<PAGE> 1
SECURITIES EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Act of
1934 for the quarterly period ended September 30, 1996.
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission file No. 333-3954
------------------------
IMC MORTGAGE COMPANY
(Exact name of issuer as specified in its Charter)
FLORIDA 59-3350574
-------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
3450 BUSCHWOOD PARK DRIVE
TAMPA, FLORIDA 33618
(Address of Principal Executive Offices)
Issuer's telephone number, including area code: (813) 932-2211
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing for the past 90 days.
Yes X No
----- -----
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Title of each Class: Outstanding at November 12, 1996
- -------------------------------------- ---------------------------------
Common Stock, par value $.01 per share 9,834,833
<PAGE> 2
IMC MORTGAGE COMPANY AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995 1
Consolidated Statements of Operations
for the three months and nine months ended
September 30, 1996 and September 30, 1995 2
Consolidated Statements of Cash Flows
for the nine months ended September 30, 1996
and September 30, 1995 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
<PAGE> 4
IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- --------------
<S> <C> <C>
Cash and cash equivalents $ 9,555,558 $ 5,133,718
Securities purchased under agreements to resell 573,850,000 138,058,262
Accrued interest receivable 5,822,041 1,872,129
Accounts receivable 5,643,901 1,179,907
Mortgage loans held for sale 625,872,876 193,002,835
Interest-only and residual certificates 60,295,031 14,072,771
Warehouse financing from correspondents 2,720,628 53,200
Furniture, fixtures and equipment, net 1,351,120 679,950
Capitalized mortgage servicing rights 5,125,253
Other assets 5,543,978 498,662
-------------- --------------
Total assets $1,295,780,386 $ 354,551,434
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Warehouse finance facilities $ 595,247,351 $ 189,819,046
Term debt 33,555,145 11,120,642
Accrued and other liabilities 6,544,555 547,707
Accrued interest payable 2,889,998 1,055,550
Securities sold but not yet purchased 574,767,531 139,200,000
Amounts payable to stockholders for taxes - 1,306,645
Accrual for sharing of proportionate value of equity - 5,893,000
-------------- --------------
Total liabilities 1,213,004,580 348,942,590
-------------- --------------
Stockholders' equity:
Preferred stock, par value $.01 per share; 10,000,000
shares authorized, 20,060 shares issued, none outstanding - -
Common stock, par value $.01 per share; 50,000,000 authorized;
9,834,833 and 6,000,000 shares issued and outstanding 98,348 60,000
Additional paid-in capital 76,588,086 3,844,601
Retained earnings 6,089,372 1,704,243
-------------- --------------
Total stockholders' equity 82,775,806 5,608,844
-------------- --------------
Total liabilities and stockholders' equity $1,295,780,386 $ 354,551,434
============== ==============
</TABLE>
See accompanying notes to Consolidated Financial Statements.
1
<PAGE> 5
IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------------- ----------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Gain on sales of loans $ 12,537,421 $ 7,303,333 $ 34,728,321 $ 13,423,973
Additional securitization transaction expense - (2,424,000) (4,157,644) (2,855,367)
------------ ------------ ------------ ------------
Net gain on sale of loans 12,537,421 4,879,333 30,570,677 10,568,606
------------ ------------ ------------ ------------
Warehouse interest income 10,634,571 2,430,904 22,249,234 5,224,931
Warehouse interest expense (6,672,572) (1,814,957) (14,505,231) (4,027,307)
------------ ------------ ------------ ------------
Net warehouse interest income 3,961,999 615,947 7,744,003 1,197,624
------------ ------------ ------------ ------------
Servicing fees 1,753,139 423,476 4,215,381 855,207
Other 1,513,446 307,425 2,977,691 788,441
------------ ------------ ------------ ------------
Total servicing fees and other 3,266,585 730,901 7,193,072 1,643,648
------------ ------------ ------------ ------------
Total revenues 19,766,005 6,226,181 45,507,752 13,409,878
------------ ------------ ------------ ------------
Expenses:
Compensation and benefits 3,947,843 1,364,344 11,987,493 3,649,180
Selling, general and administrative expenses 5,279,887 940,033 10,416,597 2,156,570
Other interest expense 473,202 31,028 1,820,793 139,652
Sharing of proportionate value of equity - 1,520,433 2,555,000 2,916,960
------------ ------------ ------------ ------------
Total expenses 9,700,932 3,855,838 26,779,883 8,862,362
------------ ------------ ------------ ------------
Income before income taxes 10,065,073 2,370,343 18,727,869 4,547,516
Non-recurring benefit associated with
the Conversion of Partnership to
C Corporation - - 3,600,000 -
Provision for income taxes (3,975,701) - (3,975,701) -
------------ ------------ ------------ ------------
Net income $ 6,089,372 $ 2,370,343 $ 18,352,168 $ 4,547,516
============ ============ ============ ============
Pro Forma Data (giving effect to provision
for income taxes):
Income before provision for income taxes $ 10,065,073 $ 2,370,343 $ 18,727,869 $ 4,547,516
Pro forma provision (actual provision for
the three months ended September 30, 1996)
for income taxes (3,975,701) (912,108) (7,397,508) (1,749,884)
------------ ------------ ------------ ------------
Pro forma net income $ 6,089,372 $ 1,458,235 $ 11,330,361 $ 2,797,632
============ ============ ============ ============
Pro forma (actual for the three months
ended September 30, 1996) net income
per common share:
Primary $ 0.52 $ 0.18 $ 1.28 $ 0.35
============ ============ ============ ============
Fully diluted $ 0.52 $ 0.18 $ 1.25 $ 0.35
============ ============ ============ ============
Weighted average number of shares outstanding:
Primary 11,715,852 7,935,752 8,841,800 7,935,752
============ ============ ============ ============
Fully diluted 11,815,348 7,935,752 9,055,029 7,935,752
============ ============ ============ ============
</TABLE>
See accompanying notes to Consolidated Financial Statements.
2
<PAGE> 6
IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30
-----------------------------------
1996 1995
<S> <C> <C>
Cash flow for operating activities:
Net income $ 18,352,168 $ 4,547,516
Adjustments to reconcile net income to net cash used in
operating activities:
Sharing of proportionate value of equity 2,555,000 2,916,960
Depreciation and amortization 926,201 98,896
Capitalized mortgage servicing rights (5,780,936) -
Net loss in joint venture 635,848 -
Non-recurring benefit associated with the Conversion of
Partnership to C Corporation (3,600,000) -
Deferred taxes 3,600,000 -
Net change in operating assets and liabilities, net of effects
from purchase of assets of Mortgage Central Corp.:
Mortgages purchased or originated (1,147,323,246) (399,042,000)
Sales of mortgage loans 714,690,499 297,963,243
Increase in securities purchased under agreement to resell
and securities sold but not yet purchased (224,207) -
Increase in accrued interest receivable (3,949,912) (778,394)
(Increase) decrease in warehousing financing from
correspondents (2,667,428) 57,000
Increase in interest-only and residual certificates (46,222,260) (3,926,068)
Decrease in other assets (1,427,635) (164,904)
(Increase) decrease in accounts receivable (4,463,994) 33,212
Increase (decrease) in accrued interest payable 1,834,448 (174,758)
Decrease in deferred income - (450,600)
Increase in accrued and other liabilities 5,939,922 3,177,560
--------------- ---------------
Net cash used in operating activities (467,125,532) (95,742,337)
--------------- ---------------
Cash flow for investing activities:
Purchase of furniture, fixtures and equipment (778,574) (265,918)
Investment in joint venture (2,591,011) -
--------------- ---------------
Net cash used in investing activities (3,369,585) (265,918)
--------------- ---------------
Cash flow from financing activities:
Issuance of common stock 58,203,377 -
Contributions from stockholders - 20,000
Distributions to stockholders for taxes (11,149,228) (6,825,473)
Borrowings - warehouse 1,124,609,329 378,583,626
Borrowings - term debt 38,570,409 4,496,694
Repayments of borrowings - warehouse (719,181,024) (281,106,979)
Repayments of borrowings - term debt (16,135,906) -
--------------- ---------------
Net cash provided by financing activities 474,916,957 95,167,868
--------------- ---------------
Net increase (decrease) in cash and cash equivalents 4,421,840 (840,387)
Cash and cash equivalents, beginning of period 5,133,718 3,091,180
--------------- ---------------
Cash and cash equivalents, end of period $ 9,555,558 $ 2,250,793
=============== ===============
Supplemental disclosure cash flow information:
Cash paid during the period for interest $ 14,491,576 $ 3,539,719
=============== ===============
Supplemental disclosure of noncash financing and investing
activities:
Acquisition of assets of Mortgage Central $ 2,006,000 $ -
=============== ===============
Issuance of options to ContiFinancial $ 8,448,000 $ -
=============== ===============
Amounts payable to stockholders for taxes $ - $ 1,306,645
=============== ===============
</TABLE>
See accompanying notes to Consolidated Financial Statements.
