and the filing and recordation of
appropriate merger documents as required by, and in accordance with, the
DGCL). This Agreement has been duly and validly executed and delivered by
the Company and, assuming the due authorization, execution and delivery
by Merger Sub, constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the rights of
creditors generally and by general principles of equity.
SECTION 3.04. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. Except as otherwise
disclosed in SECTION 3.04 OF THE COMPANY DISCLOSURE SCHEDULE, the
execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement and the consummation of the transactions
contemplated hereby will not, (i) conflict with or violate the Company's
Certificate of Incorporation or its Bylaws, or the certificate of
incorporation, bylaws or other equivalent organizational documents of any
of its subsidiaries or (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to the Company or any
subsidiary of the Company or by which any property or asset of the
Company or any subsidiary of the Company is bound or affected, (iii)
conflict with, or violate, or cause a default under any loan or credit
agreement, note, bond, mortgage, indenture, lease, license or other
agreement, instrument, contract or permit applicable to the Company or
any of its subsidiaries or their respective properties or assets, or (iv)
result in the creation of a Lien on any assets or properties of the
Company or any subsidiary of the Company, except, in the case of clauses
(ii) and (iii), for any such conflicts, violations, breaches, defaults or
other occurrences which would not, individually or in the aggregate, have
a Company Material Adverse Effect.
(a) The execution and delivery of this Agreement by the Company do not, and
the performance of this Agreement and the consummation of the Merger and
the other transactions contemplated hereby by the Company will not,
require any consent, approval, authorization or permit of, or filing with
or notification to, any governmental body, agency or official (each a
"GOVERNMENTAL ENTITY"), except for (i) any applicable requirements of the
Securities Exchange Act of 1934 (the "EXCHANGE Act"), (ii) the pre-merger
notification requirements, if any, of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations
thereunder (the "HSR ACT"), (iii) the filing and recordation of
appropriate merger and similar documents as required by the DGCL and (iv)
the change of control notifications to, and approvals from, state and
federal mortgage licensing agencies and authorities listed in SECTION
3.04 OF THE COMPANY DISCLOSURE SCHEDULE.
SECTION 3.05. OPINION OF FINANCIAL ADVISOR. Friedman, Billings, Ramsey &
Co., Inc. (the "COMPANY FINANCIAL ADVISOR") has delivered to the Special
Committee (as defined below) its opinion that, as of the date hereof, the
consideration to be received by the stockholders of the Company (other
than Merger Sub and its affiliates and members of
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the Management Group) pursuant to the Merger is fair to such stockholders
from a financial point of view.
SECTION 3.06. BOARD APPROVAL. The Board of Directors of the Company, based on
the unanimous recommendation of the Special Committee of the Board of
Directors of the Company (the "SPECIAL COMMITTEE"), at a meeting duly
called and held and at which a quorum was present and voting, unanimously
(i) determined that this Agreement and the Merger are advisable and fair
to and in the best interests of the Company's stockholders (other than
Merger Sub and its affiliates and members of the Management Group), (ii)
approved this Agreement, the Merger and the other transactions
contemplated hereby, and (iii) resolved to recommend approval and
adoption of this Agreement by the Company's stockholders. Such approval
is sufficient to render inapplicable to the Merger, this Agreement and
the transactions contemplated hereby the provisions of Section 203 of the
DGCL or any antitakeover provision in the Company's Certificate of
Incorporation and Bylaws.
(a) The Company has taken all action necessary to render the rights issued
pursuant to the Rights Agreement, dated as of October 13, 1998, between
the Company and U.S. Stock Transfer Corporation (the "RIGHTS AGREEMENT")
inapplicable to the Offer, the Merger, this Agreement and the
transactions contemplated hereby. Prior to the Effective Time, the
Company shall have taken all action necessary to cause the Rights
Agreement to terminate immediately prior to the Effective Time.
SECTION 3.07. SEC REPORTS. Since the date the Company became subject to the
reporting requirements of the Exchange Act, the Company has filed all
required forms, reports and documents with the Securities and Exchange
Commission (the "SEC") required to be filed by it pursuant to the federal
securities laws and the SEC rules and regulations thereunder
(collectively, the "COMPANY SEC DOCUMENTS"), all of which have complied
as of their respective filing dates in all material respects with all
applicable requirements of the Securities Act of 1933 (the "SECURITIES
ACT") and the Exchange Act, and the rules promulgated thereunder. None of
the Company SEC Documents at the time filed contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(a) The financial statements of the Company included in the Company SEC
Documents (including the notes thereto) at the time filed complied as to
form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, were
prepared in accordance with generally accepted accounting principles
(except, in the case of unaudited statements, as permitted by Form 10-Q
of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present in
all material respects the consolidated financial position of the Company
and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods
then ended (and include, in the case of any unaudited interim financial
statements, reasonable accruals for normal year-end adjustments). No
subsidiaries of the Company are required to file periodic reports with
the SEC under the Exchange Act.
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SECTION 3.08. ABSENCE OF CERTAIN CHANGES. Except as specifically disclosed in
the Company SEC Documents filed prior to the date hereof or as set forth
in SECTION 3.08 OF THE COMPANY DISCLOSURE SCHEDULE, since September 30,
1999 the Company and its subsidiaries have conducted their business only
in the ordinary course, and during such period there has not been: (a)
any event, change, effect or development that has had or could reasonably
be expected to have a Company Material Adverse Effect between September
30, 1999 and the date hereof; (b) any declaration, setting aside or
payment of any dividend or other distribution in respect of the capital
stock of the Company or any repurchase, redemption or other acquisition
by the Company or any of its subsidiaries of any capital stock of the
Company; (c) any damage, destruction or loss, whether or not covered by
insurance that has had or could reasonably be expected to have a Company
Material Adverse Effect; (d) any change in accounting methods, principles
or practices by the Company or its subsidiaries affecting the
consolidated assets, liabilities, results of operations or business of
the Company, except insofar as have been required by a change in
generally accepted accounting principles; (e) any making or rescission of
any material express or deemed election relating to Taxes, settled or
compromised any material claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes, or
except as may be required by applicable law, made any change to any of
its material methods of reporting income or deductions for federal income
tax purposes from those employed in the preparation of its most recently
filed federal income tax return; or (f) any action, event, occurrence or
transaction that would have been prohibited by Section 5.01 hereof.
SECTION 3.09. COMPLIANCE WITH LAWS. Except as set forth in the Company SEC
Documents filed prior to the date hereof: (a) neither the Company nor any
of its subsidiaries is subject to any material judgment, injunction,
order or decree; and (b) neither the Company nor any of its subsidiaries
is in violation of any applicable material law, rule, regulation,
judgment, injunction, order or decree, including without limitation, any
federal, state or local law applicable to the origination, purchase or
sale of residential mortgage loans in the jurisdictions in which the
Company and such subsidiaries conduct such business, except for
violations which could not reasonably be expected to have a Company
Material Adverse Effect.
SECTION 3.10. LITIGATION. Except as disclosed in the Company SEC Documents
filed prior to the date hereof, there is no claim, suit, action or
proceeding pending or, to the knowledge of the Company, threatened
against the Company or any of its subsidiaries which individually or in
the aggregate has had or could reasonably be expected to have a Company
Material Adverse Effect.
SECTION 3.11. UNDISCLOSED LIABILITIES. Except as and to the extent
specifically disclosed in the Company SEC Documents or accrued on the
September 30, 1999 balance sheet included in the Company SEC Documents,
or as set forth in SECTION 3.11 OF THE COMPANY DISCLOSURE SCHEDULE, and
except for liabilities incurred in the ordinary course of business and
otherwise not in contravention of this Agreement, the Company and each of
its subsidiaries does not have any material liabilities or obligations of
any nature (whether absolute, contingent or otherwise).
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SECTION 3.12. LABOR MATTERS. Neither the Company nor any of its subsidiaries
is a party to or otherwise bound by any collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor
organization, nor is any such contract or agreement presently being
negotiated.
SECTION 3.13. PROXY STATEMENT. The Proxy Statement will comply in all
material respects with the Exchange Act, except that no representation is
made by the Company with respect to information supplied by or on behalf
of Merger Sub, any affiliate of Merger Sub specifically for inclusion in
the Proxy Statement. None of the information supplied by the Company
specifically for inclusion in the Proxy Statement shall, at the time the
Proxy Statement is mailed or at the time of the Company Stockholders'
Meeting or at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading; PROVIDED,
HOWEVER, that the Company makes no representation or warranty as to any
of the information relating to and supplied by or on behalf of Purchaser
specifically for inclusion in the Proxy Statement. The letter to
stockholders, notice of meeting, proxy statement and form of proxy to be
distributed to stockholders in connection with the Merger, and any
schedule required to be filed with the SEC in connection therewith,
together with any amendments or supplements thereto, are collectively
referred to herein as the "PROXY STATEMENT."
SECTION 3.14. BROKERS. No broker, finder or investment banker (other than the
Company Financial Advisor) is entitled to any brokerage, finder's or
other fee or commission in connection with this Agreement, the Merger and
the other transactions contemplated hereby based upon arrangements made
by or on behalf of the Company. The Company has provided Merger Sub a
copy of the agreement between the Company and the Company Financial
Advisor pursuant to which such fees are payable.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
Merger Sub hereby makes to the Company the representations and warranties set
forth below:
SECTION 4.01. ORGANIZATION AND QUALIFICATION. Merger Sub is a corporation
duly incorporated, validly existing and in good standing under the laws
of the State of Delaware and has the requisite power and authority and
all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as it is now being conducted.
Merger Sub is duly qualified or licensed and in good standing to do
business in each jurisdiction where the character of the properties
owned, leased or operated by it or the nature of its business makes such
qualification or licensing necessary, except for such failures to be so
qualified or licensed and in good standing that would not, individually
or in the aggregate, have a Merger Sub Material Adverse Effect.
SECTION 4.02. AUTHORITY RELATIVE TO THIS AGREEMENT. Merger Sub has all
necessary corporate power and authority to execute and deliver this
Agreement, to perform its
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obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by Merger Sub and
the consummation by it of the transactions contemplated hereby have been
duly and validly authorized by the Board of Directors of Merger Sub and
no other corporate proceedings on the part of Merger Sub are necessary to
authorize this Agreement or to consummate such transactions (other than
the filing and recordation of appropriate merger documents as required by
the DGCL). This Agreement has been duly and validly executed and
delivered by Merger Sub and, assuming the due authorization, execution
and delivery by the Company, constitutes the legal, valid and binding
obligation of Merger Sub, enforceable against it in accordance with its
terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting the rights of creditors generally and by general principles of
equity.
