<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 10, 1996
REGISTRATION NO. 333-3954
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
IMC MORTGAGE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
FLORIDA 6162 59-3350574
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
3450 BUSCHWOOD PARK DRIVE
TAMPA, FLORIDA 33618
(813) 932-2211
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GEORGE NICHOLAS
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
IMC MORTGAGE COMPANY
3450 BUSCHWOOD PARK DRIVE
TAMPA, FLORIDA 33618
(813) 932-2211
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES OF ALL COMMUNICATIONS, INCLUDING ALL COMMUNICATIONS SENT TO THE
AGENT FOR SERVICE, SHOULD BE SENT TO:
<TABLE>
<S> <C>
MARK R. BAKER, ESQ. STEVEN R. FINLEY, ESQ.
MARK W. LORIMER, ESQ. SEAN P. GRIFFITHS, ESQ.
DEWEY BALLANTINE GIBSON, DUNN & CRUTCHER LLP
1301 AVENUE OF THE AMERICAS 200 PARK AVENUE
NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10166
(212) 259-8000 (212) 351-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]_________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]_________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND HEADING LOCATION IN THE PROSPECTUS
--------------------------------------------------------- ------------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus............................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................. Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio of Earnings
to Fixed Charges....................................... Prospectus Summary; Business; Risk Factors
4. Use of Proceeds.......................................... Outside Front Cover Page; Prospectus Summary;
Use of Proceeds
5. Determination of Offering Price.......................... Underwriting
6. Dilution................................................. Dilution
7. Selling Security Holders................................. Not Applicable
8. Plan of Distribution..................................... Outside Front Cover Page; Underwriting
9. Description of Securities To Be Registered............... Description of Capital Stock
10. Interests of Named Experts and Counsel................... Not Applicable
11. Information With Respect to the Registrant:
(a) Description of Business............................ Prospectus Summary; Recent Events; Business
(b) Description of Property............................ Business -- Property
(c) Legal Proceedings.................................. Business -- Legal Proceedings
(d) Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters...... Outside Front Cover Page; The Reorganization
Plan; Dividend Policy; Selected Consolidated
Financial Data; Description of Capital Stock;
Shares Eligible for Future Sale; Available
Information
(e) Financial Statements............................... Consolidated Financial Statements
(f) Selected Financial Data............................ Selected Consolidated Financial Data
(g) Supplementary Financial Information................ Not Applicable
(h) Management's Discussion and Analysis of Financial
Condition and Results of Operations................ Management's Discussion and Analysis of
Financial Condition and Results of Operations
(i) Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ Management's Discussion and Analysis of
Financial Condition and Results of Operations
(j) Directors and Executive Officers................... Management
(k) Executive Compensation............................. Management
(l) Security Ownership of Certain Beneficial Owners and
Management......................................... Principal Stockholders
(m) Certain Relationships and Related Transactions..... Certain Relationships and Related Transactions;
Certain Accounting Considerations Relating to
The Conti VSA
12. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities............................. Not Applicable
</TABLE>
<PAGE>
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 10, 1996
PROSPECTUS
3,100,000 SHARES
IMC MORTGAGE COMPANY
COMMON STOCK
[LOGO]
------------------------------
The 3,100,000 shares of common stock (the 'Common Stock') offered hereby
(the 'Public Offering') are being offered and sold by IMC Mortgage Company
('IMC' or the 'Company'). Prior to the Public Offering, there has been no public
market for the Common Stock. It is currently estimated that the initial public
offering price will be between $17.00 and $19.00 per share. See 'Underwriting'
for a discussion of the factors to be considered in determining the initial
public offering price.
At the request of the Company, the Underwriters have initially reserved up
to 310,000 shares of Common Stock for sale at the initial public offering price
to certain employees, Industry Partners (as defined herein) and their affiliates
(the 'Directed Share Program'). The number of shares of Common Stock available
for sale to the general public will be reduced to the extent such persons
purchase such reserved shares. Any such reserved shares which are not so
purchased will be offered by the Underwriters to the general public on the same
basis as other shares offered thereby.
The Company has applied for listing of the Common Stock on The Nasdaq
National Market ('Nasdaq') under the symbol IMCC.
------------------------------
SEE 'RISK FACTORS' ON PAGES 8 THROUGH 15 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
Per Share.............................. $ $ $
Total (3).............................. $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the 'Securities Act'). See 'Underwriting.'
(2) Before deducting estimated expenses of $1,000,000 payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
465,000 additional shares of Common Stock, on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. If such option
is exercised in full, the total Price to Public will be $ ,
Underwriting Discount will be $ and Proceeds to Company will be
$ . See 'Underwriting.'
------------------------------
The shares of Common Stock are offered, subject to prior sale, when, as and
if delivered to and accepted by the Underwriters, and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
said offer and to reject orders in whole or in part. It is expected that
delivery of the Common Stock will be made on or about June , 1996 at the
offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
BEAR, STEARNS & CO. INC. OPPENHEIMER & CO., INC.
JUNE , 1996
<PAGE>
<PAGE>
HEADQUARTERS, FULL SERVICE, AND RETAIL LOCATIONS
[MAP OF THE UNITED STATES OF AMERICA]
<TABLE>
<S> <C>
Headquarters Tampa, FL
Top Ten States Maryland, New York, New Jersey, Michigan, Florida, Ohio, Pennsylvania, Virginia, Georgia, District of Columbia
Full Service Cincinnati, OH; Ft. Washington, PA; Cherry Hill, NJ; Lincoln, RI
Retail Atlanta, GA; Englewood, CO; W. Des Moines, IA; St. Louis, MO; Brookfield, WI; Phoenix, AZ; Jacksonville, FL;
Roselle, IL; Bellevue, WA.
</TABLE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
The Company was formerly known as IMC Acquisitions, Inc., a Florida
corporation ('IMC Acquisitions'), and is a wholly-owned subsidiary of Industry
Mortgage Company, LP, a Delaware limited partnership (the 'Partnership'). In
connection with the Public Offering, the Partnership will become a subsidiary of
the Company, pursuant to a plan in which the Partnership will retain all of its
assets, operations and liabilities (the 'Reorganization Plan'). See 'The
Reorganization Plan.' This Prospectus gives effect to the Reorganization Plan
and, unless the context otherwise requires, the terms the 'Company' and 'IMC'
refer to IMC Mortgage Company, its subsidiaries and their respective operations,
and include the Partnership. The following summary is qualified in its entirety
by the more detailed information and consolidated financial statements and
related notes appearing elsewhere in this Prospectus.
THE COMPANY
Overview. IMC is a specialized consumer finance company engaged in
purchasing, originating, servicing and selling home equity loans secured
primarily by first liens on one- to four-family residential properties. The
Company focuses on lending to individuals whose borrowing needs are generally
not being served by traditional financial institutions due to such individuals'
impaired credit profiles and other factors. Loan proceeds typically are used by
the Company's borrowers for a variety of purposes such as to consolidate debt,
to finance home improvements and to pay educational expenses. By focusing on
individuals with impaired credit profiles and by providing prompt responses to
their borrowing requests, the Company has been able to charge higher interest
rates for its loan products than typically are charged by conventional mortgage
lenders.
IMC was formed in 1993 by a team of executives experienced in the
non-conforming home equity loan industry. IMC was originally structured as a
partnership, with the limited partners consisting of correspondents and other
originators of home equity loans (the 'Industry Partners') and certain members
of management. The original Industry Partners included: American Industrial Loan
Association; Champion Mortgage Co. Inc.; Cityscape Corp.; Equitysafe, a Rhode
Island General Partnership; Investors Mortgage, a Washington LP; Mortgage
America Inc.; Residential Money Centers; First Government Mortgage and Investors
Corp.; Investaid Corp.; and New Jersey Mortgage and Investment Corp. TMS
Mortgage Inc., a wholly-owned subsidiary of The Money Store Inc., ('The Money
Store') and Equity Mortgage, a Maryland LP, became Industry Partners in 1994.
Branchview, Inc. became an Industry Partner in 1995.
IMC purchases and originates home equity loans through a diversified
network of 248 correspondents, which includes the Industry Partners, and 1,348
mortgage loan brokers and, to a lesser extent, on a retail basis through its
recently initiated direct consumer lending effort. Since its inception in
August, 1993, IMC has experienced considerable growth in loan production, with
total purchases and originations of $29.6 million, $282.9 million, $621.6
million and $264.0 million in 1993, 1994, 1995 and the first three months of
1996, respectively. IMC's network of correspondents accounted for 82.5%, 87.5%
and 89.6% of IMC's loan production in 1994, 1995 and the first three months of
1996, respectively, with the largest correspondent contributing 7.1%, 9.7% and
9.5% of total loan production in such periods. Through its network of approved
mortgage brokers, IMC generated 17.5%, 10.7% and 8.0% of its loan production in
1994, 1995 and the first three months of 1996, respectively. IMC's direct
consumer lending effort contributed approximately 1.8% and 2.4% of loan
production in 1995 and the first three months of 1996. IMC is seeking to expand
its direct consumer lending by opening branch offices and expanding its use of
advertising, direct mail and other marketing strategies.
The Industry Partners are currently required to sell to IMC, under market
terms and conditions, an aggregate of $102.0 million, on average, of home equity
loans per year. IMC has consistently purchased loan production from the Industry
Partners in excess of such aggregate annual commitment. Concurrent with the
Public Offering, the majority of the Industry Partners have agreed to increase
their annual loan sale commitment, or the economic equivalent, to an aggregate
of $162.0 million. See 'Certain Relationships and Related Transactions.'
3
<PAGE>
<PAGE>
IMC sells its loans through securitizations, which involve the private
placement or public offering of asset-backed securities, and whole loan sales,
which involve selling blocks of loans to institutional purchasers. Whole loan
sales have declined from 100% of total loan sales in 1993 (prior to IMC's first
securitization of its loans) to 15.3% of total loan sales in 1995. Each of IMC's
securitizations has been credit-enhanced by an insurance policy provided through
a monoline insurance company to receive ratings of Aaa from Moody's Investors
Service, Inc. ('Moody's') and AAA from Standard & Poor's Ratings Group
('Standard & Poor's'). Through April 30, 1996, IMC had completed six real estate
mortgage investment conduit ('REMIC') securitizations totalling $845.0 million.
As of December 31, 1995 and March 31, 1996, IMC had a servicing portfolio of
$535.8 million and $783.4 million, respectively.