3
<PAGE> 7
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the three and nine months ended September 30, 1996 and 1995
(unaudited)
1. ORGANIZATION:
Industry Mortgage Company, L.P. and its subsidiaries (the "Partnership) is
a limited partnership which was organized under the laws of the state of
Delaware on August 12, 1993 (inception). The Partnership's equity was
owned (until June 24, 1996) 1% by its corporate General Partner, Industry
Mortgage Corporation (the "General Partner") and 99% by a number of voting
limited partners and certain key employee (nonvoting) partners
(collectively the "Limited Partners"). The Partnership in turn owned 100%
of the common stock of its subsidiaries, IMC Corporation of America and IMC
Securities, Inc. Until June 24, 1996, the Partnership also owned the
controlling interest in IMC Mortgage Company.
In June 1996, the Limited Partners exchanged their limited partnership
interest and the sole stockholder of the General Partner exchanged the
voting common stock of the General Partner for the voting common shares
(the exchange or recapitalization) of IMC Mortgage Company. The exchange
was consummated on a historical cost basis as all entities were under
common control. Accordingly, since June 1996, IMC Mortgage Company (the
"Company") has owned 100% of the limited partnership interest in the
Partnership and 100% of the general partnership interest in the
Partnership. At the time of the exchange, the retained earnings
previously reflected by the Partnership were transferred to additional
paid-in capital.
The accompanying consolidated financial statements include the accounts of
the Company, the Partnership, IMC Corporation of America, and IMC
Securities, Inc., after giving effect to the exchange as if it had occurred
at inception. All intercompany transactions have been eliminated in the
accompanying consolidated financial statements.
2. BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three-month and nine-month periods ended September 30, 1996
are not necessarily indicative of the results that may be expected for the
year ended December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto for the year ended
December 31, 1995 and March 31, 1996 included in the Company's
registration statement on Form S-1 for the initial sale of public shares.
4
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. BASIS OF PRESENTATION, CONTINUED:
Certain reclassifications have been made to the presentations to conform
to current period presentations.
3. NEW ACCOUNTING PRONOUNCEMENTS:
CAPITALIZED MORTGAGE SERVICING RIGHTS - Effective January 1, 1996, the
Company adopted SFAS No. 122 "Accounting for Mortgage Servicing Rights:
("SFAS 122"), superseded in June 1996 by SFAS No. 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities" ("SFAS 125"), which is effective in January 1997. The SFAS's
require that upon sale or securitization of mortgages, companies capitalize
the cost associated with the right to service mortgage loans based on their
relative fair values. The company determines fair value based on the
present value of estimated net future cash flows related to servicing
income. The cost allocated to the servicing rights is amortized in
proportion to and over the period of estimated net future servicing fee
income. Under SFAS 122, the Company capitalized approximately $5,781,000 of
capitalized mortgage servicing rights during the nine months ended
September 30, 1996. During the same period, amortization of capitalized
mortgage servicing rights was approximately $656,000.
Prior to the adoption of SFAS 122, servicing rights acquired through loan
origination activities were recorded in the period for which the loans
were serviced.
ACCOUNTING FOR STOCK-BASED COMPENSATION - The Financial Accounting
Standards Board (FASB) has issued Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." This
standard establishes a fair value method for accounting for stock-based
compensation plans, either through recognition or disclosure. The Company
intends to adopt this standard by disclosing in the footnotes on an annual
basis the pro forma net income and pro forma earnings per share amounts
assuming the fair value method was adopted. The adoption of this standard
is not anticipated to have a material impact on results of operations,
financial position or cash flows.
4. PRO FORMA DATA:
The Partnership which is included in the consolidated financial statements
became a wholly owned subsidiary of the Company on June 24, 1996 as
described in Note 1. The Partnership made no provision for income taxes
since the Partnership's income or losses were passed through to the
partners individually.
The Partnership income became subject to income taxes at a corporate level
on June 24, 1996. The pro forma data included in the consolidated
statements of operations of the Company includes a pro forma provision
for income taxes using the provisions of SFAS No. 109, "Accounting for
Income Taxes," to indicate what taxes would have been through June 24, 1996
had the Partnership's income been subject to income taxes at a corporate
level in prior years.
5. NON-RECURRING BENEFIT ASSOCIATED WITH THE CONVERSION OF PARTNERSHIP
TO C CORPORATION:
A non-recurring benefit, reflecting the tax effect of the temporary
differences between the Partnership's financial statement and tax bases of
certain assets and liabilities on June 24, 1996, became a net asset of the
Company with a corresponding non-recurring benefit being reflected in
the consolidated statement of operations.
5
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. PRO FORMA EARNINGS PER SHARE:
Pro forma (actual for the three months ended September 30, 1996) net income
per common share has been computed using the weighted average number of
common shares and dilutive common share equivalents outstanding during the
period after giving effect to the recapitalization described in Note 1.
Dilutive common share equivalents consist of stock options (calculated
using the treasury stock method), convertible preferred stock, and
contingency stock agreements. Pursuant to the requirements of the
Securities and Exchange Commission, common shares and common equivalent
shares issued at prices below the estimated public offering price of $18
per share during the twelve months immediately preceding the proposed date
of the initial filing of the Registration Statement (cheap stock) have been
included in the calculation of common shares and common share equivalents,
using the treasury stock method, as if they were outstanding for all
periods presented. Weighted average number of shares outstanding is
comprised of the following:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ----------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Primary:
Weighted average number of common
shares outstanding 9,834,833 6,000,000 7,371,583 6,000,000
Additional shares deemed outstanding:
Cheap stock 1,870,692 1,935,752 1,466,812 1,935,252
Employee stock options 10,327 - 3,405 -
---------- --------- --------- ---------
Weighted average number of common
shares and common share equivalents 11,715,852 7,935,752 8,841,800 7,935,252
========== ========= ========= =========
Fully diluted:
Weighted average number of common
shares outstanding 9,834,833 6,000,000 7,371,583 6,000,000
Additional shares deemed outstanding:
Cheap stock 1,888,492 1,935,752 1,486,667 1,935,752
Employee stock options 11,935 - 4,007 -
Convertible debt - - 35,711 -
Convertible preferred stock/contingency
stock agreements 80,088 - 157,061 -
---------- --------- --------- ---------
Weighted average number of common shares
and common share equivalents 11,815,348 7,935,752 9,055,029 7,935,752
========== ========= ========= =========
</TABLE>
7. MORTGAGE LOANS HELD FOR SALE:
Mortgage loans held for sale at September 30, 1996, consistent with
December 31, 1995, is comprised primarily of loans secured by first or
second mortgages on one-to-four family residences. In October 1996, the
Company completed a securitization through a public offering of securities
in the aggregate amount of $310 million.