SECTION 4.03. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. The execution and
delivery of this Agreement by Merger Sub do not, and the performance of
this Agreement and the consummation of the transactions contemplated
hereby will not, (i) conflict with or violate the Certificate of
Incorporation or bylaws of Merger Sub, (ii) conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to Merger Sub
or by which any of its properties or assets are bound or affected, (iii)
conflict with, or violate, or cause a default under any loan or credit
agreement, note, bond, mortgage, indenture, lease, license or other
agreement, instrument, contract or permit applicable to Merger Sub, its
properties or assets, or (iv) result in the creation of a Lien on any
assets or properties of Merger Sub except, in the case of clauses (ii)
and (iii), for any such conflicts, violations, breaches, defaults or
other occurrences which would not, individually or in the aggregate, have
a Merger Sub Material Adverse Effect
(a) The execution and delivery of this Agreement by Merger Sub do not, and
the performance of this Agreement and the consummation of the Merger and
the other transactions contemplated hereby by Merger Sub will not,
require any consent, approval, authorization or permit of, or filing with
or notification to, any Governmental Entity, except (i) for (A) any
applicable requirements, if any, of the Exchange Act and state takeover
laws, (B) the pre-merger notification requirements, if any, of the HSR
Act and (C) filing and recordation of appropriate merger and similar
documents as required by the DGCL and (ii) where the failure to obtain
such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not, individually or in the aggregate,
have a Merger Sub Material Adverse Effect.
SECTION 4.04. BROKERS. No broker, finder or investment banker other than
Lehman Brothers Inc. and its affiliates is entitled to any brokerage,
finder's or other fee or commission in connection with this Agreement,
the Merger and the other transactions contemplated hereby based upon
arrangements made by or on behalf of Merger Sub or the members of the
Management Group.
SECTION 4.05. FUNDS. Merger Sub has or will have at Closing sufficient funds
to consummate the transactions contemplated in this Agreement. Merger Sub
has executed a commitment letter with an affiliate of Lehman Brothers
Holdings Inc.,
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which, together with contributions to be made to Merger Sub by the
Management Group and Evan R. Buckley, will provide for such funds.
SECTION 4.06. INFORMATION SUPPLIED. None of the information supplied or to be
supplied by Merger Sub specifically for inclusion in the Proxy Statement
shall at the time the Proxy Statement is mailed or at the time of the
Company Stockholders' Meeting or at the Effective Time contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
SECTION 4.07. EMPLOYMENT AGREEMENT WITH KELLY MONAHAN. Kelly Monahan and
Merger Sub have entered into a valid and binding employment agreement
pursuant to which Mr. Monahan has agreed to serve as an executive officer
of the Surviving Corporation at the Effective Time. Such agreement is
enforceable against Merger Sub in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the rights of
creditors generally and by general principles of equity
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. The
Company covenants and agrees as to itself and its subsidiaries that,
between the date of this Agreement and the Effective Time, unless Merger
Sub shall have consented within five (5) days after receipt of notice
from the Company of such proposed action, and except as expressly
contemplated or permitted by this Agreement:
(a) the Board of Directors of the Company shall direct the management of the
Company to take or refrain from taking, as the case may be, such action
so that the Company and its Subsidiaries shall carry on their respective
businesses in the usual, regular and ordinary course in all material
respects, in substantially the same manner as heretofore conducted, and
shall use all reasonable efforts to preserve intact their present lines
of business, maintain their rights and franchises and preserve their
relationships with customers, suppliers, regulators, distributors,
creditors, lessors, employees and others having business dealings with
them to the end that their ongoing businesses shall not be impaired in
any material respect at the Effective Time;
(b) the Board of Directors of the Company shall direct the management of the
Company to take or refrain from taking, as the case may be, such action
so that the Company shall not, and shall not permit any of its
subsidiaries to alter the fundamental nature of its business or enter
into material new lines of business outside the origination, purchase and
of residential mortgage loans and activities incident thereto;
(c) the Board of Directors of the Company shall direct the management of the
Company to take or refrain from taking, as the case may be, such action
so that the Company shall
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not, and shall not permit any of its subsidiaries to incur or commit to
any capital expenditures other than capital expenditures incurred or
committed to in the ordinary course of business consistent with past
practice and with the Company's current business plan (a copy of which
has been provided to Merger Sub);
(d) the Company shall not, and shall not permit any of its subsidiaries to,
and shall not propose to, (i) declare, set aside or pay any dividends on
or make other distributions in respect of any of its capital stock,
except dividends by wholly owned subsidiaries of the Company, (ii) split,
combine, subdivide or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of,
in lieu of or in substitution for, shares of its capital stock, except
for any such transaction by a wholly owned subsidiary of the Company, or
(iii) repurchase, redeem or otherwise acquire any shares of its capital
stock or any securities convertible into or exercisable for any shares of
its capital stock;
(e) the Board of Directors of the Company shall direct the management of the
Company to take or refrain from taking, as the case may be, such action
so that the Company shall not, and shall not permit any of its
subsidiaries to, issue, deliver, sell, transfer, pledge or otherwise
encumber or authorize or propose the issuance, delivery, sale, transfer,
pledge or encumbrance of, any shares of its capital stock, any voting
debt or any securities convertible into or exercisable for, or any
rights, warrants or options to acquire, any such shares or voting debt,
or enter into any agreement with respect to any of the foregoing, other
than (i) the issuance of Common Stock upon the exercise of warrants,
Options or in connection with other stock-based benefits plans, in each
case, outstanding on the date hereof in accordance with their current
terms and (ii) issuances by a wholly owned subsidiary of the Company of
capital stock to such subsidiary's parent or another wholly owned
subsidiary of the Company;
(f) except as required by applicable law, the Company and its subsidiaries
shall not amend or propose to amend their respective certificates of
incorporation, bylaws or other governing documents;
(g) the Board of Directors shall direct the management of the Company to not,
and to not permit any of the Company's subsidiaries to, acquire or agree
to acquire by merging or consolidating with, or by purchasing a
substantial equity interest in or a substantial portion of the assets of,
or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets (other than the
acquisition of assets used in the operations of the business of the
Company and its subsidiaries in the ordinary course); PROVIDED, HOWEVER,
that the foregoing shall not prohibit (x) internal reorganizations or
consolidations involving existing subsidiaries of the Company, (y) the
creation of new subsidiaries of the Company organized to conduct or
continue activities otherwise permitted by this Agreement, or (z) any
transaction authorized under Section 6.04; and PROVIDED, FURTHER, that
upon consultation with Merger Sub the Company may renew or enter into new
warehouse line of credit facilities on substantially the same terms as
such existing facilities, including, without limitation, as to the amount
of such facilities;
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(h) the Board of Directors of the Company shall direct the management of the
Company to take or refrain from taking, as the case may be, such action
so that the Company shall not, and shall not permit any subsidiary of the
Company to, sell, lease, encumber or otherwise dispose of, or agree to
sell, lease, encumber or otherwise dispose of, any of its assets
(including capital stock of subsidiaries of the Company) which are
material, individually or in the aggregate, to the Company and its
subsidiaries, taken as a whole; PROVIDED, HOWEVER, that the foregoing
shall not prohibit sale of residential mortgage loans in the ordinary
course of business or pursuant to existing agreements or the granting of
Liens on residential mortgage loans in connection with borrowings under
the Company's warehouse line of credit facilities;
(i) the Board of Directors of the Company shall direct the management of the
Company to take or refrain from taking, as the case may be, such action
so that the Company shall not, and shall not permit any of its
subsidiaries to, (i) other than in connection with actions permitted by
this Agreement or in connection with the origination, purchase and sale
of residential mortgage loans in the ordinary course of business, and
activities incident thereto, make any loans, advances or capital
contributions to, or investments in, any other Person, other than the
Company or a wholly-owned subsidiary of the Company or (ii) pay,
discharge or satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), or settle any
litigation, other than indebtedness, issuances of debt securities,
guarantees, loans, advances, capital contributions, investments,
payments, discharges or satisfactions incurred or committed to in the
ordinary course of business consistent with past practice;
(j) the Board of Directors of the Company shall direct the management of the
Company to take or refrain from taking, as the case may be, such action
so that the Company shall not, and shall not permit any of its
subsidiaries to, take any action that would result in (x) any of the
representations and warranties set forth in Article III which is
qualified as to materiality being untrue, (y) any of the representations
and warranties set forth in Article III which is not so qualified being
untrue in any material respect, or (z) any of the conditions to the
Merger set forth in Article VII not being satisfied;
(k) except as disclosed in the Company SEC Documents filed prior to the date
of this Agreement, or as required by a Governmental Entity, the Board of
Directors shall direct the management of the Company not to change the
Company's methods of accounting in effect at June 30, 1999, except as
required by changes in United States Generally Accepted Accounting
Principles as concurred in by the Company's independent auditors;
(l) the Board of Directors of the Company shall direct the management of the
Company to take or refrain from taking, as the case may be, such action
so that the Company shall not, and shall not permit its subsidiaries to,
(i) enter into, adopt, amend (except as may be required by applicable
law), renew (except on substantially the same terms) or terminate any
Benefit Plan, or any other employee benefit agreement, arrangement, plan
or policy between the Company or any of its subsidiaries and one or more
of its directors or officers, (ii) increase or accelerate the
compensation or fringe benefits of any of its directors, officers or
employees, (iii) grant any stock options, stock appreciation rights,
restricted stock, restricted stock units or performance units or shares
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other than as required by existing agreements with individual employees,
or enter into any contract, agreement, commitment or arrangement to do
any of the foregoing or (iv) enter into or renew any contract, agreement,
commitment or arrangement providing for the payment to any director,
officer or employee of such party of compensation or benefits contingent,
or the terms of which are materially altered, upon the occurrence of any
of the transactions contemplated by this Agreement;
(m) the Board of Directors of the Company shall direct the management of the
Company to take or refrain from taking, as the case may be, such action
so that the Company shall not, and shall not permit any subsidiary to,
make or rescind any material express or deemed election relating to
Taxes, settle or compromise any material claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to
Taxes, or except as may be required by applicable law, make any change to
any of its material methods of reporting income or deductions for federal
income tax purposes from those employed in the preparation of its most
recently filed federal income tax return; and
(n) the Board of Directors of the Company shall not take any action that is
inconsistent with, or in contravention of, the directions it gives or is
required to give to the management of the Company in compliance with this
Section 5.01; this Section 5.01 (other than Subsections 5.01(d) and (f))
shall be breached only if the Board of Directors of the Company takes
such inconsistent or contravening action, fails to take action to direct
the management of the Company as required under this Section 5.01 (such
action to be accomplished by reason of resolutions adopted by the Board
of Directors as of the date hereof), or as a result of action or inaction
taken by any member of the Management Group if such action or inaction
was taken with the actual knowledge of a majority of the members of the
Special Committee and the Board of Directors fails to supervise the
compliance by the Management Group with such directions consistent with
the provisions of the DGCL
ARTICLE VI
ADDITIONAL COVENANTS
SECTION 6.01. ACCESS TO INFORMATION; CONFIDENTIALITY. From the date hereof to
the Effective Time, the Company shall (and shall cause its subsidiaries
and the officers, directors, employees, auditors and agents of the
Company and of each of its subsidiaries to) afford the officers,
employees and agents of Merger Sub (the "MERGER SUB REPRESENTATIVES")
reasonable access upon reasonable notice during normal business hours to
its officers, employees, agents, properties, offices, plants and other
facilities, books and records, and shall furnish such Merger Sub
Representatives with all financial, operating and other data and
information as may from time to time be reasonably requested. Merger Sub
agrees to be bound by the terms of the Confidentiality Agreement, dated
as of October 19, 1999, between the Company and Lehman Brothers Inc. (the
"CONFIDENTIALITY AGREEMENT").