IMC has maintained a financing and investment banking relationship with
ContiFinancial Corporation and its subsidiaries and affiliates
('ContiFinancial') since 1993. As part of this relationship, ContiFinancial has
provided warehouse and revolving credit facilities to IMC and acted as placement
agent and underwriter of its securitizations. In addition, as part of its cash
flow management strategy, the securitizations were structured so that
ContiFinancial received, in exchange for cash, a portion of the residual
interest in such securitizations. These transactions reduced IMC's gain on sale
of loans by approximately $0.6 million in 1994, $5.5 million in 1995 and $2.8
million during the first three months of 1996. ContiFinancial also has an option
which, prior to the completion of the Public Offering, will be converted into a
warrant to purchase 1.5 million shares of Common Stock (subject to certain
adjustments) for a de minimis amount (the 'Conti Option').
Loan purchases and originations increased 119.7% from $282.9 million in
1994 to $621.6 million in 1995, and the Company's servicing portfolio increased
482.4% from $92.0 million to $535.8 million. During this same period, the
Company's total revenues increased 94.9% from $10.1 million to $19.7 million,
pro forma net income increased 117.3% from $1.9 million to $4.0 million and
pre-tax income before the partnership equity value sharing arrangement with
ContiFinancial (the 'Conti VSA') increased 127.4% from $4.7 million to $10.8
million. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Transactions with ContiFinancial -- Sharing of
Proportionate Value of Equity' and Note 4 to Notes to Consolidated Financial
Statements.
Business Strategy. IMC is following these strategies for expansion: (i)
increasing the number of correspondents and brokers in its networks and
increasing the amount of loans purchased or originated from correspondents
(including the Industry Partners) and brokers; (ii) expanding its direct
consumer lending; (iii) acquiring additional loan production capability through
acquisitions of correspondents; (iv) generating loan production in the home
equity market in the United Kingdom ('UK'); and (v) broadening its product
offerings. See 'Business -- Business Strategy.'
Recent Securitization. In April, 1996, the Company completed its sixth
securitization in the aggregate amount of $200.0 million. The securities sold in
the securitization were rated AAA/Aaa and were sold in a public offering. As
part of its cash flow management strategy, this securitization was structured so
that ContiFinancial received, in exchange for cash, 25% of the residual
interests of such securitization. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources.'
RISK FACTORS
Prior to making an investment decision, prospective investors should
carefully consider all of the information set forth in this Prospectus and, in
particular, should evaluate the factors set forth in 'Risk Factors.' Such risks
include, among others, effect of adverse economic conditions, interest rate
risk, dependence on funding sources, liquidity-negative cash flow, valuation and
potential impairment of excess servicing receivables, dependence on
securitizations, dependence on credit enhancement, limited operating history,
recent formation and competition.
4
<PAGE>
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 3,100,000 shares
Common Stock to be outstanding after the
Public Offering............................ 11,065,092 shares
Use of proceeds.............................. For general corporate purposes, including the repayment of certain
indebtedness estimated to be $22.9 million, the funding of loan
purchases and originations, the funding of future acquisitions
and the expansion of its direct lending branch office network.
See 'Use of Proceeds.'
Proposed Nasdaq symbol....................... IMCC
</TABLE>
------------------------
Except as otherwise specified, all information in this Prospectus (i)
assumes no exercise of the Underwriters' over-allotment option (see
'Underwriting'), (ii) regarding outstanding shares excludes: (a) 107,527 shares
of Common Stock reserved for issuance upon the conversion of a convertible
secured debenture (the 'Rotch Debenture') due September 18, 1996 held by Rotch
Property Group Limited ('Rotch'), (b) 325,323 shares of Common Stock reserved
for issuance upon exercise of outstanding options, and (c) 141,666 shares of
Common Stock reserved for issuance when and if earned under the contingent
payout arrangement with respect to IMC's acquisition (the 'Equitystars
Acquisition') of the assets of Mortgage Central Corp. ('Equitystars') and (iii)
regarding outstanding shares includes: (a) 119,833 shares of Common Stock
reserved for issuance upon conversion of the Company's Series A Voting
Convertible Preferred Stock (the 'Convertible Preferred Stock') issued pursuant
to the Equitystars Acquisition, (b) 345,259 shares of Common Stock reserved for
issuance upon exercise of outstanding options and (c) 1,500,000 shares of Common
Stock reserved for issuance upon exercise of the warrant (the 'Conti Warrant')
to be issued to ContiFinancial upon the conversion of the Conti Option. See 'The
Reorganization Plan,' 'Certain Relationships and Related Transactions --
Agreements with ContiFinancial -- Conti Warrant' and 'Management -- Stock
Option Plans.'
5
<PAGE>
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The historical and pro forma data reflect the exchange of all of the
partnership interests in the Partnership for shares of Common Stock as described
in the Reorganization Plan, giving effect to such exchange as if it had occurred
at the inception of the Partnership.
<TABLE>
<CAPTION>
PERIOD THREE MONTHS
FROM INCEPTION ENDED
(AUGUST 12, 1993) YEAR ENDED DECEMBER 31, MARCH 31,
THROUGH ------------------------- -------------------------------
DECEMBER 31, 1993 1994 1995 1995 1996
----------------- ---------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gain on sale of loans(1)................. $438,774 $8,583,277 $20,680,848 $3,297,408 $10,875,466
Additional securitization transaction
expense(2)............................. 0 (560,137) (5,547,037) (254,507) (2,828,591)
----------------- ---------- ----------- -------------- --------------
Gain on sale of loans, net........... 438,774 8,023,140 15,133,811 3,042,901 8,046,875
----------------- ---------- ----------- -------------- --------------
Warehouse interest income................ 97,159 2,510,062 7,884,679 1,090,933 5,160,943
Warehouse interest expense............... (50,709) (1,610,870) (6,006,919) (1,019,643) (3,375,244)
----------------- ---------- ----------- -------------- --------------
Net warehouse interest income........ 46,450 899,192 1,877,760 71,290 1,785,699
----------------- ---------- ----------- -------------- --------------
Servicing fees........................... 0 99,224 1,543,339 109,167 995,439
Other.................................... 28,235 1,072,855 1,117,903 208,243 628,536
----------------- ---------- ----------- -------------- --------------
Total servicing fees and other....... 28,235 1,172,079 2,661,242 317,410 1,623,975
----------------- ---------- ----------- -------------- --------------
Total revenues................... 513,459 10,094,411 19,672,813 3,431,601 11,456,549
----------------- ---------- ----------- -------------- --------------
Expenses:
Compensation and benefits................ 507,904 3,348,236 5,139,386 1,021,815 3,666,685
Selling, general and administrative
expenses............................... 355,526 2,000,401 3,477,677 553,910 2,240,856
Other.................................... 0 14,143 297,743 16,084 342,534
Sharing of proportionate value of
equity(3).............................. 0 1,689,000 4,204,000 718,952 2,555,000
----------------- ---------- ----------- -------------- --------------
Total expenses....................... 863,430 7,051,780 13,118,806 2,310,761 8,805,075
----------------- ---------- ----------- -------------- --------------
Pre-tax income (loss).................... (349,971) 3,042,631 6,554,007 1,120,840 2,651,474
Pro forma provision (benefit) for income
taxes.................................. (134,000) 1,187,000 2,522,000 431,299 1,026,000
----------------- ---------- ----------- -------------- --------------
Pro forma net income (loss).............. $(215,971) $1,855,631 $4,032,007 $689,541 $1,625,474
----------------- ---------- ----------- -------------- --------------
----------------- ---------- ----------- -------------- --------------
Pro forma per share data:
Pro forma net income per share:
Primary.............................. $0.51 $0.20
Fully diluted........................ $0.51 $0.20
Weighted average common and common share
equivalents:
Primary.............................. 7,935,752 7,935,752
Fully diluted........................ 7,935,752 8,304,778
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
DECEMBER 31, -------------------------------
---------------------------------------------- AS
1993 1994 1995 ACTUAL ADJUSTED(4)
----------------- ----------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Mortgage loans held for sale............ $ 7,971,990 $28,995,750 $193,002,835 $257,458,182 $257,458,182
Excess servicing receivables............ 0 3,403,730 14,072,771 22,905,311 22,905,311
Warehouse finance facilities............ 7,212,915 27,731,859 189,819,046 261,417,193 220,467,956
Term debt............................... 0 0 11,120,642 21,879,297 17,879,297
Convertible debenture................... 0 0 0 1,800,000 0
Stockholders' equity(5)................. 1,449,092 5,856,011 5,608,844 12,122,435 72,245,170
Total assets(5)......................... 8,861,144 36,641,991 354,551,434 525,200,197 532,422,932
</TABLE>
<TABLE>
<CAPTION>
PERIOD
FROM INCEPTION YEAR ENDED THREE MONTHS ENDED
(AUGUST 12, 1993) DECEMBER 31, MARCH 31,
THROUGH ------------------- -------------------------------
DECEMBER 31, 1993 1994 1995 1995 1996
----------------- -------- -------- -------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA (DOLLARS IN THOUSANDS):
Loans purchased or originated.................. $29,608 $282,924 $621,629 $119,385 $263,987
Loans sold through securitization.............. 0 81,637 388,363 74,782 175,000
Whole loan sales............................... 21,636 180,263 70,400 20,765 21,272
Serviced loan portfolio (period end)........... 0 92,003 535,798 166,914 783,367
DELINQUENCY DATA:
Total delinquencies as a percentage of loans
serviced (period end)(6)..................... 0.00% 0.87% 3.43% 1.32% 2.34%
Defaults as a percentage of loans serviced
(period end)(7).............................. 0.00 0.12 1.16 0.12 1.40
Net losses as a percentage of average loans
serviced for period.......................... 0.00 0.00 0.08 0.01 0.01
</TABLE>
6
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------
MARCH 31, 1995 JUNE 30, 1995 SEPTEMBER 30, 1995 DECEMBER 31, 1995
-------------- ------------- ------------------ -----------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gain on sale of loans(1)......................... $3,297,408 $2,823,232 $7,303,333 $7,256,875
Additional securitization transaction
expense(2)..................................... (254,507) (176,860) (2,424,000) (2,691,670)
-------------- ------------- ------------------ -----------------
Gain on sale of loans, net................... 3,042,901 2,646,372 4,879,333 4,565,205
-------------- ------------- ------------------ -----------------
Warehouse interest income........................ 1,090,933 1,703,094 2,430,904 2,659,748
Warehouse interest expense....................... (1,019,643) (1,192,707) (1,814,957) (1,979,612)
-------------- ------------- ------------------ -----------------
Net warehouse interest income................ 71,290 510,387 615,947 680,136
-------------- ------------- ------------------ -----------------
Servicing fees................................... 109,167 322,564 423,476 688,132
Other............................................ 208,243 272,773 307,425 329,462
-------------- ------------- ------------------ -----------------
Total revenues............................... 3,431,601 3,752,096 6,226,181 6,262,935
-------------- ------------- ------------------ -----------------
Expenses:
Compensation and benefits........................ 1,021,815 1,263,021 1,364,344 1,490,206
Selling, general and administrative expenses..... 553,910 662,627 940,033 1,321,107
Other............................................ 16,084 92,540 31,028 158,091
Sharing of proportionate value of equity(3)...... 718,952 677,575 1,520,433 1,287,040
-------------- ------------- ------------------ -----------------
Total expenses............................... 2,310,761 2,695,763 3,855,838 4,256,444
-------------- ------------- ------------------ -----------------
Pre-tax income................................... 1,120,840 1,056,333 2,370,343 2,006,491
Pro forma provision for income taxes............. 431,299 406,477 912,108 772,116
-------------- ------------- ------------------ -----------------
Pro forma net income................................. $689,541 $649,856 $1,458,235 $1,234,375
-------------- ------------- ------------------ -----------------
-------------- ------------- ------------------ -----------------
Pro forma per share data:
Pro forma net income per share................... $0.09 $0.08 $0.18 $0.16
Weighted average common and common share
equivalents.................................... 7,935,752 7,935,752 7,935,752 7,935,752
OPERATING DATA (DOLLARS IN THOUSANDS):
Loans purchased or originated.................... $119,385 $124,667 $154,990 $222,587
Loans sold through securitization................ 74,782 43,581 120,000 150,000
Whole loan sales................................. 20,765 31,763 8,224 9,648
Serviced loan portfolio (period end)............. 166,914 271,522 355,374 535,798
DELINQUENCY DATA:
Total delinquencies as a percentage of loans
serviced (period end)(6)....................... 1.32% 1.09% 2.42% 3.43%
Defaults as a percentage of loans serviced
(period end)(7)................................ 0.12 0.45 0.98 1.16
Net losses as a percentage of average loans
serviced for period............................ 0.01 0.00 0.03 0.04
</TABLE>
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(1) Includes excess servicing receivables received by ContiFinancial in
connection with IMC's agreement with ContiFinancial. See
'Business -- Loans -- Loan Sales -- Securitizations' and 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Transactions with ContiFinancial -- Additional Securitization
Transaction Expense.'