6
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. WAREHOUSE FINANCE FACILITIES AND TERM DEBT:
The Company has available numerous lines of credit at September 30, 1996
totaling $823,125,180 ($270,000,000 at December 31, 1995) of which at
September 30, 1996 $595,247,351 was outstanding ($189,819,046 at December
31, 1995). Outstanding borrowings under warehouse finance facilities are
collateralized by the mortgage loans held for sale and warehouse financing
due from correspondents.
The Company also has available term debt at September 30, 1996 totaling
$42,255,855 ($15,000,000 at December 31, 1995) of which at September 30,
1996 $33,555,145 was outstanding ($11,120,624 at December 31, 1995).
9. OTHER ASSETS:
Other assets consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
--------------- ------------
<S> <C> <C>
Goodwill $1,776,920 $ --
Investment in joint venture 1,955,163
Prepaid expenses 860,013 214,206
Real estate owned 642,469 141,840
Organization costs, net 38,364 54,014
Other assets 271,049 88,602
---------- ----------
$5,543,978 $ 498,662
========== ==========
</TABLE>
10. ACCRUED AND OTHER LIABILITIES:
Accrued and other liabilities consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
--------------- ------------
<S> <C> <C>
Accrued compensation and benefits $2,965,000 $ 125,000
Accounts payable 3,579,555 422,707
---------- ----------
$6,544,555 $ 547,707
========== ==========
</TABLE>
11. SHAREHOLDERS' EQUITY:
In June 1996, the Company sold 3,565,000 shares of common stock for $18
per share, the net proceeds of which approximated $58,203,000, and
issued 269,833 shares pursuant to options and convertible preferred stock.
7
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the consolidated
financial statements and notes included in Item 1 of this Quarterly Report, and
the financial statements and the notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
Company's S-1 Registration Statement, filed on June 24, 1996.
Results of Operations for the three months and nine months ended September 30,
1996 compared to the three months and nine months ended September 30, 1995
Net income and pro-forma net income for the three and nine months ended
September 30, 1996 was $6.1 million and $11.3 million, respectively,
representing an increase of $4.6 million and $8.5 million or 318% and 305% over
pro forma net income of $1.5 million, and $2.8 million, respectively, for the
three and nine months ended September 30, 1995.
The increase in net income and pro forma net income resulted principally from
increases in net gain on sale of loans of $7.7 million and $20.0 million,
respectively, or 157% and 189%, to $12.5 million and $30.6 million,
respectively, for the three months and nine months ended September 30, 1996 from
$4.9 million and $10.6 million, respectively, for the three and nine months
ended September 30, 1995. Also contributing to the increase in net income and
pro forma net income was a $3.4 million and $6.5 million or 543% and 547%
increase in net warehouse interest income to $4.0 million and $7.7 million,
respectively, for the three and nine months ended September 30, 1996 from $.6
million and $1.2 million for the three and nine months ended September 30,
1995, a $1.4 million and $3.4 million or 314% and 393% increase in servicing
fees to $1.8 million and $4.2 million for the three and nine months ended
September 30, 1996 from $.4 million and $.9 million for the three and nine
months ended September 30, 1995 and a $1.2 million and $2.2 million or 392% and
278% increase in other revenues to $1.5 million and $3.0 million for the three
and nine months ended September 30, 1996 from $.3 million and $.8 million for
the three and nine months ended September 30, 1995.
The increase in income was partially offset by a $2.6 million and $8.4 million
or 189% and 228% increase in compensation and benefits to $3.9 million and $12.0
for the three and nine months ended September 30, 1996 from $1.4 million and
$3.6 million for the three and nine months ended September 30, 1995 and $4.4
million and $8.3 million or 462% and 383% increase in selling, general and
administrative expenses to $5.3 million and $10.4 million for the three and nine
months ended September 30, 1996 from $.9 million and $2.2 million for the three
and nine months ended September 30, 1995. The increase in income was further
offset by a $0.4 million and $1.7 million or 1,425% and 1,204% increase in other
interest expense to $0.5 million and $1.8 million for the three and nine months
ended September 30, 1996 from $.1 million and $.1 million for the three and nine
months ended September 30, 1995. Finally, income was favorably impacted by a
$1.5 million and $0.4 million decrease in the sharing of proportionate value of
equity to zero and $2.6 million for the three and nine months ended September
30, 1996 from $1.5 million and $2.9 million for the three and nine months ended
September 30, 1995.
8
<PAGE> 12
Income before taxes was reduced by an income tax provision of $4.0 million and
$7.4 million for the three and nine months ended September 30, 1996 compared to
$.9 million and $1.7 million for the three and nine months ended September 30,
1995. The provision reflects an effective tax rate of approximately 39%. The
provision for income taxes prior to the exchange are pro forma amounts.
Revenues
The following table sets forth information regarding components of the
Company's revenues for the three and nine months ended September 30, 1996 and
1995:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ---------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Gain on sale of loans $ 12,537,421 $ 7,303,333 $ 34,728,321 $ 13,423,973
Additional securitization transaction
expense - (2,424,000) (4,157,644) (2,855,367)
------------ ------------ ------------ ------------
Gain on sale of loans, net 12,537,421 4,879,333 30,570,677 10,568,606
------------ ------------ ------------ ------------
Warehouse interest income 10,634,571 2,430,904 22,249,234 5,224,931
Warehouse interest expense (6,672,572) (1,814,957) (14,505,231) (4,027,307)
------------ ------------ ------------ ------------
Net warehouse interest income 3,961,999 615,947 7,744,003 1,197,624
------------ ------------ ------------ ------------
Servicing fees 1,753,139 423,476 4,215,381 855,207
Other 1,513,446 307,425 2,977,691 788,441
------------ ------------ ------------ ------------
Total revenues $ 19,766,005 $ 6,226,181 $ 45,507,752 $ 13,409,878
============ ============ ============ ============
</TABLE>
GAIN ON SALE OF LOANS, NET
For the three and nine months ended September 30, 1996, gain on sale of loans
increased to $12.5 million and $34.7 million from $7.3 million and $13.4
million for the three and nine months ended September 30, 1995, an increase of
72% and 159% reflecting increased loan production and securitizations for the
three and nine months ended September 30, 1996 and the adoption of the
Financial Accounting Standards Board's SFAS 122-"Accounting for Mortgage
Servicing Rights." The total volume of loans produced increased by 210% and
188% to $481.0 million and $1,147.6 million for the three and nine months ended
September 30, 1996 as compared with a total volume of $155.0 million and $399.0
million for the three and nine months ended September 30, 1995. Originations by
the correspondent network increased 220% and 203% to $428.6 million and
$1,036.5 million for the three and nine months ended September 30, 1996 from
$133.9 million and $341.9 million for the three and nine months ended September
30, 1995, while production from the Company's broker network and direct lending
operations increased to $52.4 million and $111.1 million or 148% and 94% for
the three and nine months ended September 30, 1996 from $21.1 million and $57.2
million for the three and nine months ended September 30, 1995. Production
volume increased during the 1996 period due to: (i) the Company's expansion
program; (ii) the growth of its securitization capability; (iii) the growth of
its loan servicing capability; and (iv) the acquisition of the assets and
business of Mortgage Central Corp. acquired by the Company. For the
9
<PAGE> 13
three and nine months ended September 30, 1996, the Company experienced higher
gains as it sold more loans through securitization. Securitizations increased by
$130 million and $395 million, an increase of 108% and 172% in the three and
nine months ended September 30, 1996 from $120 million and $230 million in the
three and nine months ended September 30, 1995. The number of approved
correspondents and brokers increased by 162 and 583 or 95% and 62% to 332 and
1,529, respectively, at September 30, 1996 from 170 and 946 at September 30,
1995. Additional securitization transaction expense decreased to zero in the
three months ended September 30, 1996 from $2.4 million for the three months
ended September 30, 1995 reflecting the Company completing the securitization
without assistance from its previous strategic alliance partner. Additional
securitization expense increased to $4.2 million for the nine months ended
September 30, 1996, an increase of 46%, from $2.9 million in the nine months
ended September 30, 1995. For the three and nine months ended September 30,
1996, gain on sale of loans, net, increased to $12.5 million and $30.6 million
from $4.9 million and $10.6 million for the three and nine months ended
September 30, 1995, an increase of 157% and 189%, reflecting increased loan
production and securizations in the 1996 period.