SECTION 6.02. PROXY STATEMENT; SCHEDULE 13E-3. As soon as practicable after
the date of this Agreement, the Company shall prepare and file with the
SEC the Proxy Statement, in form and substance reasonably satisfactory to
Merger Sub, relating to the meeting of
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the Company's stockholders to be held in connection with the Merger.
Merger Sub shall furnish to the Company such information concerning
itself as the Company may reasonably request in connection with the
preparation of the Proxy Statement. The Proxy Statement will comply in
all material respects with applicable federal securities laws, except
that no representation is made by the Company with respect to information
supplied by Merger Sub for inclusion in the Proxy Statement. As promptly
as practicable after the Proxy Statement has been cleared by the SEC, the
Company shall mail the Proxy Statement to its stockholders. The Proxy
Statement shall include the opinion of the Company Financial Advisor
referred to in Section 3.05 hereof.
(a) The information provided by each of the Company and Merger Sub for use in
the Proxy Statement shall not, at (i) the time the Proxy Statement (or
any amendment thereof or supplement thereto) is first mailed to the
stockholders of the Company or (ii) the time of the Company stockholders'
meeting contemplated by such Proxy Statement, contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein
not misleading. If at any time prior to the Effective Time any event or
circumstance relating to any party hereto, or their respective officers
or directors, should be discovered by such party which should be set
forth in an amendment or a supplement to the Proxy Statement, such party
shall promptly inform the Company and Merger Sub thereof and take
appropriate action in respect thereof.
(b) As soon as practicable after the date of this Agreement, Merger Sub,
members of the Management Group and the Company shall file with the SEC a
Rule 13E-3 Transaction Statement on Schedule 13E-3 ("SCHEDULE 13E-3"),
with respect to the Merger. Each of the parties hereto agrees to use its
reasonable best efforts to cooperate and to provide each other with such
information as any of such parties may reasonably request in connection
with the preparation of the Schedule 13E-3. The information provided by
each of the Company and Merger Sub for use in the Schedule 13E-3 shall
not, at the time the Schedule 13E-3 is filed with the SEC, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein not misleading. Each party hereto agrees promptly to
supplement, update and correct any information provided by it for use in
the Schedule 13E-3 if and to the extent that it is or shall have become
incomplete, false or misleading.
SECTION 6.03. ACTION BY STOCKHOLDERS. Except as otherwise required by the
fiduciary duties of the Board of Directors of the Company under
applicable law (as determined in good faith by the Special Committee
after consulting with its outside legal counsel): (a) the Company, acting
through its Board of Directors, shall, in accordance with applicable law,
the Company's Certificate of Incorporation and Bylaws, duly call, give
notice of, convene and hold a special meeting of stockholders (the
"COMPANY STOCKHOLDERS' MEETING") as soon as reasonably practicable after
the date of this Agreement for the purpose of adopting this Agreement and
(b) the Company will, through the Board of Directors based on the
recommendation of the Special Committee, recommend to its stockholders
the adoption of this Agreement. Merger Sub and the Management Group
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shall vote all shares of Common Stock owned by them in favor of the
adoption of this Agreement.
SECTION 6.04. NO SOLICITATION. The Company agrees that, prior to the
Effective Time, it shall not, and shall not authorize or permit any of
its subsidiaries or any of its or its subsidiaries' directors, officers,
employees, investment bankers, attorneys or other agents or
representatives to directly or indirectly, solicit, initiate or encourage
any inquiries or the making of any proposal or provide any information
about the Company or its subsidiaries with respect to any merger,
consolidation or other business combination involving the Company or its
subsidiaries or their respective assets or capital stock (a "TAKEOVER
PROPOSAL") or negotiate, explore or otherwise engage in discussions with
any corporation, partnership, person or other entity or group (other than
Merger Sub, any of its affiliates or representatives) (collectively, a
"PERSON") with respect to any Takeover Proposal or enter into any
agreement, arrangement or understanding requiring it to abandon,
terminate or fail to consummate the Merger or any other transactions
contemplated by this Agreement; PROVIDED, HOWEVER, that if the Board of
Directors of the Company or the Special Committee determines in good
faith, after consultation with outside counsel, that it is advisable to
do so in order to act in a manner consistent with its fiduciary duties to
the Company's stockholders under applicable law, the Company may, in
response to what the Board of Directors in good faith reasonably believes
may be a Superior Proposal (as defined below), which proposal was not
solicited by it and which did not otherwise result from a breach of this
Section 6.04, and subject to providing prior written notice of its
decision to take such action to Merger Sub and compliance with the other
requirements of this Section 6.04, (i) furnish information with respect
to the Company and its subsidiaries to any Person making a Superior
Proposal pursuant to a customary confidentiality agreement and (ii)
participate in discussions or negotiations regarding and execute any
agreements (including but not limited to any Acquisition Agreement), in
connection with such Superior Proposal.
(a) Except as expressly permitted by this Agreement, neither the Board of
Directors of the Company nor the Special Committee shall (i) withdraw or
modify , or propose publicly to withdraw or modify, in a manner adverse
to Merger Sub, the approval or recommendation by the Board of Directors
of the Company or such committee of the Merger or this Agreement, (ii)
approve or recommend, or propose publicly to approve or recommend any
Takeover Proposal, or (iii) cause the Company to enter into any
Acquisition Agreement.
(b) In addition to the obligations of the Company set forth in paragraphs (a)
and (b) of this Section 6.04, the Company shall promptly (and in any
event within one day) advise Merger Sub orally and in writing of any
request for information or any Takeover Proposal, the material terms and
conditions of such request or Takeover Proposal (and any amendments or
proposed amendments thereto) and the identity of the person making such
request or Takeover Proposal.
(c) Nothing contained in this Section 6.04 shall prohibit the Company or its
Board of Directors, upon the recommendation of the Special Committee,
from taking and
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disclosing to the Company's stockholders a position with respect to a
tender or exchange offer by a third party pursuant to Rules 14d-9 and
14e-2(a) promulgated under the Exchange Act or from making such
disclosure to the Company's stockholders or otherwise which, in the
judgment of the Special Committee upon advice of legal counsel, is
advisable under applicable law or rules of any stock exchange; PROVIDED,
HOWEVER, that, except as contemplated by clause (b) of this Section 6.04,
neither the Company nor the Board of Directors nor the Special Committee
thereof shall withdraw or modify, or propose publicly to withdraw or
modify, its position with respect to this Agreement or the Merger or
approve or recommend, or propose publicly to approve or recommend, a
Takeover Proposal.
(d) For purposes of this Agreement:
(i) "SUPERIOR PROPOSAL" means any proposal made by a third party to acquire,
directly or indirectly, including pursuant to a tender offer, exchange
offer, merger, consolidation, business combination, recapitalization,
reorganization, liquidation, dissolution or similar transaction, for
consideration to the Company's stockholders consisting of cash and/or
securities, at least 15% of the shares of the Company's capital stock
then outstanding or all or substantially all of the assets of the
Company, on terms which the Board of Directors, upon the recommendation
of the Special Committee (based upon the advice of its financial
advisor), determines in its good faith reasonable judgment to be more
favorable to the Company's stockholders than the Merger and for which
financing, to the extent required, is then committed.
(ii)"ACQUISITION AGREEMENT" means any letter of intent, agreement in
principle, acquisition agreement or other similar agreement, contract or
commitment related to any Takeover Proposal.
SECTION 6.05. DIRECTORS' AND OFFICERS' INSURANCE AND INDEMNIFICATION.
(a) From and after the consummation of the Merger, the parties shall, and
shall cause the Surviving Corporation to, indemnify, defend and hold
harmless any person who is now, or has been at any time prior to the date
hereof, or who becomes prior to the Effective Time, an officer or
director (the "INDEMNIFIED PARTY") of the Company and its subsidiaries
against all losses, claims, damages, liabilities, costs and expenses
(including attorneys' fees and expenses), judgments, fines, losses, and
amounts paid in settlement, with the written approval of the Surviving
Corporation (which approval shall not be unreasonably withheld), in
connection with any actual or threatened action, suit, claim, proceeding
or investigation (each a "CLAIM") to the extent that any such Claim is
based on, or arises out of, (i) the fact that such person is or was a
director, officer, employee or agent of the Company or any subsidiaries
or is or was serving at the request of the Company or any of its
subsidiaries as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or
(ii) this Agreement, or any of the transactions contemplated hereby, in
each case to the extent that any such Claim pertains to any matter or
fact arising, existing, or occurring prior to or at the Effective Time,
regardless of whether such Claim is asserted or claimed prior to, at or
after the Effective Time, to the full extent permitted under
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Delaware law or the Company's Certificate of Incorporation, Bylaws or
indemnification agreements in effect at the date hereof.
(b) Merger Sub and the Company agree that all rights to indemnification and
all limitations on liability existing in favor of the Indemnified Party
as provided in the Company's Certificate of Incorporation and Bylaws as
in effect as of the date hereof shall survive the Merger and shall
continue in full force and effect, without any amendment thereto, to the
extent such rights are consistent with the DGCL; PROVIDED THAT in the
event any claim or claims are asserted or made within such six year
period, all rights to indemnification in respect of any such claim or
claims shall continue until disposition of any and all such claims;
PROVIDED FURTHER, that any determination required to be made with respect
to whether an Indemnified Party's conduct complies with the standards set
forth under Delaware law, the Company's Certificate of Incorporation or
Bylaws or such agreements, as the case may be, shall be made by
independent legal counsel selected by the Indemnified Party and
reasonably acceptable to the Surviving Corporation; and, PROVIDED
FURTHER, that nothing in this Section 6.05 shall impair any rights or
obligations of any present or former directors or officers of the
Company.
(c) The parties shall cause the Surviving Corporation to maintain the
Company's existing officers' and directors' liability insurance policy
("D&O INSURANCE") for a period of not less than five (5) years after the
Effective Date; PROVIDED, that the Surviving Corporation may substitute
therefor policies of substantially similar coverage and amounts
containing terms no less advantageous to such former directors or
officers ("SUBSTANTIALLY SIMILAR D&O INSURANCE") so long as such
substitution does not result in gaps or lapses in coverage; PROVIDED,
FURTHER, if the existing D&O Insurance expires or is cancelled during
such period, Merger Sub or the Surviving Corporation will use its best
efforts to obtain Substantially Similar D&O Insurance; PROVIDED, HOWEVER,
that if the aggregate annual premiums for such D&O Insurance (or
successor insurance policy) at any time during such period exceed 500% of
the per annum rate of premiums currently paid by the Company for such
insurance on the date of this Agreement or $250,000, then the parties
will cause the Surviving Corporation to, and the Surviving Corporation
will, provide the maximum coverage that shall then be available at an
annual premium equal to 500% of such rate (PROVIDED, HOWEVER, that in no
event shall the Company be required to pay any annual premiums in excess
of $250,000).
(d) The provisions of this Section 6.05 are intended to be in addition to the
rights otherwise available to the current officers and directors of the
Company by law, charter, statute, bylaw or agreement, and shall operate
for the benefit of, and shall be enforceable by, the Indemnified Parties,
their heirs and personal representatives, and shall be binding on the
Surviving Corporation and its respective successors and assigns.
OFFICERS. Immediately prior to the Effective Time, the Company shall take all
action necessary to appoint as officers of the Company the Persons
designated by Merger Sub.