(2) In 1994 and 1995 and the three months ended March 31, 1996, ContiFinancial
received excess servicing receivables with estimated values of $3.0 million,
$25.1 million and $9.5 million in exchange for $2.1 million, $18.4 million
and $6.2 million, respectively. In addition, ContiFinancial paid IMC $0.4
million, $1.1 million and $.5 million in 1994, 1995 and the three months
ended March 31, 1996, respectively, in expenses related to securitizations.
See 'Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Transactions with ContiFinancial -- Additional
Securitization Transaction Expense.'
(3) Reflects expenses recorded in connection with the Conti VSA which was
superseded by the Conti Option in March, 1996. The Company's pre-tax income
before the Conti VSA for 1994 and 1995 and the three months ended March 31,
1996 was $4.7 million, $10.8 million and $5.2 million, respectively. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Transactions with ContiFinancial -- Sharing of Proportionate
Value of Equity,' 'Certain Accounting Considerations Relating to the Conti
VSA' and Note 4 to Notes to Consolidated Financial Statements.
(4) Adjusted to give effect to the sale of 3,100,000 shares of Common Stock
offered by the Company hereby at an assumed public offering price of $18.00
per share and the application of the estimated net proceeds therefrom. See
'Use of Proceeds' and 'Capitalization.'
(5) Total assets and Stockholders' equity include the effect of recording a
deferred tax asset of $5.6 million in connection with the conversion from a
partnership to a taxable corporation.
(6) Represents the percentages of account balances contractually past due 30
days or more, exclusive of home equity loans in foreclosure, bankruptcy or
real estate owned.
(7) Represents the percentages of account balances on loans in foreclosure,
bankruptcy or real estate owned.
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RISK FACTORS
Before purchasing the shares of Common Stock offered hereby, a prospective
investor should carefully consider the factors set forth below as well as the
other information set forth elsewhere in this Prospectus.
EFFECT OF ADVERSE ECONOMIC CONDITIONS
The Company's business may be adversely affected by periods of economic
slowdown or recession which may be accompanied by decreased demand for consumer
credit and declining real estate values. Any material decline in real estate
values reduces the ability of borrowers to use home equity to support borrowings
and increases the loan-to-value ratios of loans previously made by the Company,
thereby weakening collateral coverage and increasing the possibility of a loss
in the event of default. In addition, delinquencies, foreclosures and losses
generally increase during economic slowdowns or recessions.
INTEREST RATE RISK
Profitability may be directly affected by the levels of and fluctuations in
interest rates, which affect the Company's ability to earn a spread between
interest received on its loans and the costs of borrowings. The profitability of
the Company is likely to be adversely affected during any period of unexpected
or rapid changes in interest rates. For example, a substantial or sustained
increase in interest rates could adversely affect the ability of the Company to
purchase and originate loans and would reduce the value of loans held for sale
and the interest rate differential between newly originated loans and the
pass-through rate on loans that are securitized. A significant decline in
interest rates could decrease the size of the Company's loan servicing portfolio
by increasing the level of loan prepayments. Additionally, to the extent excess
servicing spread has been capitalized on the books of the Company, higher than
anticipated rates of loan prepayments or losses could require the Company to
write down the value of such excess servicing spread, adversely impacting
earnings.
Fluctuating interest rates also may affect the net interest income earned
by the Company, resulting from the difference between the yield to the Company
on loans held pending sale and the interest paid by the Company for funds
borrowed under the Company's warehouse facilities. In addition, inverse or
flattened interest yield curves could have an adverse impact on the
profitability of the Company because the loans pooled and sold by the Company
have long-term rates, while the senior interests in the related REMIC trusts are
priced on the basis of intermediate rates. While the Company monitors the
interest rate environment and employs a hedging strategy designed to mitigate
the impact of changes in interest rates, there can be no assurance that the
profitability of the Company would not be adversely affected during any period
of changes in interest rates.
DEPENDENCE ON FUNDING SOURCES
The Company funds substantially all of the loans which it purchases and
originates through borrowings under warehouse facilities, secured by pledges of
its loans, through repurchase agreements and through internally generated funds.
These borrowings are in turn repaid with the proceeds received by the Company
from selling such loans either through securitizations or whole loan sales. The
Company is dependent upon a few lenders to provide the primary credit facilities
for its loan purchases and originations. Any failure to renew or obtain adequate
funding under these warehouse facilities or other financings, or any substantial
reduction in the size of or pricing in the markets for the Company's loans,
could have a material adverse effect on the Company's operations. To the extent
that the Company is not successful in maintaining or replacing existing
financing, it would not be able to hold a large volume of loans pending
securitization and therefore would have to curtail its loan production
activities or sell loans either through whole loan sales or in smaller
securitizations, thereby having a material adverse effect on the Company's
results of operations. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources.'
The Company has relied upon a Standby Agreement (the 'Standby Agreement')
with ContiFinancial and its excess servicing receivable sharing arrangements
with ContiFinancial and its
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affiliates to fund the tax consequences of the recognition of the securitization
gain on sale and other working capital needs prior to receipt of any cash flow
from the residual interests and interest-only ('I/O') classes in its
securitizations. ContiFinancial has agreed to lend the Company an additional
$10.0 million (the 'Additional Draw') under the Standby Agreement, which must be
repaid with a portion of the net proceeds from the Public Offering. The Company
intends to borrow the full $25.0 million available under the Standby Agreement
and the Additional Draw by the time of the Public Offering. The Standby
Agreement expires on January 12, 2000. If ContiFinancial fails to renew the
Standby Agreement in 2000, and the Company is unable to find similar alternative
financing, the Company's growth and profitability will be adversely affected.
ContiFinancial has not agreed to increase the Standby Agreement beyond the
Additional Draw. If the Company is unable to secure funding or financing for the
tax consequences of its future securitizations, it may be forced to either
curtail its growth, or seek out increased or additional excess servicing
receivable sharing arrangements, either of which would have an adverse impact on
its future profitability.
In connection with the Company's prefunding commitments in its
securitization transactions, investors deposit in cash a prefunded amount into
the related trust to purchase the loans the Company commits to sell on a forward
basis. This prefunded amount is invested pending use in short-term obligations
which pay a lower interest rate than the interest rate the trust is obligated to
pay the certificate investors on the outstanding balance of the prefunded
amount. The Company is required to deposit at the closing of the related
transaction an amount sufficient to make up the difference between these rates.
If the Company were unable to make such deposits, it would be unable to access
the prefunding mechanism, which could result in less efficient execution of the
Company's securitizations. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources.'
LIQUIDITY -- NEGATIVE CASH FLOW
As a result of its increased volume of loan purchases and originations and
its growing use of securitizations, the Company has operated since November,
1994, and expects to continue to operate, on a negative cash flow basis. Prior
to the Company's first securitization in November, 1994, the Company sold loans
primarily through whole loan sales which generate immediate cash flow on the
date of sale. During 1995 and the three months ending March 31, 1996, the
Company operated on a negative cash flow basis using $165.3 million and $78.7
million, respectively, more in operations than was generated, due primarily to
an increase in mortgages purchased and originated and the Company's sale of
loans through securitizations. In securitizations, the Company recognizes a gain
on sale of the loans securitized upon the closing of the securitization and the
delivery of the loans, but does not receive the cash representing such gain
until it receives the excess servicing spread, which is payable over the actual
life of the loans securitized. The Company incurs significant expenses in
connection with securitizations and incurs tax liabilities as a result of the
gain on sale. The Company must maintain short- and long-term external sources of
cash to fund its operations and therefore must maintain warehouse lines of
credit and other external funding sources. If the capital sources of the Company
were to decrease significantly, the rate of growth of the Company would be
negatively affected.