NET WAREHOUSE INTEREST INCOME
Net warehouse interest income increased to $4.0 million and $7.7 million for
the three and nine months ended September 30, 1996 from $.6 million and $1.2
million for the three and nine months ended September 30, 1995, an increase of
543% and 547%. The increase in the 1996 period reflected higher interest income
resulting from increased mortgage loan production which was partially offset by
interest costs associated with warehouse facilities. The mortgage loans held
for sale increased in the three and nine months ended September 30, 1996 from
the three and nine months ended September 30, 1995 as the Company increased its
loan production.
SERVICING FEES
Servicing fees increased to $1.8 million and $4.2 million for the three and
nine months ended September 30, 1996 from $0.4 million and $0.9 million for the
three and nine months ended September 30, 1995, an increase of 314% and 393%.
Servicing fees for the three and nine months ended September 30, 1996 were
positively affected due to an increase in loans serviced over the prior period.
The increase in loans serviced came from the Company's normal purchase and
origination channels.
OTHER
Other revenues, consisting principally of interest on interest-only and
residual certificates, increased to $1.5 million and $3.0 million or 392% and
278% in the three and nine months ended September 30, 1996 from $.3 million and
$.8 million in the three and nine months ended September 30, 1995 as a result
of increased securitization volume.
10
<PAGE> 14
EXPENSES
The following table sets forth information regarding components of the
Company's expenses for the three and nine months ended September 30, 1996 and
1995.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ ------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Compensation and benefits $ 3,947,843 $ 1,364,344 $11,987,493 $ 3,649,180
Selling, general and administrative expenses 5,279,887 940,033 10,416,597 2,156,570
Other interest expense 473,202 31,028 1,820,793 139,652
Sharing of proportionate value of equity - 1,520,433 2,555,000 2,916,960
----------- ----------- ----------- -----------
Total expenses $ 9,700,932 $ 3,855,838 $26,779,883 $ 8,862,362
=========== =========== =========== ===========
</TABLE>
Compensation and benefits increased by $2.6 million and $8.4 million or 189%
and 228% to $3.9 million and $12.0 million in the three and nine months ended
September 30, 1996 from $1.4 million and $3.6 million in the three and nine
months ended September 30, 1995, principally due to an increase in the number
of employees to service the Company's increased loan production, the
acquisition of the assets and business of Mortgage Central Corp. and an
increase in executive bonuses.
Selling, general and administrative expenses increased by $4.4 million and $8.3
million or 462% and 383% to $5.3 million and $10.4 million in the three and
nine months ended September 30, 1996 from $.9 million and $2.2 million in the
three and nine months ended September 30, 1995, principally due to an increase
in the volume of loan production and the acquisition of the assets and business
of Mortgage Central Corp.
Other interest expense increased to $0.5 million and $1.8 million an increase
of 1,425% and 1,204% in the three and nine months ended September 30, 1996 from
$.1 million and $.1 million in the three and nine months ended September 30,
1995 as a result of increased term debt borrowings.
The sharing of proportionate value of equity, representing the amount payable to
the Company's previous strategic alliance partner under a Value Sharing
Arrangement (VSA), decreased to zero and $2.6 million in the three and nine
months ended September 30, 1996 from $1.5 million and $2.9 million in the three
and nine months ended September 30, 1995. No amounts were reflected for the
sharing of proportionate value of equity in the three months ended September 30,
1996 or will be reflected in the future as the Company, in March 1996, replaced
the amounts payable under the VSA with an option to acquire an interest in the
Company.
PRO FORMA INCOME TAXES
The effective income tax rate for the three months ended September 30, 1996 was
approximately 39%.
11
<PAGE> 15
The effective pro forma income tax rate for the nine months ended September 30,
1996 and the three and nine months ended September 30, 1995 was approximately
39%, which differed from the federal tax rate of 35% primarily due to state
income taxes. The increase in pro forma income taxes of $3.1 million and $5.7
million or 336% and 323% to $4.0 million and $7.4 million in the three and nine
months ended September 30, 1996 from $.9 million and $1.7 million in the three
and nine months ended September 30, 1995 was proportionate to the increase in
pre-tax income.
FINANCIAL CONDITION
September 30, 1996 Compared to December 31, 1995
Mortgage loans held for sale at September 30, 1996 were $625.9 million,
representing an increase of $432.9 million or 224% over mortgage loans held for
sale of $193.0 million at December 31, 1995. This increase was a result of
increased loan origination and purchasing as the Company expanded into new
states and as well as increased origination and purchasing efforts in states in
which the Company had an existing market presence.
Interest-only and residual certificates at September 30, 1996 were $60.3
million, representing an increase of $46.2 million or 328% over interest-only
and residual certificates of $14.1 million at December 31, 1995. This increase
was a result of the completion of three securitizations in the nine months
ended September 30, 1996.
Borrowings under warehouse financing facilities at September 30, 1996 were
$595.2 million, representing an increase of $405.4 million or 214% more than
warehouse financing facilities of $189.8 million at December 31, 1995. This
increase was primarily a result of increased loan originations and purchases.
Term debt at September 30, 1996 was $33.6 million, representing an increase of
$22.4 million or 202% more than term debt of $11.1 million at December 31,
1995. This increase was primarily a result of financing interest-only and
residual certificates.
Stockholders' equity as of September 30, 1996 was $82.8 million, representing an
increase of $77.2 million or 1,376% over stockholders' equity of $5.6 million at
December 31, 1995. This increase was primarily a result of the Company selling
3.6 million shares of common stock for $18.00 per share, the net proceeds
amounted to $58.2 million, the conversion of the VSA of $8.5 million into an
Option to acquire an interest in the Company, the recognition of a deferred tax
benefit of approximately $3.6 million, and net income for the nine months ended
September 30, 1996, offset by distributions to stockholders for taxes of $9.8
million.
LIQUIDITY AND CAPITAL RESOURCES
The Company uses its cash flow from loans sold through securitizations, whole
loan sales, loan origination fees, processing fees, net interest income,
servicing fees and borrowings under its warehouse facility and term debt to
meet its working capital needs. The Company's cash requirements include the
funding of loan purchases and originations, payment of interest expenses,
12
<PAGE> 16
funding the over-collateralization requirements for securitizations, operating
expenses, income taxes and capital expenditures.
Adequate credit facilities and other sources of funding, including the ability
of the Company to sell loans, are essential to the continuation of the
Company's ability to purchase and originate loans. As a result of increased
loan purchases and originations and its growing securitization program, the
Company has operated, and expects to continue to operate, on a negative cash
flow basis. During the nine months ended September 30, 1996, the Company used
cash flow for operating activities of $467.1 million, an increase of $371.4
million, or 388% over cash flows used for operating activities of $95.7 million
for the nine months ended September 30, 1995. During the same nine months ended
September 30, 1996, the Company received cash flows from financing activities
of $474.9 million, an increase of $379.7 million, or 399% over cash flows
received from financing activities of $95.2 million for the nine months ended
September 30, 1995. The cash flows for operating activities related primarily
to mortgage loans purchased or originated and cash flows received from
financing activities related primarily to funding the mortgage loans purchased
or originated and net proceeds from the Company's sale of 3.6 million shares of
Common Stock.