SECTION 6.06. FURTHER ACTION; BEST EFFORTS.
(a) Upon the terms and subject to the conditions hereof, each of the parties
hereto shall (i) make promptly its respective filings and thereafter make
any other required submissions
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under the HSR Act with respect to the Merger and the other transactions
contemplated hereby, and (ii) use its reasonable best efforts to take, or
cause to be taken, all appropriate action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations or otherwise to consummate and make effective the Merger and
the other transactions contemplated hereby.
(b) Notwithstanding the provisions of Section 6.06(a), nothing contained in
this Agreement shall obligate Merger Sub to take any action to consummate
the Merger and the other transactions contemplated hereby, the
consummation of which is dependent or conditioned on the receipt of any
governmental or regulatory approval or consent, in the event that the
approval or consent so received specifically includes conditions or
restrictions in addition to those imposed by laws and regulations of
general applicability as in effect from time to time (including
conditions in addition to those imposed by existing laws and regulations
which require the prior approval of any governmental or regulatory agency
to the taking of any action or the consummation of any transaction), the
direct or indirect effect of which is or would be, to materially
restrict, limit or otherwise subject to penalty Merger Sub in the
ownership of its assets or the conduct of its business. For purposes of
the foregoing, a condition, restriction or limitation arising out of any
such approval or consent shall be deemed to be a material restriction or
limitation on Merger Sub (regardless of whether Merger Sub is a party to
or otherwise legally obligated by such consent or approval) to the extent
that the taking of an action or the consummation of a transaction by
Merger Sub would result in Merger Sub, the Company or any subsidiary of
the Company being in material breach or violation of such consent or
approval or otherwise causing such consent or approval to terminate or
expire.
(c) In case at any time after the Effective Time any further action is
necessary to carry out the purposes of this Agreement, the proper
officers and directors of each party to this Agreement shall use their
reasonable best efforts to take all such action.
SECTION 6.07. PUBLIC ANNOUNCEMENTS. Merger Sub and the Company shall consult
with each other before issuing any press release or otherwise making any
public statements with respect to this Agreement or the transactions
contemplated hereby and shall not issue any such press release or make
any such public statement without the prior consent of the other party,
which consent shall not be unreasonably withheld; PROVIDED, HOWEVER, that
a party may, without the prior consent of the other party, issue such
press release or make such public statement as may be required by law,
regulation or any listing agreement or arrangement to which the Company
or Merger Sub is a party with a national securities exchange or the
Nasdaq Stock Market if it has used all reasonable efforts to consult with
the other party and to obtain such party's consent but has been unable to
do so in a timely manner.
SECTION 6.08. CONVEYANCE TAXES. Merger Sub and the Company shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications, or other documents regarding any real property transfer or
gains, sales, use, transfer, value added, stock transfer and stamp taxes,
any transfer, recording, registration and other fees, and any similar
taxes which become payable in connection with the transactions
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contemplated by this Agreement that are required or permitted to be filed
on or before the Effective Time.
SECTION 6.09. EVENT NOTICES. From and after the date of this Agreement until
the Effective Time, the Company shall promptly notify Merger Sub of (i)
the occurrence or nonoccurrence of any event, the occurrence or
nonoccurrence of which has resulted in, or could reasonably be expected
to result in, any condition to the Merger set forth in Article VII, not
being satisfied, (ii) the Company's failure to comply with any covenant
or agreement to be complied with by it pursuant to this Agreement which
has resulted in, or could reasonably be expected to result in any
condition to the Merger set forth in Article VII, not being satisfied and
(iii) any representation or warranty made by the Company contained in
this Agreement that is qualified as to materiality becoming untrue or
inaccurate in any respect or any such representation or warranty that is
not so qualified as to materiality becoming untrue or inaccurate in any
material respect. The Company's delivery of any notice pursuant to this
Section 6.10 shall not cure any breach of any representation or warranty
of the Company contained in this Agreement or otherwise limit or affect
the remedies available hereunder to Merger Sub, and the inadvertent
failure to promptly deliver said notice shall not be deemed a breach of
this Agreement.
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.01. CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger and the
other transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of the following
conditions, any or all of which may be waived, in whole or in part, to
the extent permitted by applicable law:
(a) STOCKHOLDER APPROVAL. The Company Stockholder Approval shall have been
obtained.
(b) NO ORDER. No Governmental Entity or federal or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent) which is in
effect and which materially restricts, prevents or prohibits consummation
of the Merger or the other transactions contemplated by this Agreement;
PROVIDED, HOWEVER,, that the parties shall use their reasonable best
efforts (subject to Section 6.06(b)) to cause any such decree, judgment,
injunction or other order to be vacated or lifted.
(c) HSR ACT. Any waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated, and no action
shall have been instituted by the Department of Justice or the Federal
Trade Commission challenging or seeking to enjoin the consummation of the
Merger, which action shall not have been withdrawn or terminated.
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SECTION 7.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF MERGER SUB. The
obligation of Merger Sub to effect the Merger is also subject to
satisfaction or waiver of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Company contained in this Agreement shall, if qualified
by materiality, be true and correct, and if not so qualified, be true and
correct in all material respects, in each case as of the Effective Time
as though made on and as of the Effective Time, except (i) for changes
specifically permitted by this Agreement and (ii) that those
representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date; PROVIDED,
HOWEVER, that any such representation or warranty shall not be deemed to
be false or incorrect as a result of action or inaction taken by any
member of the Management Group between the date of this Agreement and the
Closing Date if such action or inaction was taken without the actual
knowledge of a majority of the Special Committee of the Board of
Directors of the Company or with the actual knowledge of the Board of
Directors if the Board instructs the Management Group not to take any
such action, so long as the Board of Directors continues to exercise its
duties to supervise management of the Company consistent with the
provisions of the DGCL.
(b) AGREEMENT AND COVENANTS. The Company shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the
Effective Time.
(c) DISSENTING SHARES. On the Closing Date, Dissenting Shares shall aggregate
no more than 18% of the then outstanding shares of Common Stock.
(d) COMPANY MATERIAL ADVERSE EFFECT. Subsequent to the date of this
Agreement, there shall not have occurred an event or events, other than
events affecting the credit markets generally or the ability of financial
institutions to raise capital (including the Credit Market Events) which,
individually or in the aggregate, has had or could reasonably be expected
to have a Company Material Adverse Effect; provided, however, that this
condition shall not be deemed to have been breached if the Company
Material Adverse Effect is significantly the result of (i) any action or
inaction taken by a member of the Management Group specifically
identified under Article V and taken in contravention of the directions
to be given to the management of the Company by the Board of Directors
pursuant to Article V (such action to be accomplished by reason of
resolutions adopted by the Board of Directors as of the date hereof) or
(ii) any action or inaction not subject to Article V taken by a member of
the Management Group and (A) said member (i) acted in a manner
inconsistent with, or failed to act in a manner consistent with, the
business judgment rule as interpreted in accordance with Delaware law or
(ii) reasonably believed that such action or inaction should have been
communicated to the Special Committee and did not so communicate to the
Special Committee prior to taking such action or inaction or (B) such
action or inaction was taken without the actual knowledge of a majority
of the Special Committee and out of the ordinary course of business
consistent with past practices.
(e) MARKET MATERIAL ADVERSE EFFECT. On the Closing Date, a Market Material
Adverse Effect shall not have occurred and be continuing.
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(f) OFFICER'S CERTIFICATE. Merger Sub shall have received a certificate of an
appropriate officer of the Company to the effect that the conditions set
forth in Section 7.02(a), (b), (c) and (d) have been satisfied at the
Effective Time.
(g) THIRD PARTY CONSENTS. The Company and its subsidiaries shall have
obtained all third party consents identified with an asterisk in SECTION
3.04 OF THE COMPANY DISCLOSURE SCHEDULE and the same shall be in full
force and effect at the closing.
MANAGEMENT. On the Closing Date, Kelly Monahan shall continue to actively serve
as an executive officer of the Company.
(h) LITIGATION. There shall be no claim, suit, action or proceeding pending
or, to the knowledge of the Company, threatened against the Company or
any of its subsidiaries which questions or challenges the validity of
this Agreement, the transactions contemplated hereby or any action taken
or to be taken by the Company or which attempts to restrain, enjoin or
prohibit the transactions contemplated hereby.
SECTION 7.03. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
obligation of the Company to effect the Merger is also subject to the
satisfaction or waiver of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of Merger Sub contained in this Agreement shall, if qualified
by materiality, be true and correct, and if not so qualified, be true and
correct in all material respects, in each case as of the Effective Time
as though made on and as of the Effective Time, except (i) for changes
specifically permitted by this Agreement and (ii) that those
representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date.
(b) AGREEMENT AND COVENANTS. Merger Sub shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the
Effective Time.
(c) OFFICER'S CERTIFICATE. The Company shall have received a certificate of
an appropriate officer of Merger Sub to the effect that the conditions
set forth in Section 7.03(a) and (b) have been satisfied at the Effective
Time.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. TERMINATION. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, whether before
or after adoption of this Agreement by the stockholders of the Company:
(a) by mutual written consent of the Company (acting through the Special
Committee) and Merger Sub;
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(b) by either Merger Sub or the Company if the Effective Time shall not have
occurred on or before July 31, 2000; PROVIDED, HOWEVER, that the right to
terminate this Agreement under this Section 8.01(b) shall not be
available to the party whose failure to fulfill any obligation under this
Agreement shall have been the cause of, or resulted in, the failure of
the Effective Time to occur on or before such date;
(c) by either Merger Sub or the Company, if any permanent injunction, order,
decree, ruling or other action by any Governmental Entity preventing the
consummation of the Merger shall have become final and nonappealable;
(d) by Merger Sub, if (i) the Board of Directors of the Company (acting
through the Special Committee) withdraws, modifies or changes its
approval or recommendation of this Agreement in a manner adverse to
Merger Sub or shall have resolved to do so, (ii) the Board of Directors
of the Company shall have recommended to the stockholders of the Company
a Takeover Proposal or shall have resolved to do so, or (iii) a tender
offer or exchange offer for at least 20% of the outstanding shares of
capital stock of the Company is commenced and the Board of Directors of
the Company (acting through the Special Committee) fails to recommend
against acceptance of such tender offer or exchange offer by its
stockholders (including by taking no position with respect to the
acceptance of such tender offer or exchange offer by its stockholders);
(e) by Merger Sub or the Company, if this Agreement shall fail to receive the
Company Shareholder Approval for adoption at the Company Stockholders'
Meeting or any adjournment or postponement thereof;
(f) by Merger Sub, upon a breach of any material representation, warranty,
covenant or agreement on the part of the Company set forth in this
Agreement, or if any representation or warranty of the Company that is
qualified as to materiality shall have become untrue, or if any
representation or warranty of the Company that is not so qualified shall
have become untrue in any material respect, in each case such that the
conditions to the Merger set forth in Article VII would not be satisfied
(a TERMINATING COMPANY BREACH"); PROVIDED, HOWEVER, that, if such
Terminating Company Breach is curable by the Company through the exercise
of its reasonable best efforts and for so long as the Company continues
to exercise such reasonable best efforts, Merger Sub may not terminate
this Agreement under this Section 8.01(f);
(g) by the Company, upon a breach of any material representation, warranty,
covenant or agreement on the part of Merger Sub set forth in this
Agreement, or if any representation or warranty of Merger Sub that is
qualified as to materiality shall have become untrue, or if any
representation or warranty of Merger Sub that is not so qualified shall
have become untrue in any material respect, in each case such that the
conditions to the Merger set forth in Article VII would not be satisfied
(a TERMINATING MERGER SUB BREACH"); PROVIDED, HOWEVER, that, if such
Terminating Merger Sub Breach is curable by Merger Sub through the
exercise of its reasonable best efforts and for so long as Merger Sub
continues to exercise such reasonable best efforts, the Company may not
terminate this Agreement under this Section 8.01(g);
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(h) by the Company, to allow the Company to enter into an Acquisition
Agreement in respect of a Superior Proposal if the Board of Directors of
the Company (upon recommendation of the Special Committee) determines,
following receipt of advice of independent legal counsel, that failure to
do so would cause the Board of Directors of the Company to breach its
fiduciary duties under applicable law; PROVIDED, however, that the
Company may not terminate this Agreement pursuant to this Section 8.01(h)
until five business days have elapsed following delivery to Merger Sub of
written notice of such determination of the Company (which written notice
will inform Merger Sub of the material terms and conditions of the
Superior Proposal) and the Company shall and shall cause its legal and
financial advisors to, during such five business day period, negotiate in
good faith with Merger Sub to make such adjustments to the terms and
conditions of this Agreement as would enable the Company to proceed with
the transactions contemplated herein; and PROVIDED, FURTHER, HOWEVER,
that such termination under this Section 8.01(h) shall not be effective
until the Company has made payment to Merger Sub of the amounts required
to be paid pursuant to Section 8.05(b).