The documents governing the Company's securitizations require the Company
to build over-collateralization levels through retention within each
securitization trust of excess servicing distributions and application thereof
to reduce the principal balances of the senior interests issued by the related
trust. This retention causes the aggregate principal amount of the loans in the
related pool to exceed the aggregate principal balance of the outstanding
investor certificates. Such over-collateralization amounts serve as credit
enhancement for the related trust and therefore are available to absorb losses
realized on loans held by such trust. The Company continues to be subject to the
risks of default and foreclosure following the sale of loans through
securitizations to the extent excess servicing distributions are required to be
retained or applied to reduce principal from time to time. Such retained amounts
are pre-determined by the entity issuing the guarantee of the related senior
interests and are a condition to obtaining an AAA/Aaa rating thereon. In
addition, such retention delays cash distributions that otherwise would flow to
the Company through its retained interest in the transaction, thereby slowing
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the flow of cash to the Company. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.'
VALUATION AND POTENTIAL IMPAIRMENT OF EXCESS SERVICING RECEIVABLES
At March 31, 1996, the Company's balance sheet reflected investment in
excess servicing receivables, representing I/O and residual classes of
certificates, of approximately $22.9 million. The Company derives a significant
portion of its income by recognizing gains upon the sale of loans through
securitizations due to the excess servicing spread associated with such loans
recorded at the time of sale. If the Company's assumptions used in deriving the
value of excess servicing receivables differ from the actual results, there can
be a material adverse impact on the Company's financial condition and results of
operations. The principal assumptions relate to prepayment speeds, discount
rates and anticipated credit losses. Excess servicing spread is initially
capitalized on the Company's books as excess servicing receivables using
prepayment, credit loss and interest rate assumptions that the Company believes
are reasonable. See 'Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Certain Accounting Considerations -- Excess
Servicing Receivables.'
Higher than anticipated rates of loan prepayments or losses would require
the Company to write down the value of the excess servicing receivables,
adversely impacting earnings. Similarly, if delinquencies or liquidations were
to be greater than were initially assumed, excess servicing receivables
amortization would occur more quickly than originally anticipated, which would
have an adverse effect on income in the period of such adjustment. To the
Company's knowledge, there is no liquid market for the sale of excess servicing
receivables. No assurance can be given that this asset could in fact be sold at
its stated value on the balance sheet, if at all. See ' -- Contingent Risks.'
DEPENDENCE ON SECURITIZATIONS
Since its first securitization in November, 1994, the Company has pooled
and sold through securitizations an increasing percentage of the loans that it
purchases or originates. Adverse changes in the securitization market could
impair the Company's ability to purchase, originate and sell loans through
securitizations on a favorable or timely basis. Any such impairment could have a
material adverse effect upon the Company's results of operations and financial
condition. Furthermore, the Company's quarterly operating results can fluctuate
significantly as a result of the timing and level of securitizations. If
securitizations do not close when expected, the Company's results of operations
may be adversely affected for that period.
DEPENDENCE ON CREDIT ENHANCEMENT
In addition, in order to gain access to the securitization market, the
Company has relied on credit enhancements provided by a monoline insurance
carrier to guarantee outstanding senior interests in the related REMIC trusts to
enable it to obtain an AAA/Aaa rating for such interests. The Company has not
attempted to structure a mortgage loan pool for sale through a securitization
based solely on the internal credit enhancements of the pool or the Company's
credit. Any substantial reductions in the size or availability of the
securitization market for the Company's loans, or the unwillingness of insurance
companies to guarantee the senior interests in the Company's loan pools, could
have a material adverse effect on the Company's results of operations and
financial condition. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources.'
LIMITED OPERATING HISTORY; RECENT EXPANSION
The Company commenced operations in August, 1993 and has a limited
operating history. In 1995, the Company purchased and originated a significantly
greater number of loans than previously. In light of this growth, the historical
performance of the Company may be of limited relevance in predicting future
performance. Any credit or other problems associated with the larger number of
loans purchased and originated in the recent past will not become apparent until
sometime in the future. Consequently, the Company's historical results of
operations may be of limited relevance to an investor seeking to predict the
Company's future performance. See 'Business -- Loans -- Loan Purchases and
Originations.'
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The Company's significant growth and expansion have placed substantial new
and increased pressures on the Company's personnel and systems. Failure by the
Company to manage its growth effectively, or to sustain its historical levels of
performance in credit analysis and transaction structuring with respect to the
increased loan purchase and origination volume could have a material adverse
effect on the Company's results of operations and financial condition.
COMPETITION
As a purchaser and originator of mortgage loans, the Company faces intense
competition, primarily from mortgage banking companies, commercial banks, credit
unions, thrift institutions, credit card issuers and finance companies. Many of
these competitors in the financial services business are substantially larger
and have more capital and other resources than the Company. Furthermore, certain
large national finance companies and conforming mortgage originators have
announced their intention to adapt their conforming origination programs and
allocate resources to the origination of non-conforming loans. In addition,
certain of these larger mortgage companies and commercial banks have begun to
offer products similar to those offered by the Company, targeting customers
similar to those of the Company. The entrance of these competitors into the
Company's market could have a material adverse effect on the Company's results
of operations and financial condition.
Competition can take many forms, including convenience in obtaining a loan,
service, marketing and distribution channels and interest rates. Furthermore,
the current level of gains realized by the Company and its competitors on the
sale of the type of loans purchased and originated is attracting additional
competitors, including at least one quasi-governmental agency, into this market
with the effect of lowering the gains that may be realized by the Company on
future loan sales. Competition may be affected by fluctuations in interest rates
and general economic conditions. During periods of rising rates, competitors
which have 'locked in' low borrowing costs may have a competitive advantage.
During periods of declining rates, competitors may solicit the Company's
borrowers to refinance their loans. During economic slowdowns or recessions, the
Company's borrowers may have new financial difficulties and may be receptive to
offers by the Company's competitors.
The Company depends largely on brokers, financial institutions and other
mortgage bankers for its purchases and originations of new loans. The Company's
competitors also seek to establish relationships with the Company's brokers and
financial institutions and other mortgage bankers. The Company's future results
may become more exposed to fluctuations in the volume and cost of its wholesale
loans resulting from competition from other purchasers of such loans, market
conditions and other factors.
RELIANCE ON THE INDUSTRY PARTNERS
The Company purchases a significant portion of its loans from the Industry
Partners, which accounted for 23.9% and 24.2% of total loan purchases and
originations by the Company, or $148.4 million and $63.9 million, respectively,
in the year ended December 31, 1995 and the three months ended March 31, 1996.
Immediately prior to the Public Offering, the Company had contractual annual
loan sale commitments from the Industry Partners of an aggregate of $102.0
million, on average. Increased loan sale commitments, or the economic
equivalent, to an aggregate of $162.0 million (a 58.8% increase) to the Company
from the majority of the Industry Partners will become effective simultaneously
with the Public Offering. There can be no assurance that the commitments to
increase loan production will result in an actual increase in the dollar amount
of loans purchased by the Company from the Industry Partners. At the present
time, a number of Industry Partners are selling more loans to the Company than
they are obligated to sell, even under the new higher commitments. Certain of
the Industry Partners could reduce their loan sales to the Company without
violating their commitments to the Company, resulting in an overall decrease in
the volume of loans available to the Company for purchase. The commitments to
sell loans to the Company by the Industry Partners will expire in April, 2001,
after which date the Industry Partners will be under no obligation to sell loans
to the Company, which could negatively affect the Company's results of
operations. If the Industry Partners, individually or in the aggregate, become
unable to meet their loan sale commitments, it would have a negative effect on
the Company's results of operations and financial condition. See 'Restrictions
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on Future Sales by Stockholders; Effect on Share Price of Shares Available for
Future Sale' and 'Shares Eligible for Future Sale.'
MARKET CONDITIONS IN THE UK
The Company has recently entered into a joint venture in the UK. There can
be no guarantee that the joint venture will be able to purchase or originate
loans in sufficient volume to make the joint venture profitable. Currently, the
joint venture has arrangements with a single lender for its funds. There can be
no guarantee that the joint venture will be able to obtain sufficient financing
to fulfill its capital requirements. Further, no assurances can be given that
the Company will be successful in structuring, marketing and completing
securitizations of UK mortgage loans or, if such securitizations were
unsuccessful, that a viable market for whole loan sales would develop. Failure
to securitize or sell UK mortgage loans would have a material adverse effect on
the Company's joint venture.
CONTINGENT RISKS
Although the Company sells substantially all loans that it purchases and
originates on a nonrecourse basis, the Company retains some degree of credit
risk on substantially all loans purchased or originated. During the period of
time that loans are held pending sale, the Company is subject to the various
business risks associated with lending, including the risk of borrower default,
the risk of foreclosure and the risk that an increase in interest rates would
result in a decline in the value of loans to potential purchasers. In addition,
documents governing the Company's securitizations require the Company to commit
to repurchase or replace loans that do not conform to the representations and
warranties made by the Company at the time of sale. When borrowers are
delinquent in making monthly payments on loans included in a REMIC trust, the
Company is required to advance interest payments with respect to such delinquent
loans to the extent that the Company deems such advances ultimately recoverable.
These advances require funding from the Company's capital resources but have
priority of repayment from the succeeding month's collections.
In the ordinary course of its business, the Company is subject to claims
made against it by borrowers and private investors arising from, among other
things, losses that are claimed to have been incurred as a result of alleged
breaches of fiduciary obligations, misrepresentations, errors and omissions of
employees, officers and agents of the Company (including its appraisers),
incomplete documentation and failures by the Company to comply with various laws
and regulations applicable to its business. If the loans in the Company's
securitizations experience losses in excess of the projections used to value the
Company's excess servicing receivables, the Company will recognize a loss in
such assets. See ' -- Valuation and Potential Impairment of Excess Servicing
Receivables.'
CONCENTRATION OF OPERATIONS IN MID-ATLANTIC REGION
For the three months ended March 31, 1996, 38.7% of the aggregate principal
balance of the home equity loans purchased or originated by the Company were
secured by properties located in four mid-Atlantic states (New York, New Jersey,
Maryland and Pennsylvania). Although the Company has expanded its mortgage
origination network outside the mid-Atlantic region, the Company's origination
business is likely to remain concentrated in that region for the foreseeable
future. Consequently, the Company's results of operations and financial
condition are dependent upon general trends in the economy and the residential
real estate market in the mid-Atlantic region.