The Company's sale of loans through securitizations has resulted in an increase
in the amount of gain on sale recognized by the Company. The recognition of this
excess servicing spread results in the occurrence of significant costs being
incurred upon closing of the securitization transactions because the Company is
required to pay the costs of securitizations in the period the securitization
occurs, while the cash from the interest-only and residual certificates will be
received in latter periods. During the nine months ended September 30, 1996, the
Company received cash of approximately $2.9 million related to interest-only and
residual certificates. The Company borrows funds on a short-term basis to
support the accumulation of loans prior to sale. These short-term borrowings are
made under warehouse lines of credit with various lenders.
At September 30, 1996, the Company had available warehouse lines of credit
totaling $823.1 million for financing the acquisition of mortgage loans held for
sale, $595.2 million of which was outstanding at September 30, 1996. Of the
warehouse lines of credit available at September 30, 1996, the full amount
matures within one year. Interest rates on these facilities fluctuate, but
ranged from 6.15% to 7.00% as of September 30, 1996. Outstanding borrowings
under these lines of credit are collateralized by all of the Company's mortgage
loans held for sale and warehouse financing due from correspondents. Upon the
sale of these loans and repayment of warehouse financing due from
correspondents, the related amounts outstanding under the lines will be repaid.
At September 30, 1996, the Company also had term loans outstanding of $33.6
million expiring through January 2000. Outstanding borrowings under this
facility are secured by interest-only and residual certificates.
The Company's warehouse lines and standby facility contain various affirmative
and negative covenants customary for credit arrangements of their type and
which the Company believes will not have a material effect on its operations,
growth and financial flexibility. The Company does not believe that the
existing financial covenants will restrict its operations within the next 12
months. Management believes the Company is in compliance with all such
covenants under these agreements.
13
<PAGE> 17
The Company's current warehouse and credit facilities generally are subject to
one-year terms. Certain agreements have automatic renewal features subject to
the absence of defaults and creditor notification of termination.
Funds available under the Company's current warehouse and other current
facilities and the net proceeds from the Public Offering are expected to be
sufficient to fund the Company's liquidity requirements, including the
implementation of each of its business strategies, for the next six to nine
months. Consequently, the Company anticipates that it may need to arrange for
additional external cash resources on or before June 1997 through additional
financings or offerings.
While the Company anticipates that it will be able to meet its warehouse and
credit needs for the next six to nine months through its current facilities,
and has no reason to believe that additional credit facilities will be
unavailable if future operations are consistent with current performance, there
can be no assurance either that the Company's current creditors will renew
their facilities as they expire or that the Company will be able to acquire
additional credit lines.
OUTLOOK
Except for the historical information contained herein, the matters
discussed herein are forward-looking statements that are subject to certain
risks and uncertainties and actual results could differ materially from those
contemplated by such forward-looking statements.
14
<PAGE> 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
Exhibits
10.1 Employment Agreement between IMC Mortgage Company and Stuart D.
Marvin, dated August 1, 1996
27 Financial Data Schedule (for SEC use only)
Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date: November 12, 1996 IMC MORTGAGE COMPANY
By: /s/ Thomas G. Middleton
-----------------------------------
Thomas G. Middleton
President, Chief Operating Officer,
Assistant Secretary and Director
By: /s/ Stuart D. Marvin
-----------------------------------
Stuart D. Marvin
Chief Financial Officer
15
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
between
IMC MORTGAGE COMPANY
and
STUART MARVIN
August 1, 1996
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") entered into as of the 1st day
of August, 1996 by and between IMC MORTGAGE COMPANY, a Florida corporation (the
"Company"), and STUART MARVIN ("Executive").
R E C I T A L S:
A. The Company owns and operates a mortgage banking business and
provides related services (the "Business");
B. The Company desires to employ Executive as Chief Financial
Officer of the Business and Executive desires to be employed by the Company in
such capacity;
C. Executive has substantial experience and expertise in the
operation of businesses and the Company has determined that it is in the best
interest of the Company to employ Executive and to utilize his expertise and
experience;
D. The Company believes that it is in the best interest of the
Company to assure Executive of a secure minimum compensation and to diminish
the inevitable distraction of Executive that may result in the event of the
possibility, threat or occurrence of a Change of Control (as defined below) by
providing for certain compensation arrangement upon a Change of Control.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties agree as follows:
1. RECITATIONS. The above recitations are true and correct and
are incorporated herein by this reference.
2. POSITION OF EMPLOYMENT. The Company hereby employs Executive
as Chief Financial Officer of the Business commencing as of the Commencement
Date (as defined in Section 3.1 herein).
2.1 Performance of Duties. Executive shall perform such
duties as are usually performed by a Chief Financial Officer of a business
similar in size and scope as the Company and such other reasonable additional
duties as may be prescribed from time to time by the Company which are
reasonable and consistent with the Company's operations, taking into account
Executive's expertise and job responsibilities. Executive shall report
directly to the Company's Chief Executive Officer and the Company's President.
<PAGE> 3
2.2 Devotion of Time. During the term of this Agreement,
Executive agrees to devote his full business time and attention to the business
and affairs of the Company and to the extent necessary to discharge the
responsibilities assigned to Executive and to use reasonable best efforts to
perform faithfully and efficiently such responsibilities. During this
Agreement, it shall not be a violation of this Agreement for Executive to (i)
serve on corporate, civic or charitable boards or committees; (ii) deliver
lectures, fulfill speaking engagements or teach at educational institutions; or
(iii) manage personal investments or companies in which personal investments
are made so long as such activities do not interfere with the performance of
Executive's responsibilities with the Company and which companies are not in
direct competition with the Company. Any income incurred by Executive outside
the scope of his employment and permitted pursuant to the provisions hereof,
shall inure to the benefit of Executive, and the Company shall not claim any
entitlement thereto; provided, however, that any income derived by Executed
related to the business of the Company including, without limitation,
compensation for serving on boards of directors of companies in which the
Company has a significant investment, shall be paid over to the Company as and
when received.
2.3 Working Facilities. During the term of this
Agreement, the Company shall furnish, at his principal place of employment, an
office, furnishings, secretary and such other facilities commensurate and
suitable to his position and adequate for the performance of his duties
hereunder.
3. TERM OF EMPLOYMENT.
3.1 Term of Employment. This Agreement shall begin as of
August 1, 1996, (the "Commencement Date") and end on December 31, 1999, subject
to extension or earlier termination as otherwise set forth in this Agreement.
3.2 Termination of Employment by the Company for Cause.
The Company may terminate Executive's employment upon giving written notice
thereof, if such termination is for "Cause" (as defined herein) and Cause is
not cured by Executive within any available cure period provided below. Such
notice must set forth in reasonable detail the facts underlying the claim of
Cause. For the purposes of this Agreement, "Cause" shall be defined as any of
the following, which act or omission is made or omitted by Executive without a
reasonable belief that such act or omission would benefit the Company:
(a) a default or breach by Executive of any of
the provisions of this Agreement materially detrimental to the Company which is
not cured within fifteen (15) days following written notice thereof;
2
<PAGE> 4
(b) actions by Executive constituting fraud,
embezzlement or dishonesty which result in a conviction of a criminal offense
not yet overturned on appeal;
(c) actions by Executive in intentionally
furnishing materially false, misleading, or omissive information to the
Company's Chief Executive, Board of Directors or its Executive Committee or
Audit Committee that is materially detrimental to the Company;
(d) actions constituting a breach of the
confidentiality of the Business and/or trade secrets of the Company which is
materially detrimental to the Company;
(e) acts or omissions which constitute willful
failure to follow reasonable and lawful directives of the Company's Chief
Executive Officer or President, which are consistent with Executive's job
responsibilities and performance which is not cured within fifteen (15) days
following written notice thereof.