SECTION 8.02. EFFECT OF TERMINATION. Except as provided in Section 8.05 or
Section 9.01(b), in the event of the termination of this Agreement
pursuant to Section 8.01, this Agreement shall forthwith become void,
there shall be no liability on the part of any party hereto, or any of
their respective officers or directors, to the other and all rights and
obligations of any party hereto shall cease, subject to the remedies of
the parties set forth in Sections 8.05(b) and (c); PROVIDED, HOWEVER,
that nothing herein shall relieve any party from liability for the
willful breach of any of its representations, warranties, covenants or
agreements set forth in this Agreement; PROVIDED FURTHER, HOWEVER, that
the Company shall not be deemed to have willfully breached its
representations, warranties, covenants or agreements set forth in this
Agreement as a result of action or inaction taken by any member of the
Management Group between the date of this Agreement and the Closing Date
if such action or inaction was taken without the actual knowledge of a
majority of the Special Committee of the Board of Directors of the
Company, or with the actual knowledge of the Board of Directors if the
Board instructs the Management Group not to take such action, so long as
the Board of Directors continues to exercise its duties to supervise
management of the Company consistent with the provisions of the DGCL.
SECTION 8.03. AMENDMENT. Before or after adoption of this Agreement by the
stockholders of the Company, this Agreement may be amended by the parties
hereto at any time prior to the Effective Time; PROVIDED, HOWEVER, that
(a) any such amendment shall, on behalf of the Company, have been
approved by the Special Committee and (b) after adoption of this
Agreement by the stockholders of the Company, no amendment which under
applicable law may not be made without the approval of the stockholders
of the Company may be made without such approval. This Agreement may not
be amended except by an instrument in writing signed by the parties
hereto.
SECTION 8.04. WAIVER. At any time prior to the Effective Time, either the
Company (acting through the Special Committee), on the one hand, or
Merger Sub, on the other, may (a) extend the time for the performance of
any of the obligations or other acts of the other party hereto, (b) waive
any inaccuracies in the representations and warranties of the other party
contained herein or in any document delivered pursuant hereto and (c)
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waive compliance by the other party with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid
only if set forth in an instrument in writing signed by the party or
parties to be bound thereby and, with respect to extensions or waivers
granted by the Company, if the Special Committee shall have approved such
waiver or extension.
SECTION 8.05. FEES, EXPENSES AND OTHER PAYMENTS. Subject to paragraphs (b)
and (c) of this Section 8.05, all costs and expenses (including any
expenses related to any claims or litigation in connection with the
transactions contemplated by this Agreement, or any settlement thereof),
including, without limitation, fees and disbursements of counsel,
financial advisors and accountants and other out-of-pocket expenses,
incurred or to be incurred by the parties hereto (which in the case of
Merger Sub includes those incurred or to be incurred by its equity
investors) in connection with the transactions contemplated hereby (with
respect to such party, its "EXPENSES"), shall be borne solely and
entirely by the party which has incurred such costs and expenses;
PROVIDED, HOWEVER, that all costs and expenses related to printing and
mailing the Proxy Statement shall be borne by the Company.
(a) The Company agrees that, if (i) the Company shall terminate this
Agreement pursuant to Section 8.01(h), (ii) Merger Sub shall terminate
this Agreement pursuant to Section 8.01(d)(i) or 8.01(d)(ii), or (iii)
(A) Merger Sub shall terminate this Agreement pursuant to Section 8.01(e)
or Section 8.01(f), (B) prior to the time of such termination, any person
shall have made a public announcement or otherwise communicated to the
Company and its stockholders with respect to a Takeover Proposal with
respect to the Company, and (C) within six (6) months after the date this
Agreement is terminated, the Company enters into a definitive agreement
with respect to a Takeover Proposal or a Takeover Proposal is
consummated, then in accordance with Section 8.05(d), after such
termination, or in the case of clause (iii) upon the entering into an
agreement with respect to, or consummation of such Takeover Proposal, the
Company shall pay to Merger Sub an amount equal to Merger Sub's
documented Expenses in connection with this Agreement and the
transactions contemplated hereby (which amount shall not exceed $500,000)
and a termination fee in the amount of $1,500,000 (the "TERMINATION FEE"
and together with such Expenses, the "TERMINATION AMOUNT"); PROVIDED,
HOWEVER, that in no event shall the Company be obligated to pay more than
one Termination Amount.
(b) The Company agrees that it shall pay to Merger Sub an amount equal to
Merger Sub's documented Expenses directly related to this Agreement and
the transactions contemplated hereby (which amount shall not exceed
$500,000) if this Agreement is terminated pursuant to Section 8.01(f)
based upon a breach of a covenant or agreement or of any of the
warranties and representations contained in Sections 3.01 (Organization
and Qualification; Subsidiaries), 3.02 (Capitalization), 3.03 (Authority
Relative to this Agreement), 3.05 (Opinion of Financial Advisor), 3.06
(Board Approval), 3.13 (Proxy Statement) or 3.14 (Brokers).
(c) Except as otherwise provided in this Agreement, any payment required to
be made pursuant to Section 8.05(b) or Section 8.05(c) shall be made to
Merger Sub by the Company not later than ten business days after delivery
to the Company by Merger Sub
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of notice of demand for payment and shall be made by wire transfer or
immediately available funds to an account designated by Merger Sub.
(d) Merger Sub agrees that it shall pay to the Company an amount equal to the
Company's documented Expenses directly related to this Agreement and the
transactions contemplated hereby (which amount shall not exceed $500,000)
if this Agreement is terminated pursuant to Section 8.01(g). Any payment
required to be made pursuant to this Section 8.05(e) shall be made to the
Company by Merger Sub not later than ten business days after delivery to
Merger Sub by the Company of notice of demand for payment and shall be
made by wire transfer or immediately available funds to an account
designated by the Company.
The parties hereto acknowledge that the agreements contained in this Section
8.05 are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, neither the Company nor Merger Sub would
enter into this Agreement; accordingly, if either party fails to pay promptly
the Termination Amount and/or expenses as applicable, and, in order to obtain
such payment, the receiving party commences a suit which results in a
judgment against the paying party for the Termination Amount and/or expenses,
as applicable, the paying party shall pay to the receiving party its expenses
incurred in connection with such suit, together with interest on the
Termination Amount and/or expenses, as applicable, at the prime rate
published as the average rate in the "Money Rates" section of The Wall Street
Journal on the date such payment was required to be made.
(e) Subject to the following sentences, the payments required by this Section
8.05 shall constitute liquidated damages in full and complete
satisfaction of, and shall be the sole and exclusive remedy of the
parties for any loss, liability, damage or claim arising out of or in
conjunction with the transactions contemplated in this Agreement,
including any termination of this Agreement pursuant to Section 8.01 and
shall not constitute a penalty. Notwithstanding the foregoing sentence,
if (i) this Agreement is terminated by Merger Sub as a result of a
willful breach of any representation, warranty, covenant or agreement by
the Company and no Termination Fee is required to be paid pursuant to
Section 8.05, Merger Sub may pursue any remedies available to it at law
or in equity and shall be entitled to recover such additional amounts as
Merger Sub may be entitled to receive at law or in equity or (ii) this
Agreement is terminated by the Company as a result of a willful breach of
any representation, warranty, covenant or agreement by Merger Sub, the
Company may pursue any remedies available to it at law or in equity and
shall be entitled to recover such amounts as the Company may be entitled
to receive at law or in equity.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
Except as set forth in Section 9.01(b), the representations, warranties
and agreements of each party hereto shall remain operative and in full
force and effect, regardless of any investigation made by or on behalf of
any other party hereto, any person controlling any such party or any of
their respective officers or directors, whether prior to or after the
execution of this Agreement.
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(a) The representations, warranties and agreements in this Agreement shall
terminate at the Effective Time or upon the termination of this Agreement
pursuant to Article VIII, except that the agreements set forth in
Articles I, II and IX and Section 6.05 shall survive the Effective Time
and those set forth in Sections 8.02 and 8.05 and Article IX shall
survive termination.
SECTION 9.02. NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing (including
telecopy or similar writing) and shall be effective (i) if given by
telecopy, when such telecopy is transmitted to the telecopy number
specified in this Section 9.02 and the appropriate telecopy confirmation
is received or (ii) if given by any other means, when delivered at the
address specified in this Section 9.02 (or at such other address for a
party as shall be specified by like notice):
(a) IF TO MERGER SUB:
c/o BNC Mortgage, Inc.
1063 McGaw Avenue
Irvine, CA 92614-5532
Attention: Mr. Kelly W. Monahan
Telecopy: (949) 475-5027
WITH COPIES TO:
Lehman Brothers Inc.
3 World Financial Center
New York, NY 10285
Attention: Michael McCully, Senior Vice President,
Karen Manson, Senior Vice President
Telecopy: (212) 526-0035
Weil, Gotshal & Manges LLP
1615 L. Street, N.W., Suite 700
Washington, DC. 20036
Attention: W. Michael Bond, Esq.
Telecopy: (202) 857-0940
Troop, Steuber, Pasich, Reddick, & Tobey, LLP
2029 Century Park East, 24th Floor
Los Angeles, CA 90067-3010
Attention: David H. Sands, Esq.
Telecopy: (310) 728-2200
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IF TO THE COMPANY TO:
BNC Mortgage, Inc.
1063 McGaw Avenue
Irvine, CA 92614-5532
Attention: Special Committee of the Board of Directors
Telecopy: (949) 260-6464
WITH A COPY TO:
Kirkpatrick & Lockhart LLP
9100 Wilshire Blvd.
Beverly Hills, CA 90212
Attention: Thomas J. Poletti, Esq.