CREDIT-IMPAIRED BORROWERS
The Company targets credit-impaired borrowers. Loans made to such borrowers
generally entail a higher risk of delinquency and possibly higher losses than
loans made to more creditworthy borrowers. No assurance can be given that the
Company's underwriting policies and collection procedures will alleviate such
risks. In the event that pools of loans warehoused, sold and serviced by the
Company experience higher delinquencies, foreclosures or losses than
anticipated, the Company's results of operations or financial condition would be
adversely affected.
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LOSS OF SERVICING RIGHTS AND SUSPENSION OF FUTURE CASH FLOWS
The Company is entitled to receive servicing income only while it acts as a
servicer for loans it does not own, including securitizations and third-party
servicing. Any loss of servicing rights would have a material adverse effect on
the Company's results of operations and financial condition. The Company's right
to act as servicer under its securitizations can be terminated by FSA, as
certificate insurer, upon the occurrence of certain servicer termination events
(as defined in the pooling and servicing agreements, the 'Servicer Termination
Events'). The Servicer Termination Events include: (i) bankruptcy or the
inability of the Company to pay its debts; (ii) failure of the Company to
perform its obligations; and (iii) failure of the Company to cure any breaches
of its representations and warranties which materially and adversely affect the
underlying loans.
LEGISLATIVE RISK
Members of Congress and government officials from time to time have
suggested the elimination of the mortgage interest deduction for federal income
tax purposes, either entirely or in part, based on borrower income, type of loan
or principal amount. Because many of the Company's loans are made to borrowers
for the purpose of consolidating consumer debt or financing other consumer
needs, the competitive advantages of tax deductible interest, when compared with
alternative sources of financing, could be eliminated or seriously impaired by
such government action. Accordingly, the reduction or elimination of these tax
benefits could have a material adverse effect on the demand for loans of the
kind offered by the Company.
REGULATORY RISK
The Company's business is subject to extensive regulation, supervision and
licensing by federal, state and local governmental authorities and is subject to
various laws and judicial and administrative decisions imposing requirements and
restrictions on part or all of its operations. The Company's consumer lending
activities are subject to the Federal Truth-in-Lending Act and Regulation Z
(including the Home Ownership and Equity Protection Act of 1994), the Federal
Equal Credit Opportunity Act and Regulation B, as amended ('ECOA'), the Fair
Credit Reporting Act of 1994, as amended, the Federal Real Estate Settlement
Procedures Act ('RESPA') and Regulation X, the Home Mortgage Disclosure Act and
the Federal Debt Collection Practices Act, as well as other federal and state
statutes and regulations affecting the Company's activities. The Company is also
subject to the rules and regulations of, and examinations by, the Department of
Housing and Urban Development ('HUD') and state regulatory authorities with
respect to originating, processing, underwriting, selling and servicing loans.
These rules and regulations, among other things, impose licensing obligations on
the Company, establish eligibility criteria for mortgage loans, prohibit
discrimination, provide for inspections and appraisals of properties, require
credit reports on loan applicants, regulate assessment, collection, foreclosure
and claims handling, investment and interest payments on escrow balances and
payment features, mandate certain disclosures and notices to borrowers and, in
some cases, fix maximum interest rates, fees and mortgage loan amounts. Failure
to comply with these requirements can lead to loss of approved status,
termination or suspension of servicing contracts without compensation to the
servicer, demands for indemnifications or mortgage loan repurchases, certain
rights of rescission for mortgage loans, class action lawsuits and
administrative enforcement actions. There can be no assurance that the Company
will maintain compliance with these requirements in the future without
additional expenses, or that more restrictive local, state or federal laws,
rules and regulations will not be adopted that would make compliance more
difficult for the Company.
POSSIBLE ENVIRONMENTAL LIABILITIES
In the ordinary course of its business, the Company from time to time
forecloses on properties securing loans. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real estate may be required to investigate and clean up hazardous or
toxic substances or chemical releases at such property and may be held liable to
a governmental entity or to third parties for property damage, personal injury,
and investigation and
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cleanup costs incurred by such parties in connection with the contamination.
Such laws typically impose cleanup responsibility. Liability under such laws has
been interpreted to be joint and several unless the harm is divisible, and there
is a reasonable basis for allocation of responsibility. The costs of
investigation, remediation or removal of such substances may be substantial, and
the presence of such substances, or the failure to properly remediate such
property, may adversely affect the owner's ability to sell or rent such property
or to borrow using such property as collateral. Persons who arrange for the
disposal or treatment of hazardous or toxic substances also may be liable for
the costs of removal or remediation of such substances at a disposal or
treatment facility, whether or not the facility is owned or operated by such
person. In addition, the owner or former owners of a contaminated site may be
subject to common law claims by third parties based on damages and costs
resulting from environmental contamination emanating from such property.
ABSENCE OF ACTIVE PUBLIC TRADING MARKET
Prior to the Public Offering, there has been no market for the Common
Stock. Although the Company has applied for listing of the Common Stock on
Nasdaq, there can be no assurance that an active public trading market for the
Common Stock will develop after the Public Offering or that, if developed, it
will be sustained. The public offering price of the Common Stock offered hereby
will be determined by negotiations among the Company and Bear, Stearns & Co.
Inc. and Oppenheimer & Co., Inc. acting as representatives of the Underwriters
(the 'Representatives') and may not be indicative of the price at which the
Common Stock will trade after the Public Offering. See 'Underwriting.'
Consequently, there can be no assurance that the market price for the Common
Stock will not fall below the public offering price.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock may experience fluctuations that are
unrelated to the operating performance of the Company. In particular, the price
of the Common Stock may be affected by general market price movements as well as
developments specifically related to the consumer finance industry such as,
among other things, interest rate movements and delinquency trends. In addition,
the Company's operating income on a quarterly basis is significantly dependent
upon the Company's ability to access the securitization market and complete
significant securitization transactions in a particular quarter. Failure to
complete securitizations in a particular quarter may have a material adverse
impact on the Company's results of operations for that quarter and could
negatively affect the price of the Common Stock.
RESTRICTIONS ON FUTURE SALES BY STOCKHOLDERS; EFFECT ON SHARE
PRICE OF SHARES AVAILABLE FOR FUTURE SALE
Persons who purchase shares of Common Stock pursuant to the Directed Share
Program, if any, will be subject to certain lock-up restrictions with respect to
their ability to sell or otherwise dispose of such shares for a period of 180
days from the date of the completion of the Public Offering without the prior
written consent of the Representatives. When such lock-up restrictions lapse,
such shares of Common Stock may be sold in the public market or otherwise
disposed of, subject to compliance with applicable securities laws. Sales of a
substantial number of shares of Common Stock, or the perception that such sales
could occur, could adversely affect prevailing market prices for the Common
Stock. See 'Shares Eligible for Future Sale.'
EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Articles of Incorporation, equity
incentive plans, Bylaws and Florida law may significantly delay or defer, or
even prevent, a change in control of the Company and may adversely affect the
voting and other rights of the holders of Common Stock. In particular, the
existence of the Company's classified Board of Directors, the ability of the
Board of Directors to issue 'blank check' preferred stock without further
stockholder approval, limitations on the ability of stockholders to take action
by written consent or call special stockholders' meetings and the advance
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notice requirements governing proposals submitted for stockholder vote,
including nominations for election to the Board of Directors, may have the
effect of delaying, deferring or preventing a change in control of the Company.
See 'Management -- Terms of Directors and Officers' and 'Description of Capital
Stock.'
DILUTION
Purchasers of the Common Stock will experience immediate and substantial
dilution in net tangible book value per share of Common Stock from the assumed
public offering price per share of Common Stock from $18.00 to $6.37. See
'Dilution.'
DEPENDENCE ON KEY PERSONNEL
The Company's growth and development to date have been largely dependent
upon the services of George Nicholas, Chairman of the Board and Chief Executive
Officer, and Thomas G. Middleton, President and Chief Operating Officer. The
loss of Mr. Nicholas' or Mr. Middleton's services for any reason could have a
material adverse effect on the Company. Certain of the Company's principal
credit agreements contain a provision which permit the lender to accelerate the
Company's obligations in the event that Mr. Nicholas were to leave the Company
for any reason and not be replaced with an executive acceptable to such lender.
See ' -- Dependence on Funding Sources' and 'Management -- Executive
Compensation.'
CONTROL BY CERTAIN STOCKHOLDERS
Immediately prior to the Public Offering and pursuant to the Reorganization
Plan, the Industry Partners, Mr. George Nicholas, and certain members of IMC's
senior management, key employees and Board of Directors (the 'Management
Partners') will receive shares of Common Stock of the Company. As a result, the
Industry Partners will beneficially own an aggregate of 85.0% of the outstanding
shares of Common Stock (56.9% following the completion of the Public Offering
assuming no exercise of the Underwriters' over-allotment option). Also, the
Management Partners and Mr. Nicholas will beneficially own an aggregate of 20.6%
of the outstanding shares of Common Stock (14.2% following the completion of the
Public Offering assuming no exercise of the Underwriters' over-allotment
option). Accordingly, such persons, if they were to act in concert, would have
majority control of the Company, with the ability to approve certain fundamental
corporate transactions (including mergers, consolidations and sales of assets)
and to elect all members of the Board of Directors. See 'The Reorganization
Plan' and 'Principal Stockholders.'
15
<PAGE>
<PAGE>
RECENT EVENTS
COMMENCEMENT OF UK OPERATIONS
IMC commenced operations in the UK in April, 1996 through Preferred
Mortgages Limited ('Preferred Mortgages'), a UK joint venture. The participants
in the joint venture (together, the 'Joint Venture Partners') are IMC, Foxgard
Limited ('Foxgard') and Financial Security Assurance Inc. ('FSA'). Preferred
Mortgages is owned 45% by IMC, 45% by Foxgard and 10% by FSA. Through Preferred
Mortgages, IMC intends to serve what management believes to be an underserved
segment of the home equity market in the UK by lending to borrowers with
impaired credit profiles similar to its domestic customers. Preferred Mortgages
plans to actively market its products and services directly to UK borrowers by
means of newspaper, radio and television advertising, in addition to direct
mail. Preferred Mortgages plans to adapt IMC's loan application procedures,
appraisal procedures and underwriting procedures to the UK market, while
directing its underwriting and processing staff to provide prompt, efficient and
reliable service to the UK broker community. Preferred Mortgages has received a
commitment for a `L'47.5 million (approximately $73.0 million as of June 7,
1996) line of credit from National Westminster Bank, PLC for the purchase and
origination of mortgage loans (the 'NatWest Facility'), and FSA has agreed to
provide an insurance policy as credit enhancement for the NatWest Facility.