Upon termination for Cause, Executive will immediately cease to have any power
of his position, but shall nevertheless be given a reasonable opportunity to
access his office with the Company for the purpose of retrieving his personal
goods and files. If any conviction pursuant to Section 3.2(b) above is
overturned on appeal, Executive will be deemed to have been terminated without
Cause as of the effective date of his earlier termination.
3.3 Termination Without Cause. The Company shall have
the right to terminate this Agreement without Cause on thirty (30) days written
notice, subject to payment by the Company of the Deferred Compensation
described in Section 4.2 herein. In such event, Executive will cease to have
any power of his office as of the effective date of the termination, but he
will still have the use of his office and secretarial support for thirty (30)
days thereafter.
3.4 Termination by Executive. Executive may terminate
this Agreement upon thirty (30) days written notice after the occurrence of a
material default of this Agreement by the Company, which default is not cured
within the thirty-day notice period. Such notice shall set forth in reasonable
detail the facts underlying the default. If Executive terminates this
Agreement under this Section 3.4, Executive shall be entitled to the Deferred
Compensation as described in Section 4.2 herein.
3.5 Termination by Executive Upon Change of Control.
Executive may terminate this Agreement upon thirty (30) days written notice at
any time within six (6) months following the occurrence of a "Change of
Control", but only prior to Executive's receiving a notice of termination by
the Company for Cause. Upon such termination Executive shall be entitled to
the Deferred Compensation described in Section 4.2 herein. Change of Control
is defined for the purposes of this Agreement as any of the following acts:
3
<PAGE> 5
(a) The acquisition by any person, entity or
"group" within the mean of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934 (the "Exchange Act") of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of twenty-five (25%) percent or
more of either the then outstanding equity interests in the Company or the
combined voting power of the then outstanding voting securities entitled to
vote generally in the election of the Board of Directors; or
(b) If the individuals who serve on the Board of
Directors as of the Commencement Date (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of Directors; provided,
however, any person who becomes a director subsequent to the Commencement Date,
whose election or nomination for election was approved by a vote of at least a
majority of the directors then compiling the Incumbent Board, shall for
purposes of this Agreement be considered as if such person was a member of the
Incumbent Board; or
(c) Approval by the Company's equity holders of
(i) a merger, reorganization or consolidation whereby the Company's equity
holders immediately prior to such approval do not, immediately after
consummation of such reorganization, merger or consolidation own more than 50%
of the combined voting power entitled to vote generally in the election of
directors of the surviving entity's then outstanding voting securities; or (ii)
liquidation or dissolution of the Company; or (iii) the sale of all or
substantially all of the assets of the Company.
4. COMPENSATION.
4.1 Salary. In consideration for the services to be
provided by Executive pursuant to this Agreement Company shall pay to Executive
the sum of the following:
(a) Base Salary: As "Base Salary," the annual sum
of $225,000 which amount will automatically increase effective as of each
January 1st during the term by the greater of :
(i) the "COLA Adjustment" (as defined
below), or
(ii) ten percent (10%) of the Base Salary for
the immediately prior year, provided,
however, that the increase under this
clause (ii) shall apply only if the
Company has achieved a "Net Income
Increase" (as defined below) of ten
percent (10%) or greater;
4
<PAGE> 6
provided, however that as of January 1, 1997 the Base Salary shall only
increase by (5/12) of the amount by which it would have increased had the
Executive been employed twelve (12) full months my such date. The Base Salary,
if so increased, shall not thereafter be decreased for any reason. The Base
Salary shall be payable in installments consistent with the Company's normal
payroll schedule, in effect from time to time, subject to applicable
withholding and other taxes.
(b) Bonus Compensation. As "Bonus
Compensation" each year, an amount calculated by multiplying the Base Salary
for the year then ending by five percent (5%) for each 1% by which the Net
Income Increase exceeds 10%; provided, however that Bonus Compensation shall at
no time exceed 100% of Base Salary; and further, provided, however that
Executive Bonus Compensation for the five (5) months every December 31, 1996,
shall only be five- twelfth (5/12) of the amount which would otherwise result
from application of such formula. By way of example, beginning with the Bonus
Compensation as of calender year 1997, if Base Salary is $225,000 and the Net
Income Increase is 20%, the bonus will be 50% of $225,000 [{(20%-10%) x 5} x
225,000], or $112,500. "Net Income Increase" means the excess of the Company's
net after-tax income calculated on an earnings per share basis for the year
then ended over the net after-tax income for the Company for the immediately
preceding year, expressed as a percentage of the prior years net after tax
income per share. Thus, if net after-tax earnings per share in one year is
$1.20 and in the prior year is $1.00, the Net Income Increase would be 20%.
All calculations of Net Income increase shall be made without giving effect to
the impact on the Company's financial statements of the value sharing
arrangements in the favor of Conti Trade Services Corporation and its
affiliates.
"COLA Adjustment" means an annual increase equal to the
percentage increase, if any, of the consumer price index for Urban Wage Earning
and Clerical Workers (Greater Metropolitan Tampa Area, all items) issued by the
Bureau of Labor Statistics of the U.S. Department of Labor using the year 1967
as a base of 100 (the "Index") from the prior year using January 1st of each
year as the anniversary date for such calculation. In the event the Index
ceases to be published during the term of this Agreement or any extension
thereof, the parties shall use a mutually acceptable comparable statistical
index on the cost of living in the United States as shall then be computed and
published by an agency of the United States.
4.2 Deferred Compensation.
(a) When Due. Executive (or his estate as the
case may be) shall be entitled to the Deferred Compensation as calculated
below, to begin being paid within thirty (30) days after the event giving rise
to the payout (except as provided below) in the event that Executive's
employment is terminated for any of the following reasons herein: (i)
termination by the Company without Cause pursuant to Section 3.3; (ii)
termination by Executive upon default by the Company pursuant to Section 3.4;
or (iii) termination by Executive after a Change of Control pursuant to Section
3.5.
5
<PAGE> 7
(b) Amount. The Deferred Compensation shall be
the amount ("Base Deferred Compensation") which is calculated as the sum of (i)
the Base Salary payments Executive would have received had his employment
continued for the remaining term of this Agreement (including yearly increases
calculated at the maximum increase for the prior three years), and (ii) an
amount equal to the average Bonus Compensation (expressed on a monthly basis)
which the Executive earned prior to the date of the event giving rise to the
need to calculate Deferred Compensation, multiplied by the remaining months in
the term hereof.. In addition to the Base Deferred Compensation, Executive
shall be entitled to the following (which, together with the Base Deferred
Compensation shall be collectively called the "Deferred Compensation") all of
the benefits and personal perquisites otherwise provided in this Agreement
(including automobile expenses) during that period of time which is the greater
of (i) the remaining term of this Agreement, or (ii) one year (the "Deferral
Period"). The Deferred Compensation herein shall be deemed liquidated damages
resulting from the Company's termination of this Agreement and shall be
Executive's sole and exclusive remedy for any such termination. Deferred
Compensation shall not be diminished or offset by reason of any earnings by
Executive subsequent to the date of termination.
(c) Payment of Deferred Compensation. Except as
provided below, the Deferred Compensation shall be paid in monthly installments
over the twelve (12) months following the event giving rise to a Deferred
Compensation.
4.3 Additional Benefits.
(a) Vacation. Executive shall be entitled
to a minimum of four (4) weeks paid vacation during each twelve-month period
during the term of this Agreement. In addition, Executive shall be entitled to
paid time off for the same holidays as other employees of the Company as
established by the Company.