Telecopy: (310) 274-8293
CERTAIN DEFINITIONS. For purposes of this Agreement, the term:
(b) "AFFILIATE" means a person that, directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person;
(c) "BUSINESS DAY" means any day other than a day on which (i) banks in the
State of New York are authorized or obligated to be closed or (ii) the
SEC or The Nasdaq National Market is closed;
(d) "COMPANY MATERIAL ADVERSE EFFECT" shall mean any change or effect that is
(after giving effect to any appropriate reserves for such matter on the
financial statements included in the Company SEC Documents filed prior to
the date hereof) materially adverse to the business, prospects, results
of operations, assets, liabilities or financial condition of the Company
and its subsidiaries, taken as a whole, or any event, matter, condition
or effect which precludes the Company from performing its material
obligations under this Agreement or the consummation of the transactions
contemplated herein.
(e) "CONTROL" (including the terms "controlled," "controlled by" and "under
common control with") means the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of the
management or polices of a person or entity, whether through the
ownership of stock or as trustee or executor, by contract or credit
arrangement or otherwise; and
(f) "CREDIT MARKET EVENTS" means any of the following events: (i) a
limitation (whether or not mandatory) by any United States Government
Entity which affects the extension of credit by banks or other United
States financial institutions; (ii) interest rate increases by the
Federal Reserve Bank of the United States; (iii) the implementation of
previously announced proposed changes to capital requirements for
sub-prime originators and investors; (iv) a disruption or adverse change
in the financial or capital markets
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generally; (v) an event or events that affects the "repo market" or
comparable "lending market" for financing debt obligations secured by
residential mortgage loans or affects the ability of mortgage lenders
generally to finance residential mortgage loans through the "repo market"
or "lending market" with traditional counterparties; or (vi) an event or
events that affects the "securities market" for securities backed by
residential mortgage loans or mortgage lenders generally not being able
to sell securities backed by residential mortgage loans.
(g) "MANAGEMENT GROUP" means collectively, Kelly W. Monahan, Peter R. Evans,
Al Lapena, Gary Vander-Haeghen, Marles Crow and Jamie Langford.
(h) "MARKET MATERIAL ADVERSE EFFECT" means the occurrence of any of the
following: (i) a limitation (whether or not mandatory) by any United
States Governmental Entity which materially and adversely affects, or any
other event which materially affects, the extension of credit by banks or
other United States financial institutions, other than interest rate
increases by the Federal Reserve Bank of the United States, and other
than the implementation of any previously announced proposed changes to
capital requirements for sub-prime originators and investors the effect
of which would be to materially impair the Company's ability to conduct
its business; (ii) a material disruption or material adverse change in
the financial or capital markets generally, the effect of which
effectively bars access by financial services entities to said markets;
(iii) an event or events that results in the effective absence of a "repo
market" or comparable "lending market" for financing debt obligations
secured by residential mortgage loans or in the inability of mortgage
lenders generally to finance residential mortgage loans through the "repo
market" or "lending market" with traditional counterparties; or (iv) an
event or events that results in the effective absence of a "securities
market" for securities backed by residential mortgage loans or in
mortgage lenders generally not being able to sell securities backed by
residential mortgage loans.
(i) "MERGER SUB MATERIAL ADVERSE EFFECT" means a material adverse effect on
the financial condition of Merger Sub and its subsidiaries, taken as a
whole, or any event, matter, condition or effect which precludes Merger
Sub from performing its material obligations under this Agreement or the
consummation of the transactions contemplated herein
(j) "OPTION" means any stock option, stock appreciation right or any other
award providing for the issuance or grant of any other interest in
respect of the capital stock of the Company or any subsidiary of the
Company.
(k) "PERSON" means any person or any corporation, partnership, limited
liability company or other legal entity.
(l) "SUBSIDIARY" or "SUBSIDIARIES" of any person means any corporation,
partnership, joint venture or other legal entity of which such person
(either alone or through or together with any other subsidiary) owns,
directly or indirectly, at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority
of the Board of Directors or others performing similar functions with
respect to such corporation or other organization.
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SECTION 9.03. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.04. SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or
public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is
not affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible to the fullest extent permitted by
applicable law in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
SECTION 9.05. ENTIRE AGREEMENT. This Agreement and the other documents
delivered in connection herewith constitutes the entire agreement of the
parties and supersedes all prior agreements and undertakings between the
parties with respect to the subject matter hereof.
SECTION 9.06. ASSIGNMENT. This Agreement shall not be assigned by operation
of law or otherwise and any purported assignment shall be null and void,
provided that Merger Sub may assign its rights, but not its obligations,
under this Agreement to any of its subsidiaries.
SECTION 9.07. PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied (other than the provisions of Section 6.05,
which provisions are intended to benefit and may be enforced by the
beneficiaries thereof), is intended to or shall confer upon any person
any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.
SECTION 9.08. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without
regard to the conflict of laws rules thereof.
SECTION 9.09. SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. Each party
hereto irrevocably agrees that any legal action or proceeding with
respect to this Agreement or for recognition and enforcement of any
judgment in respect hereof brought by the other party hereto or its
successors or assigns may be brought and determined in the Court of
Chancery, or other courts, of the State of Delaware, and each party
hereto hereby irrevocably submits with regard to any such action or
proceeding for itself and in respect to its property, generally and
unconditionally, to the nonexclusive jurisdiction of the aforesaid
courts. Each party hereto hereby irrevocably waives, and agrees not to
assert, by way of motion, as a defense, counterclaim or otherwise, in any
action or proceeding with respect to this Agreement, (i) the defense of
sovereign immunity, (ii) any claim that it is not personally subject to
the jurisdiction of the courts for any reason other than the failure to
serve process in accordance with this Section 9.10, (iii) that it,
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or its property, is exempt or immune from jurisdiction of any such court
or from any legal process commenced in such courts (whether through
service of notice, attachment prior to judgment, attachment in aid of
execution of judgment, execution of judgment or otherwise), and (iv) to
the fullest extent permitted by applicable law, that (x) the suit, action
or proceeding in any such court is brought in an inconvenient forum, (y)
the venue of such suit, action or proceeding is improper and (z) this
Agreement, or the subject matter hereof, may not be enforced in or by
such courts.
(a) The parties hereto waive all right to trial by jury in any action or
proceeding to enforce or defend any rights under this Agreement and any
document executed in connection herewith.
SECTION 9.10. ENFORCEMENT OF THIS AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions
hereof, this being in addition to any other remedy to which they are
entitled at law or in equity.
SECTION 9.11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the
same agreement.
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IN WITNESS WHEREOF, the Company and Merger Sub have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
COMPANY:
BNC MORTGAGE, INC.
By: /s/ Evan Buckley
----------------------------------------
Evan Buckley
Chief Executive Officer
MERGER SUB:
BNCM ACQUISITION CO.
By: /s/ Kurt A. Locher
----------------------------------------
Kurt A. Locher
President
<PAGE>
APPENDIX B
FAIRNESS OPINION OF
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
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February 3, 2000
Special Committee of the Board of Directors
BNC Mortgage, Inc.
1063 McGaw Avenue
Irvine, CA 92614
Board of Directors:
You have requested that Friedman, Billings, Ramsey & Co., Inc. ("FBR") provide
you with its opinion as to the fairness, from a financial point of view, to the
holders of common stock ("Stockholders"), other than certain members of the
management team,(1) of BNC Mortgage, Inc. ("BNC" or the "Company") of the
Consideration (as hereinafter defined) to be received by them pursuant to the
Agreement and Plan of Merger by and between BNC and BNCM Acquisition Co., an
affiliate of Lehman Brothers Holdings Inc. ("BNCM Acquisition Co." or
"Acquisition Co."), dated February 3, 2000 (the "Merger Agreement"), pursuant to
which Acquisition Co. will be merged with and into BNC, such that the separate
existence of Acquisition Co. will cease and BNC shall continue as the surviving
corporation (the "Merger"). The Merger Agreement provides, among other things,
that Stockholders of BNC will receive from Acquisition Co. payment in cash equal
to a fixed price of $10.00 per BNC share (the "Consideration"). Additionally,
all outstanding options to purchase shares of BNC common stock shall be canceled
and each holder thereof shall be entitled to receive a cash payment from the
Company equal on a per share basis to the excess, if any, of the Consideration
over the exercise price of such options. The Merger Agreement will be considered
at a meeting of the Stockholders of BNC. The terms of the Merger are more fully
set forth in the Merger Agreement.
In delivering this opinion, FBR has completed the following tasks:
1. reviewed BNCM Acquisition Co. financing proposal set forth by Lehman Brothers
Holdings Inc., and the pro-forma capitalization of the Company following
the Merger;
2. reviewed the BNC Annual Report to Stockholders for the fiscal years ended
June 30, 1997, 1998 and 1999, the BNC Annual Report on Form 10-K filed with
the SEC for the fiscal years ended June 30, 1997, 1998 and 1999; reviewed the
BNC Annual Proxy Statement dated October 29, 1999; reviewed the BNC Quarterly
Reports on Form 10-Q filed with the SEC for the quarters ended March 31,
1999, June 30, 1999, and September 30, 1999;
3. reviewed and discussed the unaudited financial statements of BNC for the six
months ended December 31, 1999 with the management of BNC;
4. reviewed the reported market prices and trading activity for BNC common stock
for the period January 1, 1999 through February 2, 2000;
- --------------
1 Kelly W. Monahan, Peter R. Evans, Al Lapena, Gary Vander-Haeghen, Marles Crow
and Jamie Langford.
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5. reviewed the secondary market for sub-prime mortgage loans, and the
respective pricing trends, from June 30, 1998 through February 2, 2000.
6. discussed the financial condition, results of operations, earnings
projections, business and prospects of BNC with the management of BNC;
7. compared the results of operations and financial condition of BNC with
those of certain publicly-traded financial services organizations (or their
holding companies) that FBR deemed to be reasonably comparable to BNC;
8. reviewed the financial terms, to the extent publicly available, of
certain acquisition transactions that FBR deemed to be reasonably comparable
to the Merger;
9. reviewed the financial terms, to the extent publicly available, of certain
management buyout transactions, pursuant to SEC Rule 13E-3, that FBR deemed
to be reasonably comparable to the Merger.
10. reviewed a copy of the Merger Agreement; and
11. performed such other financial analyses and reviewed and analyzed such other
information as FBR deemed appropriate, including an assessment of general
economic, market and monetary conditions.