In connection with the agreements among the Joint Venture Partners, IMC has
issued to Rotch, an affiliate of Foxgard, the Rotch Debenture due September 18,
1996, pursuant to which IMC agrees to pay Rotch $1.8 million plus interest at a
rate of LIBOR plus 1.0% per annum. The Company intends to repay the Rotch
Debenture in full with a portion of the proceeds from the Public Offering.
ACQUISITION OF EQUITYSTARS
In order to increase the flow of loans for purchase, IMC seeks to acquire
loan originators that would enhance or enlarge IMC's market penetration or
product offerings. Pursuant to this strategy, on January 1, 1996, IMC acquired
all of the assets of Equitystars, a mortgage banking company which does business
primarily in Rhode Island, New York, Connecticut and Massachusetts, with smaller
operations in Maine and New Hampshire. Equitystars originated over $95 million
of residential mortgage loans during 1995. Of the loans originated,
approximately $17 million or 18% were conforming loans and approximately $78
million or 82% were non-conforming loans. During 1995, IMC purchased a total of
$11.3 million of non-conforming loans from Equitystars. At the time of the
Equitystars Acquisition, the Partnership created IMC Acquisitions to act as the
holding company for the assets of Equitystars. See
'Business -- Loans -- Acquisition of Equitystars.'
The purchase price for all of the assets of Equitystars was $2.0 million
base payment in the form of 20,060 shares of Convertible Preferred Stock, and up
to an aggregate of $2.55 million of contingent payments, to be paid over two
years based on formulae keyed to the performance of the non-conforming and
conforming mortgage loan business of Equitystars. In accordance with the terms
of the provisions governing the 20,060 shares of Convertible Preferred Stock
issued in the Equitystars Acquisition, such shares will be automatically
converted upon the completion of any public offering of the Common Stock to a
number of shares of Common Stock having a value, at 93% of the public offering
price, of $2.0 million plus interest of 8.0% per annum.
If a public offering does not occur by June 30, 1996, holders of the
Convertible Preferred Stock have the right to 'put' those shares to IMC for an
amount equal to the liquidation preference of $100 per share plus interest at
8.0% per annum. If the put is exercised, the contingency payment that IMC owes
in the Equitystars Acquisition will be paid in cash.
RECENT SECURITIZATIONS
In February and April, 1996, the Company completed its fifth and sixth
securitizations in the aggregate amount of $175.0 million and $200.0 million,
respectively. The securities sold in the securitizations were rated AAA/Aaa and
were sold in public offerings. As part of its cash flow
16
<PAGE>
<PAGE>
management, the securitizations were structured so that ContiFinancial received,
in exchange for cash, 50% and 25%, respectively of the residual interests of the
February and April, 1996 securitizations.
THE COMPANY
The Company was formed in 1995 to serve as a holding company for interests
in Equitystars and the Partnership. The Partnership has conducted the business
described in this Prospectus since its formation in 1993. The Partnership was
formed by Mr. George Nicholas, the Management Partners and the Industry
Partners, which included: American Industrial Loan Association; Champion
Mortgage Co. Inc.; Cityscape Corp.; Equitysafe, a Rhode Island General
Partnership, an affiliate of which, Equitystars, was acquired by the Company on
January 1, 1996; Investors Mortgage, a Washington LP; Mortgage America Inc.;
Residential Money Centers; First Government Mortgage and Investors Corp.;
Investaid Corp.; and New Jersey Mortgage and Investment Corp. In 1994, The Money
Store and Equity Mortgage, a Maryland LP became Industry Partners. Also in 1994,
Portfolio Placement Partners and Equitysafe divided ownership in an interest in
the Partnership initially purchased in the name of Equitysafe. In 1995,
Branchview, Inc. purchased an interest in the Partnership previously owned by
Residential Money Centers.
The principal executive offices of the Company are located at 3450
Buschwood Park Drive, Tampa, Florida 33618 and the Company's telephone number is
(813) 932-2211.
THE REORGANIZATION PLAN
Prior to the Public Offering, the Industry Partners, the Management
Partners and Mr. Nicholas will contribute their interests in the Partnership to
the Company and Mr. Nicholas will contribute the common stock of Industry
Mortgage Corporation, general partner of the Partnership ('IMCI'), to the
Company. In exchange, the Industry Partners, the Management Partners and Mr.
Nicholas will receive Common Stock. At the same time, ContiFinancial will
surrender the Conti Option to purchase limited partnership interests in the
Partnership in exchange for the Conti Warrant, entitling the holder upon
exercise to 1.5 million shares of the Common Stock (subject to certain
adjustments) for a de minimis amount. These actions will convert the Partnership
into a subsidiary of the Company, 99% directly owned by the Company and 1% owned
by IMCI (the stock of which will, in turn, be held by the Company).
Simultaneously, the Partnership's option plan will be terminated, and all
options granted thereunder will be assumed by the Company pursuant to the
Company Incentive Plan and the Directors' Stock Option Plan.
The Company has been informed that, prior to the effectiveness of the
Registration Statement of which this Prospectus is a part, certain Industry
Partners and ContiFinancial intend to transfer among themselves the limited
partnership interests (or options to purchase limited partnership interests) in
transactions not involving the Company. The Company has been informed that such
transactions will involve no greater than 10%, in the aggregate, of all limited
partnership interests. The Company has been informed that, as a result of these
transactions, ContiFinancial's beneficial ownership of shares of Common Stock
will be reduced by 150,000 shares from 1.5 million to 1.35 million.
In accordance with the provisions governing the Company's Convertible
Preferred Stock, in connection with the Public Offering, all outstanding
Convertible Preferred Stock will be automatically converted into Common Stock.
After the closing of the Public Offering, the Partnership will retain title
to all of its assets and remain liable for all of its obligations, including all
of the liabilities and encumbrances relating to its credit facilities and its
joint venture in the UK. The Company will become a joint and several obligor on
the principal agreements governing the Partnership's indebtedness.
17
<PAGE>
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of Common
Stock offered hereby, after deduction of estimated underwriting discount and
offering expenses, are estimated to be approximately $50.9 million, assuming a
public offering price of $18.00 per share.
Up to a maximum of $22.9 million of the net proceeds is expected to be used
to retire or reduce certain indebtedness of the Company, including: (i)
repayment of up to $10.0 million to ContiFinancial representing the Additional
Draw under the Standby Agreement, which amount bears interest at a rate of LIBOR
plus 8.0% per annum; (ii) repayment of up to $7.0 million to Lakeview Savings
Bank ('Lakeview') under the Lakeview unsecured bridge credit facility (the
'Lakeview Facility'), which bears interest at a fixed rate of 12.0% per annum;
(iii) repayment of the $1.8 million Rotch Debenture, which bears interest at a
rate of LIBOR plus 1.0% per annum; and (iv) repayment of an aggregate of $4.1
million to certain of the Industry Partners and Mr. Nicholas, representing
amounts owed to such Industry Partners and Mr. Nicholas for accrued and unpaid
tax distributions pursuant to the Partnership Agreement, which amount bears
interest at 10.0% per annum.
The remaining net proceeds will be used to fund future loan purchases and
originations, to support securitization transactions, to fund acquisitions of
loan originators and expenses associated with the opening of new direct lending
branch offices and for general corporate purposes. Prior to such use, the
remaining net proceeds will be invested in high quality short-term investment
instruments such as short-term corporate investment grade or United States
Government interest-bearing securities or used to pay down warehouse lines.
18
<PAGE>
<PAGE>
DILUTION
The following data reflect the exchange of all of the partnership interests
in the Partnership for shares of Common Stock as described in the Reorganization
Plan, giving effect to such exchange as if it had occurred at the inception of
the Partnership.
The net tangible book value of the Company as of March 31, 1996, as
adjusted for the conversion of the Convertible Preferred Stock and the exercise
of all dilutive Common Stock equivalents, was approximately $19.6 million or
$2.47 per share of Common Stock. Net tangible book value per share, as adjusted,
represents the amount of the Company's total tangible assets, the recording of a
deferred tax asset of approximately $5.6 million in connection with the exchange
of all partnership interests in the partnership for shares of Common Stock
pursuant to the Reorganization Plan, less total liabilities, divided by the
number of shares of Common Stock outstanding. After giving effect to the sale of
the 3,100,000 shares of Common Stock offered by the Company hereby at an assumed
public offering price of $18.00 per share and after deducting the estimated
underwriting discount and offering expenses, the net tangible book value of the
Company as of March 31, 1996, as adjusted, would have been approximately $6.37
per share. This represents an immediate increase of $3.90 per share to existing
stockholders and an immediate dilution of $11.63 per share to investors
purchasing shares of Common Stock in the Public Offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share............................................... $18.00
Net tangible book value per share, as adjusted, before the Public Offering....... $2.47
Increase per share attributable to new investors................................. 3.90
-----
Net tangible book value per share after the Public Offering........................... 6.37
------
Dilution per share to new investors................................................... $11.63
------
------
</TABLE>
The following table sets forth the difference between the existing
stockholders and new investors purchasing shares of Common Stock in the Public
Offering with respect to the number of shares initially purchased from the
Company, the total consideration paid to the Company (at an assumed public
offering price of $18.00 per share and before deducting the estimated
underwriting discount and offering expenses), and the average consideration per
share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 7,965,092 72.0% $7,533,336 11.9% $0.94
New investors.................... 3,100,000 28.0 55,800,000 88.1 18.00
---------- ------- ----------- -------
Total....................... 11,065,092 100.0% $63,333,336 100.0%
---------- ------- ----------- -------
---------- ------- ----------- -------
</TABLE>
DIVIDEND POLICY
The Company has not paid, and currently has no intention to pay, any cash
dividends on its Common Stock. The Company intends to retain all of its future
earnings to finance its operations and does not anticipate paying cash dividends
in the foreseeable future. Any decision made by the Company's Board of Directors
to declare dividends in the future will depend upon the Company's future
earnings, capital requirements, financial condition and other factors deemed
relevant by the Company's Board of Directors. In addition, certain agreements to
which the Company is a party restrict the Company's ability to pay dividends on
common equity.
19
<PAGE>
<PAGE>
CAPITALIZATION
The following data reflect the exchange of all of the partnership interests
in the Partnership for shares of Common Stock as described in the Reorganization
Plan, giving effect to such exchange as if it had occurred at the inception of
the Partnership.