(b) Automobile Expenses. During the term
of this Agreement and during any Deferral Period thereafter, the Company shall
provide Executive with the full and exclusive use of a high-quality automobile;
provided, however, that the Company shall not pay more than nine hundred
dollars ($900) per month (subject to a COLA Adjustment) to provide such
automobile to Executive. The Company shall also pay all maintenance,
insurance, and gasoline expenses incidental to such automobile whether or not
business related. Alternatively, the Company shall provide Executive with an
equivalent automobile allowance at the sole discretion of Executive. Executive
shall have the right to receive a new automobile every three years. In
addition to the new automobile, Executive may purchase the old automobile or
assume the lease payments at the end of each three (3) year period or in the
event of termination for any reason, at the end of the Deferral Period. The
purchase price shall be the lower of the wholesale blue book value or the
auction black book value.
6
<PAGE> 8
(c) Reimbursement of Expenses. Executive
is authorized to incur reasonable traveling and other expenses in connection
with the Business and in performance of his duties under this Agreement.
Executive shall be reimbursed by the Company for all Business expenses which
are reasonably incurred by Executive. All reimbursable travel expenses shall
be in accordance with mutually agreeable and reasonable policy, except that
Executive shall at all times be entitled to travel business or first class.
(d) Participation in Employee Benefit
Plans. Executive shall be entitled to participate, subject to eligibility and
other terms generally established by the Board of Directors, in any employee
benefit plan (including but not limited to life insurance plans, stock option
plans, group hospitalization, health, dental care, (which health insurance
shall also cover Executive's dependents) profit sharing and pension, and other
benefit plans), as may be adopted or amended by the Company from time to time
and as apply generally to all senior officers of the Company. Executive's
participation in such employee benefit plans shall continue during the Deferral
Period. In addition to any health insurance maintained by the Company, the
Company shall reimburse Executive for all out-of-pocket health related expenses
incurred by Executive whether or not covered by any insurance policy maintained
by the Company for the benefit of Executive. Health related expenses include
medical bills, diagnostic listing, physician charges, pharmaceuticals,
laboratory charges, eye care expenses, (including office visits and eye glass
prescriptions and contact lenses) surgical costs and expenses, nursing
services, and hospital charges of all kinds. The Company shall not make any
changes in any employee benefit plans or arrangements now in effect or
hereafter adopted in which Executive now or hereafter may participate, which
would adversely affect Executive's rights or benefits thereunder, unless the
change is approved in advance by Executive.
(e) Life Insurance Benefits. The
Company shall pay the premium on a term life insurance policy on the life of
Executive in the initial face amount of the Executive's Base Salary during the
term hereof and any Deferral Period; provided, however, that Company shall not
pay more than five thousand dollars ($5,000) (subject to a COLA Adjustment)
for such life insurance premiums during any twelve (12) month period.
Executive shall have the right to designate the beneficiaries of such policies.
Company shall pay all premiums on such life insurance at least five (5) days
before the end of any grace period, and on demand provide Executive due proof
of such payment. The insurance companies issuing such policies shall be
authorized to give Executive, upon his request, any information regarding the
status of any such policy. Any dividend declared upon such policy shall be
applied to the premium.
(f) Memberships. During the term of this
Agreement and any Deferral Period, the Company shall pay all initial membership
fees and monthly dues on behalf of Executive for Executive's membership in one
(1) country club, up to two (2) airline clubs, and one personal credit card all
at Executive's selection and sole discretion. Executive shall
7
<PAGE> 9
pay all expenses for such club use that is not otherwise reimbursable as a
Company Business expense.
(g) Tax Preparation. The Company will
reimburse Executive for the cost of tax and financial preparation and planning,
including services that may be requested by Executive from time to time
pertaining to this Agreement.
(h) Relocation. Executives shall receive
the following in connection with the relocation of Executive, his family and
household goods from Jacksonville, Florida to Tampa, Florida (the
"Relocation"); (i) actual costs of moving household goods, (ii) $10,000 to
defray miscellaneous expenses of the Relocation (iii) costs of two house
hunting trips to Tampa, (iv) costs of up to ninety (90) days temporary housing
costs in Tampa while maintaining a dual residence in Jacksonville.
Notwithstanding the foregoing, with the exception of the amount to cover
miscellaneous expenses, all costs incurred must be reasonable.
(i) Options. Executives will receive
upon execution hereof, options under the Company's Incentive Stock Option Plan
to purchase sixty thousand (60,000) shares of the Company's common stock at an
exercise price of $16.00 per share. Those options shall vest ratably over
sixty (60) months; provided, however that in the event of a Change of Control
then: (i) if Executive's employment is terminated within six (6) months by the
Company without Cause, all the unvested options shall vest, and (ii) if the
Executive terminates his employment within six (6) months, fifty percent (50%)
of all unvested options shall vest unless either George Nicholas or Tom
Middleton, respectively the current Chairman and President of the Company, also
resigns during that six (6) month period, then all unvested option shall
nevertheless vest.
5. DISABILITY.
5.1 Disability. In the event that Executive shall
become mentally or physically Disabled (as hereinafter defined) so as to be
unable to fully perform his duties herein, Executive shall continue to receive
his monthly Base Salary for each of the first four (4) months or any part
thereof of any continuous Disability, less any amounts received by him under
any disability insurance paid for by Company. If upon the expiration of four
(4) months of continuous Disability Executive remains incapacitated
(hereinafter "Permanent Disability"), the Company shall have the right to
immediately terminate this Agreement. Thereafter, Executive will only be
entitled to receive disability insurance proceeds for the term of such
disability.
5.2 Definition of Disability. Disability for the
purposes of this Article shall mean the inability of Executive to perform his
duties as described herein.
8
<PAGE> 10
6. REPRESENTATION BY EXECUTIVE. Executive hereby represents
to the Company that he is physically and mentally capable of performing his
duties hereunder and he has no knowledge of any present or past physical or
mental condition which would cause him not to be able to perform his duties
hereunder.
7. CONFIDENTIALITY AND NON-DISCLOSURE OF INFORMATION.
7.1 Confidentiality. Executive shall not, during
the term of this Agreement or at any time thereafter, divulge, furnish or make
accessible to anyone, without the Company's prior written consent, any
knowledge or information with respect to any confidential or secret aspect of
the Business which if disclosed could reasonably be expected to have a material
adverse affect on the Business, taken as a whole ("Confidential Information").
7.2 Ownership of Information. Executive recognizes
that all Confidential Information and copies or reproductions thereof,
relating to the Company's operations and activities made or received by
Executive in the course of his employment are the exclusive property of the
Company and Executive holds and uses same as trustee for the Company and
subject to the Company's sole control and will deliver same to the Company at
the termination of his employment, or earlier if so requested by the Company in
writing. All of such Confidential Information, which if lost or used by
Executive outside the scope of his employment, could cause irreparable and
continuing injury to the Company's Business for which there may not be an
adequate remedy at law.
7.3 Material Breach. Any material breach of the
terms of this paragraph by Executive shall be deemed a material breach of this
Agreement. Executive acknowledges that compliance with the provisions of this
Section 7 is necessary to protect the goodwill and other proprietary interests
of the Company and is a material condition of employment.
8. RESTRICTIVE COVENANT. As an inducement to cause the
Company to enter into this Agreement, Executive covenants and agrees that
during his employment and, for a period of twelve (12) months after he ceases
to be employed by Company, regardless of the manner or cause of termination,
except as limited in Section 8.7 below:
8.1 Restriction. He will not be an employee, agent,
director, stockholder or owner (except of not more than a 5% interest in the
voting securities of any publicly traded entity), partner, consultant,
financial backer, creditor or be otherwise directly or indirectly connected
with or participate in the management, operation or control of any Business,
firm, proprietorship, corporation, partnership, association, entity or venture
primarily engaged in a similar business as the Business (a "Competing
Business") within an area (the "Restricted Area") which is the continental
United States; provided, however, that Executive's employment
9
<PAGE> 11
by a major public accounting firm shall not constitute a violation of this
provision unless such employment was for the purpose of circumventing this
restriction.