In rendering this opinion, FBR did not assume responsibility for independently
verifying, and did not independently verify, any financial or other information
concerning BNC and Acquisition Co. furnished to it by BNC or Acquisition Co., or
the publicly-available financial and other information regarding BNC, and other
financial services organizations (or their holding companies). FBR has assumed
that all such information is accurate and complete and has no reason to believe
otherwise. FBR has further relied on the assurances of management of BNC and
BNCM Acquisition Co. that they are not aware of any facts that would make such
financial or other information relating to such entities inaccurate or
misleading. With respect to financial forecasts for BNC provided to FBR by its
management, FBR has assumed, for purposes of this opinion, that the forecasts
have been reasonably prepared on bases reflecting the best available estimates
and judgments of such management at the time of preparation as to the future
financial performance of BNC. FBR has assumed that there has been no undisclosed
material change in BNC's assets, financial condition, result of operations,
business or prospects since September 30, 1999. FBR did not undertake an
independent appraisal of the assets or liabilities of BNC nor was FBR furnished
with any such appraisals. FBR is not an expert in the evaluation of sub-prime
mortgage credits, was not requested to and did not review such risks, and was
not requested to and did not review any individual credit files of BNC. FBR's
conclusions and opinion are necessarily based upon economic, market and other
conditions and the information made available to FBR as of the date of this
opinion. FBR expresses no opinion on matters of a legal, regulatory, tax or
accounting nature related to the Merger.
FBR, as part of its institutional brokerage, research and investment banking
practice, is regularly engaged in the valuation of securities and the evaluation
of transactions in connection with mergers and acquisitions of specialty finance
companies, commercial banks, savings institutions and financial services holding
companies, initial and secondary offerings and mutual-to-stock conversions of
savings institutions, as well as business valuations for other corporate
purposes for financial services organizations and real estate
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related companies. FBR has experience in, and knowledge of, the valuation of
specialty finance companies in California and the rest of the United States.
FBR has acted as a financial advisor to the Special Committee of the Board of
Directors of BNC in connection with the Merger and will receive a fee for
services rendered which, in part, is contingent upon the consummation of the
Merger. In the ordinary course of FBR's business, it may effect transactions in
the securities of BNC for its own account and/or for the accounts of its
customers and, accordingly, may at any time hold long or short positions in such
securities. From time to time, principals and/or employees of FBR may also have
positions in such securities.
Based upon and subject to the foregoing, as well as any such other matters as we
consider relevant, it is FBR's opinion, as of the date hereof, that the
Consideration is fair, from a financial point of view, to the Stockholders of
BNC.
This letter is solely for the information of the Special Committee of the
Board of Directors and Stockholders of BNC and may not be relied upon by any
other person or used for any other purpose, reproduced, disseminated, quoted
from or referred to without FBR's prior written consent; provided, however, this
letter may be referred to and reproduced in its entirety in proxy materials sent
to the Stockholders in connection with the solicitation of approval for the
Merger.
.
Very truly yours,
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
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APPENDIX C
APPRAISAL RIGHTS PROVISIONS
UNDER THE
DELAWARE GENERAL CORPORATION LAW
SECTION 262
SECTION 262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to ss. 228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series of
stock of a constituent corporation in a merger or consolidation to be effected
pursuant to ss. 251 (other than a merger effected pursuant to ss. 251(g) of this
title), ss. 252, ss. 254, ss. 257, ss. 258, ss. 263 or ss. 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving company
as provided in subsection (f) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under
this section shall be available for the shares of any class or series of stock
of a constituent corporation if the holders thereof are required by the terms of
an agreement of merger or consolidation pursuant to ss.ss. 251, 252, 254, 257,
258, 263 and 264 of this title to accept for such stock anything except:
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a. Shares of stock of the corporation surviving or resulting from such merger
or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in respect
thereof, which shares of stock (or depository receipts in respect thereof) or
depository receipts at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in lieu
of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation party to
a merger effected under ss. 253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to ss. 228 or ss. 253
of this title, each constituent corporation, either before the effective date of
the merger or consolidation or within ten
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days thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights of
the approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective date of
the merger or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of stock of a
constituent corporation that are entitled to appraisal rights. Such notice may,
and, if given on or after the effective date of the merger or consolidation,
shall, also notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may, within 20 days
after the date of mailing of such notice, demand in writing from the surviving
or resulting corporation the appraisal of such holder's shares. Such demand will
be sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation, the
surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the
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office of the Register in Chancery in which the petition was filed a duly
verified list containing the names and addresses of all stockholders who have
demanded payment for their shares and with whom agreements as to the value of
their shares have not been reached by the surviving or resulting corporation. If
the petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so, ordered by the Court, shall give notice of the time and place
fixed for the hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown on the list at
the addresses therein stated. Such notice shall also be given by one or more
publications at least one week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders
who have complied with this section and who have become entitled to appraisal
rights. The Court may require the stockholders who have demanded an appraisal
for their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court shall
appraise the shares, determining their fair value exclusive of any element of
value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares, together
with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
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experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the shares of
such objecting stockholders would have been converted had they assented to the
merger or consolidation shall have the status of authorized and unissued shares
of the surviving or resulting corporation.
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APPENDIX D
TRANSACTIONS INVOLVING BNC MORTGAGE, INC. COMMON STOCK BY BNC MORTGAGE BNCM
ACQUISITION CO., MEMBERS OF THE INVESTOR GROUP AND
CERTAIN EXECUTIVE OFFICERS AND DIRECTORS
Purchases of BNC Mortgage common stock by BNC Mortgage, BNCM Acquisition and
members of the investor group during the two-years prior to the date of this
proxy statement:
1. BNC MORTGAGE, INC.
Number of Average
CALENDAR Shares Purchase
QUARTER PURCHASED* RANGE OF PRICES PAID PRICE PAID
- -------- ---------- -------------------- ----------
HIGH LOW
---- ---
2Q98 184,200 $ 7.125 $ 6.375 $ 6.75
3Q98 332,529 5.875 5.125 5.50
4Q98 0 -- -- --
1Q99 266,900 4.50 4.50 4.50
2Q99 50,000 6.00 6.00 6.00
3Q99 0 -- -- --
4Q99 0 -- -- --
1Q00 0 -- -- --
* Purchased through our repurchase program and immediately canceled.
2. KELLY MONAHAN
Number of Average
CALENDAR Shares Purchase
QUARTER PURCHASED RANGE OF PRICES PAID PRICE PAID
- -------- --------- -------------------- ----------
HIGH LOW
---- ---
2Q98 595* $ 11.625 $11.625 $11.625
3Q98 0 -- -- --
4Q98 0 -- -- --
1Q99 0 -- -- --
2Q99 0 -- -- --
3Q99 0 -- -- --
4Q99 0 -- -- --
1Q00 0 -- -- --
* 279 of 595 shares were purchased by Mr. Monahan's wife, Melissa Monahan.
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3. PETER EVANS
Number of Average
CALENDAR Shares Purchase
QUARTER PURCHASED RANGE OF PRICES PAID PRICE PAID
- -------- --------- -------------------- ----------
HIGH LOW
---- ---
2Q98 0 -- -- --
3Q98 0 -- -- --
4Q98 0 -- -- --
1Q99 0 -- -- --
2Q99 0 -- -- --
3Q99 1,000 $ 6.625 $ 5.875 $ 6.25
4Q99 0 -- -- --
1Q00 0 -- -- --
4. AL LAPENA
Number of Average
CALENDAR Shares Purchase
QUARTER PURCHASED RANGE OF PRICES PAID PRICE PAID
- -------- --------- -------------------- ----------
HIGH LOW
---- ---
2Q98 100 $ 12.88 $ 12.88 $ 12.88
3Q98 0 -- -- --
4Q98 0 -- -- --
1Q99 0 -- -- --
2Q99 0 -- -- --
3Q99 0 -- -- --
4Q99 0 -- -- --
1Q00 0 -- -- --
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APPENDIX E
INFORMATION RELATING TO BNC MORTGAGE,
BNCM ACQUISITION CO., THE MEMBERS OF THE INVESTOR GROUP AND
CERTAIN EXECUTIVE OFFICERS AND DIRECTORS
I. BNC MORTGAGE, INC.
A. The name, principal business and address of the principal executive
offices of BNC Mortgage are listed below.
Name And Address Of
PRINCIPAL EXECUTIVE OFFICES PRINCIPAL BUSINESS
- --------------------------- ------------------
BNC Mortgage, Inc. BNC Mortgage is headquartered in Irvine,
1063 McGaw Avenue California, and has approximately 400
Irvine, California 92614-5532 employees.
(949) 260-6000 BNC Mortgage is a specialty finance company
engaged in the business of originating,
puchasing and selling sub-prime non-conforming
and, to a lesser extent, conforming
residential mortgage loans secured by one-to-
four family residences.
B. The name, present principal occupation or employment and five-year employment
history of each director and executive officer of BNC Mortgage are listed below.
Unless otherwise indicated, the business address of each such person is 1063
McGaw Avenue, Irvine, California 92614-5532 and each such person is a citizen of
the United States.
Present Principal Occupation
NAME AND FIVE YEAR EMPLOYMENT HISTORY
- ---- ---------------------------------
Evan Buckley Mr. Buckley has been the Chief Executive
Officer, Secretary and a director of BNC
Mortgage since its inception. Mr. Buckley was
the President of BNC Mortgage from its
inception to December 1997. From November 1991
to May 1995, Mr. Buckley was the Vice President
of Loan Production of Quality Mortgage USA,
Inc., a residential mortgage lender, which he
co-founded.
Kelly W. Monahan Mr. Monahan has been President of BNC Mortgage
since December 1997 and a director since
October 1997. Mr. Monahan has been President
and Secretary of Mortgage Logic.com, Inc., BNC
Mortgage's wholly-owned subsidiary, since
February 1999. From BNC Mortgage's inception
through March 1999, Mr. Monahan was its Chief
Financial Officer, and from BNC Mortgage's
inception through December 1997, he was its
Executive Vice President. From July 1992 to
July 1995, Mr. Monahan served as Vice President
and Chief Financial Officer of Quality Mortgage
USA, Inc., a residential mortgage lender.
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Keith Honig Mr. Honig has been a director of BNC Mortgage
since February 1998. Mr. Honig has been Vice
President of Mortgage Lending and Real Estate of
SunAmerica Inc., a financial services company
since April 1999. From December 1994 to April
1999, Mr. Honig was Associate Counsel of
SunAmerica, and in addition, from July 1997 to
April 1999, he was its Director of Mortgage
Lending and Real Estate.
Joseph Tomkinson Mr. Tomkinson has been a director of BNC
Mortgage since February 1998. Mr. Tomkinson has
been the Chairman of the Board of Impac Mortgage
Holdings, Inc. (AMEX-IMH) since April 1998
(after being promoted from Vice Chairman of the
Board which he was since August 1995) and its
Chief Executive Officer since its inception. Mr.
Tomkinson has been Chairman of the Board and
Chief Executive Officer of RAI Advisors, LLC,
Impac Funding Corporation and Impac Warehouse
Lending Group, Inc. since their respective
inceptions, and he was Chairman of the Board and
Chief Executive Officer of Impac Commercial
Holdings (AMEX-ICH) and Impac Commercial Capital
Corporation from February 1997 to May 1999. Mr.
Tomkinson served as President of Imperial Credit
Industries, Inc. (Nasdaq-ICII) ("ICII") from
January 1992 to February 1996 and has been a
director of ICII since December 1991.
Richard Whiting Mr. Whiting has been a director of BNC Mortgage
since June 1999. Mr. Whiting was a Manager at
Donaldson, Lufkin & Jenrette, Securities
Corporation from May 1987 to August 1994. Mr.
Whiting has been a member of the Board of
Directors at Kestrel Technologies, a company
that develops software for online trading, since
August 1997, and he has been a member of the
Board of Directors at Prime Capital Funding,
which is a commercial real estate lender that is
related to Prime Capital Corp. (Nasdaq-PMCP),
since November 1997.