The following table sets forth the capitalization of the Company at March
31, 1996, and as adjusted as of such date to give effect to completion of the
Reorganization Plan, the sale of the 3,100,000 shares of Common Stock offered by
the Company hereby (at an assumed public offering price of $18.00 per share
before deducting estimated underwriting discount and offering expenses) and the
application of the estimated net proceeds therefrom as described under 'Use of
Proceeds.'
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Warehouse finance facilities............................................................ $261,417 $ 220,468
Term debt............................................................................... 21,879 17,879
Convertible debenture................................................................... 1,800 0
-------- -----------
Total debt.................................................................... $285,096 $ 238,347
-------- -----------
-------- -----------
Convertible Preferred Stock, Series A, par value $100.00 per share; 10,000,000 shares
authorized; 20,060 shares issued and outstanding, actual; no shares issued and
outstanding, as adjusted.............................................................. $2,006 $0
Stockholders' equity:
Common Stock, par value $0.01 per share; 50,000,000 shares authorized; 6,000,000
shares issued and outstanding, actual; and 11,065,092 shares issued and
outstanding, as adjusted.......................................................... 60 111
Additional paid-in capital......................................................... 12,293 66,764
Retained earnings.................................................................. (230) 5,370
-------- -----------
Total stockholders' equity.................................................... 12,123 72,245
-------- -----------
Total capitalization..................................................... $299,225 $ 310,592
-------- -----------
-------- -----------
</TABLE>
20
<PAGE>
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The historical financial data set forth below as of and for the period from
inception to December 31, 1993 and the fiscal years ended December 31, 1994 and
1995 and the three months ended March 31, 1996, have been derived from, and
should be read in conjunction with, the Consolidated Financial Statements of the
Company included elsewhere herein, which have been audited by Coopers & Lybrand
L.L.P., independent accountants. The historical financial data set forth below
as of and for the three months ended March 31, 1995 have been derived from the
unaudited consolidated financial statements of the Company that have been
prepared on the same basis as the audited Consolidated Financial Statements and
include all adjustments, consisting of normal recurring accruals, that the
Company considers necessary for a fair presentation of the financial position
and results of operations for such period. Operating results for the three
months ended March 31, 1996 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1996. The historical and pro
forma data reflect the exchange of all of the partnership interests in the
Partnership for shares of Common Stock as described in the Reorganization Plan,
giving effect to such exchange as if had occurred at the inception of the
Partnership. This data should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
Consolidated Financial Statements and related Notes.
<TABLE>
<CAPTION>
PERIOD
FROM INCEPTION THREE MONTHS ENDED MARCH
(AUGUST 12, 1993) YEAR ENDED DECEMBER 31, 31,
THROUGH ------------------------- -------------------------
DECEMBER 31, 1993 1994 1995 1995 1996
----------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gain on sale of loans(1).................. $438,774 $8,583,277 $20,680,848 $3,297,408 $10,875,466
Additional securitization transaction
expense(2).............................. 0 (560,137) (5,547,037) (254,507) (2,828,591)
----------------- ---------- ----------- ---------- -----------
Gain on sale of loans, net............ 438,774 8,023,140 15,133,811 3,042,901 8,046,875
----------------- ---------- ----------- ---------- -----------
Warehouse interest income................. 97,159 2,510,062 7,884,679 1,090,933 5,160,943
Warehouse interest expense................ (50,709) (1,610,870) (6,006,919) (1,019,643) (3,375,244)
----------------- ---------- ----------- ---------- -----------
Net warehouse interest income......... 46,450 899,192 1,877,760 71,290 1,785,699
----------------- ---------- ----------- ---------- -----------
Servicing fees............................ 0 99,224 1,543,339 109,167 995,439
Other..................................... 28,235 1,072,855 1,117,903 208,243 628,536
----------------- ---------- ----------- ---------- -----------
Total servicing fees and other........ 28,235 1,172,079 2,661,242 317,410 1,623,975
----------------- ---------- ----------- ---------- -----------
Total revenues........................ 513,459 10,094,411 19,672,813 3,431,601 11,456,549
----------------- ---------- ----------- ---------- -----------
Expenses:
Compensation and benefits................. 507,904 3,348,236 5,139,386 1,021,815 3,666,685
Selling, general and administrative
expenses................................ 355,526 2,000,401 3,477,677 553,910 2,240,856
Other..................................... 0 14,143 297,743 16,084 342,534
Sharing of proportionate value of
equity(3)............................... 0 1,689,000 4,204,000 718,952 2,555,000
----------------- ---------- ----------- ---------- -----------
Total expenses........................ 863,430 7,051,780 13,118,806 2,310,761 8,805,075
----------------- ---------- ----------- ---------- -----------
Pre-tax income (loss)......................... (349,971) 3,042,631 6,554,007 1,120,840 2,651,474
Pro forma provision (benefit) for income
taxes................................... (134,000) 1,187,000 2,522,000 431,299 1,026,000
----------------- ---------- ----------- ---------- -----------
Pro forma net income (loss)............... $(215,971) $1,855,631 $4,032,007 $689,541 $1,625,474
----------------- ---------- ----------- ---------- -----------
----------------- ---------- ----------- ---------- -----------
Pro forma per share data:
Pro forma net income per share:
Primary................................. $0.51 $0.20
Fully diluted........................... $0.51 $0.20
Weighted average common and common share
equivalents:
Primary................................. 7,935,752 7,935,752
Fully diluted........................... 7,935,752 8,304,778
Supplemental pro forma per share data:(5)
Pro forma net income per share:
Primary................................. $0.50 $0.20
Fully diluted........................... $0.50 $0.19
Weighted average common and common share
equivalents:
Primary................................. 8,007,974 8,541,307
Fully diluted........................... 8,007,974 8,910,333
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1996
------------------------------------------ ------------------------------
1993 1994 1995 ACTUAL AS ADJUSTED(4)
----------- ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Mortgage loans held for sale............. $7,971,990 $28,995,750 $193,002,835 $257,458,182 $257,458,182
Excess servicing receivables............. 0 3,403,730 14,072,771 22,905,311 22,905,311
Warehouse finance facilities............. 7,212,915 27,731,859 189,819,046 261,417,193 220,467,956
Term debt................................ 0 0 11,120,642 21,879,297 17,879,297
Convertible debenture.................... 0 0 0 1,800,000 0
Stockholders' equity(6).................. 1,449,092 5,856,011 5,608,844 12,122,435 72,245,170
Total assets(6).......................... 8,861,144 36,641,991 354,551,434 525,200,197 532,422,932
</TABLE>
21
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PERIOD
FROM INCEPTION YEAR ENDED DECEMBER THREE MONTHS ENDED
(AUGUST 12, 1993) 31, MARCH 31,
THROUGH -------------------- ---------------------------------
DECEMBER 31, 1993 1994 1995 1995 1996
----------------- -------- -------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA (DOLLARS IN THOUSANDS):
Loans purchased or originated......... $29,608 $282,924 $621,629 $119,385 $ 263,987
Loans sold through securitization..... 0 81,637 388,363 74,782 175,000
Whole loan sales...................... 21,636 180,263 70,400 20,765 21,272
Serviced loan portfolio (period
end)................................ 0 92,003 535,798 166,914 783,367
DELINQUENCY DATA:
Total delinquencies as a percentage of
loans serviced (period end)(7)...... 0.00% 0.87% 3.43% 1.32% 2.34%
Defaults as a percentage of loans
serviced (period end)(8)............ 0.00 0.12 1.16 0.12 1.40
Net losses as a percentage of average
loans serviced for period........... 0.00 0.00 0.08 0.01 0.01
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------
MARCH 31, 1995 JUNE 30, 1995 SEPTEMBER 30, 1995 DECEMBER 31, 1995
-------------- ------------- ------------------ -----------------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Gain on sale of loans(1)........................ $3,297,408 $ 2,823,232 $7,303,333 $ 7,256,875
Additional securitization transaction
expense(2).................................... (254,507) (176,860) (2,424,000) (2,691,670)
-------------- ------------- ------------------ -----------------
Gain on sale of loans, net.................. 3,042,901 2,646,372 4,879,333 4,565,205
-------------- ------------- ------------------ -----------------
Warehouse interest income....................... 1,090,933 1,703,094 2,430,904 2,659,748
Warehouse interest expense...................... (1,019,643) (1,192,707) (1,814,957) (1,979,612)
-------------- ------------- ------------------ -----------------
Net warehouse interest income............... 71,290 510,387 615,947 680,136
Servicing fees.................................. 109,167 322,564 423,476 688,132
Other........................................... 208,243 272,773 307,425 329,462
-------------- ------------- ------------------ -----------------
Total revenues.............................. 3,431,601 3,752,096 6,226,181 6,262,935
-------------- ------------- ------------------ -----------------
Expenses:
Compensation and benefits....................... 1,021,815 1,263,021 1,364,344 1,490,206
Selling, general and administrative expenses.... 553,910 662,627 940,033 1,321,107
-------------- ------------- ------------------ -----------------
Other........................................... 16,084 92,540 31,028 158,091
Sharing of proportionate value of equity(3)..... 718,952 677,575 1,520,433 1,287,040
-------------- ------------- ------------------ -----------------
Total expenses.............................. 2,310,761 2,695,763 3,855,838 4,256,444
-------------- ------------- ------------------ -----------------
Pre-tax income.................................. 1,120,840 1,056,333 2,370,343 2,006,491
Pro forma provision for income taxes............ 431,299 406,477 912,108 772,116
-------------- ------------- ------------------ -----------------
Pro forma net income............................ $ 689,541 $ 649,856 $1,458,235 $ 1,234,375
-------------- ------------- ------------------ -----------------
-------------- ------------- ------------------ -----------------
Pro forma per share data:
Pro forma net income per share.................. $0.09 $0.08 $0.18 $0.16
Weighted average common and common share
equivalents................................... 7,935,752 7,935,752 7,935,752 7,935,752
OPERATING DATA (DOLLARS IN THOUSANDS):
Loans purchased or originated................... $119,385 $124,667 $154,990 $222,587
Loans sold through securitization............... 74,782 43,581 120,000 150,000
Whole loan sales................................ 20,765 31,763 8,224 9,648
Serviced loan portfolio (period end)............ 166,914 271,522 355,374 535,798
DELINQUENCY DATA:
Total delinquencies as a percentage of loans
serviced (period end)(7)...................... 1.32% 1.09% 2.42% 3.43%
Defaults as a percentage of loans serviced
(period end)(8)............................... 0.12 0.45 0.98 1.16
Net losses as a percentage of average loans
serviced for period........................... 0.01 0.00 0.03 0.04
</TABLE>
- ------------
(1) Includes excess servicing receivables received by ContiFinancial in
connection with IMC's agreement with ContiFinancial. See
'Business -- Loans -- Loan Sales -- Securitizations' and 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Transactions with ContiFinancial -- Additional Securitization
Transaction Expense.'