8.2 Solicitation of Business. He will not initiate
any contact with, call upon, solicit Business from, sell or render services to
any customer of the Company with respect to a Competing Business within the
Restricted Area or purchase from any supplier or potential supplier any medical
materials for same and Executive shall not directly or indirectly aid or assist
any other person, firm or corporation to do any of the aforesaid acts.
8.3 Solicitation of Employees. He will not directly
or indirectly, as principal, agent, owner, partner, stockholder, officer,
director, employee, independent contractor or consultant of any Competing
Business within the Restricted Area or in any individual or representative
capacity for solicit, directly or indirectly cause others to solicit the
employment of any officer, sales person, agent, or other employee of the
Company who has a base compensation rate of $50,000 or more (subject to a COLA
Adjustment), for the purpose of causing said officer, sales person, agent or
other Executive to terminate employment with the Company and be employed by
such Competing Business.
8.4 Material Violation. A proven material violation
of this Section 8 shall constitute a material and substantial breach of this
Agreement and shall result in the imposition of the Company's remedies
contained in Section 9 herein. Executive acknowledges and agrees that proof of
one such personal solicitation by Executive, after due notice of a first
alleged violation, of a customer, supplier or employee, shall constitute
absolute and conclusive evidence that Executive has substantially and
materially breached the provisions of this Agreement.
8.5 Other Employment. It is understood by and
between the parties that the foregoing covenants set forth in Sections 7 and 8
are essential elements of this Agreement, and that, but for the agreement of
Executive to comply with such covenants, the Company would not have entered
into this Agreement. Such covenants by Executive shall be construed as
agreements independent of any other provision of this Agreement and the
existence of any claim or cause of action Executive may have against the
Company whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by Company of these covenants.
8.6 Defaults and Deferred Compensation.
(a) Company Breach. If the Company
breaches any requirement of Section 4.2 ("Deferred Compensation") herein in
addition to any other remedy to which Executive may be entitled, Company shall
not be entitled to enforce the provisions
10
<PAGE> 12
of this Section 8. The provisions of this Section 8 shall not be imposed
notwithstanding reinstatement of any benefits contained in Section 4.
(b) Executive Breach. If Executive
breaches any requirement of Section 8 herein, in addition to any other remedy
to which the Company may be entitled, all of Executive's rights to receive any
portion of his Deferred Compensation not already paid to him shall terminate.
The right to receive unpaid Deferred Compensation will not be reinstated
notwithstanding any cessation by Executive of his breach of section 8.
(c) Inapplicability of Restrictions. In
the event that this Agreement is terminated due to a material breach by Company
of its obligations or in the event of a termination of Executive without Cause,
the restrictions contained in Section 8 shall not be applicable to Executive.
9. REMEDIES. Executive hereby acknowledges, covenants and
agrees that in the event of a material default or breach under this Agreement:
9.1 Company may suffer irreparable and continuing
damages as a result of such breach and its remedy at law will be inadequate.
Executive agrees that in the event of a violation or breach of this Agreement,
in addition to any other remedies available to it, Company shall be entitled to
an injunction restraining any such default or any other appropriate decree of
specific performance, with the requirement to prove actual damages or to post
any bond or any other security and to any other equitable relief the court
deems proper; and
9.2 Any and all of Company's remedies described in
this Agreement shall not be exclusive and shall be in addition to any other
remedies which Company may have at law or in equity including, but not limited
to, the right to monetary damages.
10. SEVERABILITY. The invalidity of any one or more of the
words, phrases, sentences, clauses, sections, subdivisions, or subparagraphs
contained in this Agreement shall not affect the enforceability of the
remaining portions of this Agreement or any part thereof, all of which are
inserted conditionally on their being legally valid. In the event that one or
more of the words, phrases, sentences, clauses, sections, subdivisions,
subparagraphs, or articles are determined to be unenforceable and if such
invalidity shall be caused by the length of any period of time or the size of
any area set forth in any part hereof, such period of time
11
<PAGE> 13
or such area, or both, shall be considered to be reduced to a period or area
which would cure such invalidity.
11. INDEMNIFICATION. Company agrees to indemnify Executive
for any and all liabilities to which he may be subject as a result of his
service to the Company as an officer, director, or agent or of any other
enterprise in which he serves at the request of the Company, or otherwise as a
result of his employment hereunder, including all expenses, including legal
fees and costs of counsel of Executive's choice, incurred as a result of any
proceedings brought or threatened against Executive, to the fullest extent
permitted by law. Counsel's fees, to the fullest extent permitted by law,
shall be paid by the Company in advance of any final disposition of a
proceeding upon receipt of an undertaking by Executive that he will repay such
fees if it is ultimately determined by a court of competent jurisdiction that
he is not entitled to indemnification.
12. SUCCESSORS AND ASSIGNS.
12.1 Successors. This Agreement shall be binding
upon the parties hereto and their successors and assigns. For purposes of this
Agreement, the term "successor" of Company shall include any person or entity,
whether direct or indirect, whether by purchase, merger, consolidation,
operation of law, assignment, or otherwise acquires or controls: (i) all or
substantially all of the assets of Company; (ii) twenty-five percent (25%) or
more of the total voting interests, and was not affiliated with or in common
control of Company as of the Commencement Date; or (iii) any other Business
combination with or without the consent of Company's shareholders.
12.2 Assumption. Subject to the provisions of
Section 3.5 herein, the Company shall require any successor of the Company, by
an agreement in form and substance satisfactory to Executive, to expressly
assume and agree to be bound by the terms of this Agreement in the same manner
and to the same extent that the Company would be required to perform if no
succession had occurred. Company shall be in material breach of this Agreement
if any such successor fails to expressly assume or otherwise agree to guaranty
performance of this Agreement to the extent Company was obligated prior to any
succession.
12.3 Assignment. Except as expressly stated in
Section 12.1 above, this Agreement shall be non-assignable by either Company or
Executive without the written consent of the other party, it being understood
that the obligations and performance of this Agreement are personal in nature.
13. NOTICE. Any notices or other communications to any party
pursuant to or relating to this Agreement must be in writing and shall be
deemed to have been given or delivered when (i) hand-delivered, (ii) mailed
through the U.S. Postal Service via certified
12
<PAGE> 14
mail, return receipt requested, postage prepaid, or (iii) through a nationally
recognized overnight courier, or (iv) via facsimile, to the party at their
addresses below:
COMPANY: Industry Mortgage Company, L.P.
3450 Buschwood Park Dr., Suite 250
Tampa, FL 33618
Attention: Mr. George Nicholas
Executive: Mr. Stuart Marvin
332 Tuckerton Lane
Jacksonville, FL 32211
or such other address given by such party to the other party at any time
hereafter.
14. MISCELLANEOUS.
14.1 Amendment. No amendment, waiver or modification
of this Agreement or any provisions of this Agreement shall be valid unless in
writing and duly executed by both parties.
14.2 Waiver. Any waiver by any party of any breach
of any provision of this Agreement shall not be considered as or constitute a
continuing waiver or waiver of any other breach of any provision of this
Agreement.
14.3 Captions. Captions contained in this Agreement
are inserted only as a matter of convenience or for reference and in no way
define, limit, extend, or describe the scope of this Agreement or the intent of
any provisions of this Agreement.
14.4 Attorneys' Fees. In the event of any litigation
arising out of this Agreement, the prevailing party shall be entitled to
recover its attorneys' fees and costs, including attorneys' fees and costs
incurred on appeal.
14.5 Governing Law. This Agreement shall be
governed by the laws of the State of Florida.
13
<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the day and year first above written.
INDUSTRY MORTGAGE COMPANY, L.P.,
a Delaware limited partnership
By: /s/ George Nicholas
------------------------------------
George Nicholas, Chairman
/s/ Stuart Marvin
---------------------------------------
Stuart Marvin
14
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