Peter R. Evans Mr. Evans has been the Chief Financial Officer
of BNC Mortgage since March 1999. Mr. Evans has
been Chief Financial Officer of Mortgage
Logic.com, Inc. since February 1999. From March
1998 to March 1999, Mr. Evans was the Vice
President of Finance for BNC Mortgage. Mr. Evans
served as Senior Vice President of Koll Real
Estate Group, Inc. (Nasdaq-KREG) from June 1996
to February 1998, where he was responsible for
the accounting, tax and financing of its joint
venture and development projects, and from April
1994 to June 1996, he was its Vice President of
Corporate Finance.
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Al Lapena Mr. Lapena has been the Vice President of
Operations of BNC Mortgage since January 1998.
From July 1997 to January 1998, Mr. Lapena was
the Director of Secondary Marketing for BNC
Mortgage. From 1992 to 1997, Mr. Lapena was the
Vice President of the Real Estate Finance Group
of the Taxable Fixed Income Division for
Donaldson, Lufkin & Jenrette, Inc.
Gary Vander-Haeghen Mr. Vander-Haeghen joined BNC Mortgage in a
non-executive capacity in November 1995 and has
been its Vice President of Sales since September
1996. From December 1991 to November 1995, Mr.
Vander-Haeghen was a Branch Manager for Quality
Mortgage USA, Inc., a residential mortgage
lender.
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<PAGE>
II. BNCM ACQUISITION
A. The name, principal business and address of the principal executive offices
of BNCM Acquisition are set forth below.
NAME PRINCIPAL BUSINESS
- ---- ------------------
BNCM Acquisition Co. BNCM Acquisition is a Delaware
c/o BNC Mortgage, Inc. corporation formed for the purpose of
1063 McGaw Avenue entering into the merger agreement.
Irvine, California 92614-5532 BNCM Acquisition has not engaged in
(949)260-6000 any business activity other than in
connection with the merger and the
related transactions.
B. The name, business address, present principal occupation or employment and
five-year employment history of each director and executive officer of BNCM
Acquisition Co. are listed below. Unless otherwise indicated, the business
address of each such person is Lehman Brothers Inc., 3 World Financial Center,
New York, NY 10285, and each such person is a citizen of the United States.
PRESENT PRINCIPAL OCCUPATION
NAME AND TITLE AND FIVE YEAR EMPLOYMENT HISTORY
- -------------- ---------------------------------
Kurt Locher Mr. Locher joined Lehman Brothers
Sole Director and in March 1995 and is a Managing
President Director.
Michael McCully Mr. McCully joined Lehman
Treasurer and Brothers in 1988 and is a Senior
Senior Vice President Vice President.
Karen Manson Ms. Manson joined Lehman Brothers
Secretary and in 1990 and is a Senior Vice
Senior Vice President President.
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III. MORTGAGE INVESTCO
A. The name, principal business and address of the principal executive offices
of Mortgage Investco are listed below:
NAME AND ADDRESS OF
PRINCIPAL EXECUTIVE OFFICES PRINCIPAL BUSINESS
- --------------------------- ------------------
Mortgage Investco LLC Mortgage Investco is a Delaware
3 World Financial Center limited liability company and is
200 Vesey Street currently to sole stockholder of BNCM
New York, New York 10285 Acquisition Co. Mortgage Investco
is a holding company for mortgage-
related investments.
B. The name, business address, present principal occupation or employment,
five-year employment history and citizenship of the executive officers and
directors of Mortgage Investco are set forth below. Unless otherwise indicated,
the business address of each such person is Lehman Brothers Inc., 3 World
Financial Center, New York, NY 10285, and each such person is a citizen of the
United States.
PRESENT PRINCIPAL OCCUPATION
NAME AND TITLE AND FIVE YEAR EMPLOYMENT HISTORY
- -------------- --------------------------------
Kurt Locher See II.B. of this Appendix E
Member, Board of Managers
and Managing Director
Theodore P. Janulis Mr. Janulis joined Lehman
Member, Board of Managers Brothers in 1984 and is a
and Managing Director Managing Director.
Martin P. Harding Mr. Harding joined Lehman
Managing Director Brothers in 1991 and is a
Managing Director.
William E. Lighten Mr. Lighten joined Lehman
Managing Director Brothers in 1991 and is a
Managing Director.
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C. The name, business address, present principal occupation or employment and
five-year employment history and citizenship of the executive officers and
directors of Lehman Brothers Holdings, Inc., the sole member of Mortgage
Investco, are listed below. Unless otherwise indicated, the business address of
each such person is Lehman Brothers Inc., 3 World Financial Center, New York, NY
10285, and each such person is a citizen of the United States.
PRESENT PRINCIPAL OCCUPATION
NAME AND TITLE AND FIVE YEAR EMPLOYMENT HISTORY
- -------------- --------------------------------
Richard S. Fuld, Jr. Mr. Fuld joined Lehman Brothers
Chairman and Chief in 1969 and is Chairman and Chief
Executive Officer Executive Officer of Lehman
Brothers Holdings Inc.
John L. Cecil Mr. Cecil joined Lehman Brothers
Chief Financial and in 1994 and is the Chief
Administrative Officer Financial and Administrative
Officer of Lehman Brothers
Holdings Inc.
Joseph M. Gregory Mr. Gregory joined Lehman
Head of Global Equities Brothers in 1974 and is the Head
of the Global Equities division
of Lehman Brothers Holdings Inc.
Bradley H. Jack Mr. Jack joined Lehman Brothers
Co-Head of Investment in 1984 and is Co-Head of the
Banking Investment Banking business of
Lehman Brothers Holdings Inc.
Stephen M. Lessing Mr. Lessing joined Lehman
Head of Global Sales and Brothers in 1980 and is Head of
Research Global Sales and Research of
Lehman Brothers Holdings Inc.
Michael F. McKeever Mr. McKeever joined Lehman
Head of Private Equity Brothers in 1979 and is Head of
the Private Equity Division of
Lehman Brothers Holdings Inc.
Jeffrey Vanderbeek Mr. Vanderbeek joined Lehman
Head of Fixed Income Brothers in 1984 and is Head of
the Fixed Income division of
Lehman Brothers Holdings Inc.
Michael L. Ainslie Mr. Ainsley is the former
Director President and Chief Executive
Officer of Sotheby's Holdings
and a private investor.
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John F. Akers Mr. Akers is the retired Chairman of
Director International Business Machines
Corporation and a private
investor.
Roger S. Berlind Mr. Berlind is a private investor
Director and has been a theatrical
producer and principal of Berlind
Productions since 1981.
Thomas H. Cruikshank Mr. Cruikshank is the former
Director Chairman and Chief Executive
Officer of Halliburton Company.
Richard S. Fuld, Jr. See above.
Director
Henry Kaufman Dr. Kaufman has been President of
Director Henry Kaufman & Company since
1988.
Hideichiro Kobayashi Mr. Kobayashi is a Director and
Director General Manager for the Americas
of Nippon Life, Japan's largest
insurance company and has been
affiliated with Nippon Life since
1967. Mr. Kobayashi is a citizen
of Japan.
John D. Macomber Mr. Macomber has been a Principal
Director of JDM Investment Group since
1992.
Dina Merrill Ms. Merrill is an actress and
Director private investor and Vice Chairman of
RKO Pictures Inc.
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IV. MANAGEMENT INVESTORS
The name, business address, present principal occupation or employment and
five-year employment history of each of the management investors are listed
below. Unless otherwise indicated, the business address of each such person is
c/o BNC Mortgage, Inc., 1063 McGaw Avenue, Irvine, California, 92614-5532, and
each such person is a citizen of the United States.
PRESENT PRINCIPAL OCCUPATION
NAME AND TITLE AND FIVE YEAR EMPLOYMENT HISTORY
- -------------- --------------------------------
Kelly W. Monahan See I. B. of this Appendix E.
Peter R. Evans See I. B. of this Appendix E.
Al Lapena See I. B. of this Appendix E.
Gary Vander-Haeghen See I. B. of this Appendix E.
Marles M. Crow Ms. Crow has been the Director of Human Resources of
BNC Mortgage since September 1995. Prior to
September 1995, Ms. Crow was the Director of Human
Resources at Quality Mortgage USA, Inc., a
residential mortgage lender.
Jamie Langford Ms. Langford has been the Vice President of Funding
of BNC Mortgage since August 1995. Prior to August
1995, Ms. Langford was the Vice President of Funding
of Quality Mortgage USA, Inc., a residential
mortgage lender.
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BNC MORTGAGE, INC.
1063 MCGAW AVENUE
IRVINE, CALIFORNIA 92614-5532
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2000
----------
The undersigned stockholder of BNC Mortgage, Inc. ("BNC Mortgage"),
revoking all previous proxies, hereby constitutes and appoints Kelly W. Monahan
and Peter R. Evans, and each of them, as proxies with full power of substitution
to attend the special meeting of stockholders of BNC Mortgage at 9:00 a.m.,
Pacific time, on , 2000 at the
---------
, and at any adjournment or
- --------------------------------------------------
postponement thereof (the "Special Meeting"), and to vote the number of shares
of common stock of BNC Mortgage the undersigned would be entitled to vote if
personally present at the Special Meeting on the matters set forth herein. The
undersigned hereby acknowledges receipt of the Notice of Special Meeting and
proxy statement relating to the Special Meeting and hereby instructs said
proxies to vote or refrain from voting such shares of BNC Mortgage common stock
as marked on the reverse side of this proxy card upon the matters listed
thereon.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL
BE VOTED FOR THE APPROVAL OF THE AGREEMENT AND PLAN OF MERGER AND THE MERGER IN
ACCORDANCE WITH THE RECOMMENDATION OF THE BOARD OF DIRECTORS OF BNC MORTGAGE.
THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
(CONTINUED, AND TO BE SIGNED AND DATED, ON REVERSE SIDE)
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[X] Please mark your vote as in this example.
THE BOARD OF DIRECTORS OF BNC MORTGAGE RECOMMENDS A VOTE FOR PROPOSAL 1.
1. To approve the Agreement and Plan of Merger, dated as of February 3,
2000, between BNC Mortgage, Inc. and BNCM Acquisition Co., and the merger
of BNCM Acquisition Co. with and into BNC Mortgage, Inc. as described in
the accompanying proxy statement. In the merger, (a) each issued and
outstanding share of BNC Mortgage, Inc. common stock (other than shares
held by BNCM Acquisition Co. and their respective subsidiaries and other
than shares held by stockholders who perfect dissenters' rights under
Delaware law) will be converted into the right to receive $10.00 per
share in cash and (b) the articles of incorporation of BNCM Acquisition
Co. will become the articles of incorporation of BNC Mortgage, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
Please sign and date this proxy and return it in the enclosed return envelope,
whether or not you expect to attend the Special Meeting. You may also vote in
person if you do attend.
Date:
------------------------
Signature(s)
Note: Please sign this proxy exactly as name appears hereon. If shares are held
as joint tenants, both joint tenants should sign. Attorneys-in-fact, executors,
administrators, trustees, guardians, corporate officers or other signing in a
representative capacity should indicate the capacity in which they are signing.
122