(footnotes continued on next page)
22
<PAGE>
<PAGE>
(footnotes continued from previous page)
(2) In 1994 and 1995 and the three months ended March 31, 1996, ContiFinancial
received excess servicing receivables with estimated values of $3.0 million,
$25.1 million and $9.5 million in exchange for $2.1 million, $18.4 million
and $6.2 million, respectively. In addition, ContiFinancial paid IMC $0.4
million, $1.1 million and $0.5 million in 1994, 1995 and the three months
ended March 31, 1996, respectively, in expenses related to securitizations.
See 'Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Transactions with ContiFinancial -- Additional
Securitization Transaction Expense.'
(3) Reflects expenses recorded in connection with the Conti VSA which was
superseded by the Conti Option in March, 1996. The Company's pre-tax income
before the Conti VSA for 1994 and 1995 and the three months ended March 31,
1996 was $4.7 million, $10.8 million and $5.2 million, respectively. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Transactions with ContiFinancial -- Sharing of Proportionate
Value of Equity,' 'Certain Accounting Considerations Relating to the Conti
VSA' and Note 4 to Notes to Consolidated Financial Statements.
(4) Adjusted to give effect to the sale of 3,100,000 shares of Common Stock
offered by the Company hereby at an assumed public offering price of $18.00
per share and the application of the estimated net proceeds therefrom. See
'Use of Proceeds' and 'Capitalization.'
(5) Adjusted to give effect to the number of shares of Common Stock which would
have been issued for the retirement of debt in the application of the
estimated net proceeds therefrom.
(6) Total assets and Stockholders' equity include the effect of recording a
deferred tax asset of $5.6 million in connection with the conversion from a
partnership to a taxable corporation.
(7) Represents the percentages of account balances contractually past due 30
days or more, exclusive of home equity loans in foreclosure, bankruptcy or
real estate owned.
(8) Represents the percentages of account balances on loans in foreclosure,
bankruptcy or real estate owned.
23
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and accompanying Notes set
forth herein.
GENERAL
The Company is a specialized consumer finance company engaged in
purchasing, originating, servicing and selling home equity loans secured
primarily by first liens on one- to four-family residential properties. The
Company focuses on lending to individuals whose borrowing needs are generally
not being served by traditional financial institutions due to such individuals'
impaired credit profiles and other factors. The Company derives its income from
gain on sale of loans, reflecting excess servicing spread income from loans sold
through securitizations, gains recognized from premiums on loans sold through
whole loan sales to institutional purchasers, net warehouse interest earned on
loans held for sale, servicing fees and origination, processing and other fees
received as part of the loan application process.
CERTAIN ACCOUNTING CONSIDERATIONS
Excess Servicing Receivables
The Company purchases and originates loans for the purpose of sale and
primarily securitizes these loans in the form of REMICs, deriving its monthly
principal paydowns from a pool of underlying mortgages. Most of the regular
interests of the REMICs are sold, with the residual class certificates (or a
portion thereof) retained by the Company. The Company classifies as excess
servicing receivables the I/O and the residual classes of certificates of its
securitizations. Excess servicing spread represents the excess of the interest
rate receivable from the borrower on a loan over the interest rate passed
through to the purchaser acquiring an interest in such loans, less the Company's
normal servicing fee, expected losses and other applicable recurring costs and
fees. These residual classes of certificates are initially recorded at their
allocated cost based upon the present value of the interest in the cash flows
retained by the Company after considering various economic factors, including
interest rates, collateral value and estimates of the value of future cash flows
from the REMIC mortgage pools under expected loss and prepayment assumptions
discounted at a market yield. The weighted average rate used to discount the
cash flows for the year ended December 31, 1995, and the three months ended
March 31, 1996, was approximately 11%, and the assumed loss ratio was 50 basis
points per annum.
Mortgage Servicing Rights
On May 12, 1995, the Financial Accounting Standards Board released SFAS
122 -- Accounting for Mortgage Servicing Rights, an amendment to SFAS 65.
Effective January 1, 1996, the Company adopted SFAS 122. Because SFAS 122
prohibits retroactive application, the historical accounting results for the
periods ended December 31, 1993, 1994, and 1995 have not been restated and,
accordingly, the accounting results for the three months ended March 31, 1996
are not directly comparable to any previous period.
SFAS 122 requires that a mortgage banking entity recognize as a separate
asset the rights to service mortgage loans for others. Mortgage banking entities
that acquire or originate loans and subsequently sell or securitize those loans
and retain the mortgage servicing rights are required to allocate the total cost
of the loans to the mortgage servicing rights and the mortgage loans. The
Company is also required to assess capitalized mortgage servicing rights for
impairment based upon the fair value of those rights. The impact of the adoption
of SFAS 122 on the Company's Statement of Operations for the three months ended
March 31, 1996 resulted in additional income of approximately $1.4 million,
reported as gain on sale of loans and an additional pro forma provision for
income tax expense of approximately $0.5 million. The continuing effects of SFAS
122 on the Company's financial position and results of operations will depend on
several factors, including, among other things, the amount of acquired or
24
<PAGE>
<PAGE>
originated loans subsequently sold or securitized, the type, term and credit
quality of loans, and estimates of future prepayments rates.
TRANSACTIONS WITH CONTIFINANCIAL
Additional Securitization Transaction Expense
The Company has relied on ContiFinancial to provide credit facilities for
funding its loan purchases and originations and the financing of excess
servicing receivables, as well as ContiFinancial's expertise and assistance in
loan securitization. In order to provide immediate cash flow to the Company, in
the years ended December 31, 1994 and 1995 and the three months ended March 31,
1996, ContiFinancial received excess servicing receivables with estimated values
of $3.0 million, $25.1 million and $9.5 million, respectively. See 'Certain
Relationships and Related Transactions -- Agreements with ContiFinancial' and
' -- Additional Securitization Transaction Expense.'
In exchange for the excess servicing receivables, ContiFinancial paid $2.1
million, $18.4 million and $6.2 million in the years ended December 31, 1994 and
1995 and the three months ended March 31, 1996, respectively, in the form of
premiums paid for I/Os and the residual classes of certificates. In addition,
ContiFinancial paid $0.4 million, $1.1 million and $0.5 million in expenses
related to securitization in the years ended December 31, 1994 and 1995 and the
three months ended March 31, 1996, respectively.
The difference between the estimated value of the excess servicing
receivables received by ContiFinancial and the total amount paid by
ContiFinancial has been recorded as additional securitization transaction
expense of $0.6 million in the year ended December 31, 1994, $5.5 million in the
year ended December 31, 1995, $0.3 million in the three months ended March 31,
1995 and $2.8 million in the three months ended March 31, 1996.
Sharing of Proportionate Value of Equity
In August, 1993, the Company entered into a five-year agreement (the '1993
Agreement') with ContiFinancial which provided the Company with a standby credit
facility to fund retention of excess servicing receivables and certain
investment banking services and also committed ContiFinancial to provide a
warehouse facility to the Company, subject to the satisfaction of certain
conditions. Pursuant to the 1993 Agreement, the Company agreed to share a
portion of its equity with ContiFinancial through an agent fee based on a
percentage of increases in equity (as defined in the 1993 Agreement) at the
termination of the 1993 Agreement.
On January 12, 1995, the Company and ContiFinancial entered into a revised
10-year agreement (the '1995 Agreement') which replaced the 1993 Agreement and
provided for agent fees to ContiFinancial based on the fair market value of the
Company (as defined). The amount of the agent fee ranged from 15% to 25% of the
fair market value of the Company depending upon whether ContiFinancial or the
Company elected to terminate the agreement.
The 1993 Agreement and the 1995 Agreement included a value sharing
agreement with ContiFinancial (the 'Conti VSA'). The existence of the Conti VSA
had no cash impact on the Company, but resulted in a $1.7 million, $4.2 million,
$0.7 million and $2.6 million reduction in the Company's pre-tax income for the
years ended December 31, 1994 and 1995 and the three months ended March 31, 1995
and 1996, respectively. Since ContiFinancial had the right, pursuant to the
Conti VSA, to require cash payments, the Conti VSA was reflected on the balance
sheet as a liability, and any increase in the value of the Conti VSA from
accounting period to accounting period was reflected as an expense in the income
statement for the relevant period.
The Conti VSA was converted into the Conti Option by an agreement executed
March 26, 1996. Pursuant to the Conti Option, there is no ongoing right to
receive cash. Consequently, no liability will be reflected on the balance sheet
and no expense will be reflected on the income statement after March 26, 1996
with respect to any future increases in value. See 'Certain Accounting
Considerations Relating to the Conti VSA' and Note 4 to Notes to Consolidated
Financial Statements.
25
<PAGE>
<PAGE>
The Company's earnings before the Conti VSA were as follows:
<TABLE>
<CAPTION>
PERIOD
ENDED YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
DECEMBER 31, -------------------------- -------------------------------
1993 1994 1995 1995 1996
------------ ----------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Total revenues.......... $513,459 $10,094,411 $19,672,813 $3,431,601 $11,456,549
Total expenses.......... 863,430 7,051,780 13,118,806 2,310,761 8,805,075
------------ ----------- ----------- ------------ ---------------
Pre-tax income (loss)
after Conti VSA....... (349,971) 3,042,631 6,554,007 1,120,840 2,651,474
Conti VSA............... 0 1,689,000 4,204,000 718,952 2,555,000
------------ ----------- ----------- ------------ ---------------
Pre-tax income (loss)
before Conti VSA...... $ (349,971) $4,731,631 $10,758,007 $1,839,792 $5,206,474
------------ ----------- ----------- ------------ ---------------
------------ ----------- ----------- ------------ ---------------
</TABLE>
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
Pro forma net income for the three months ended March 31, 1996 was $1.6
million, representing an increase of $0.9 million or 135.7% over pro forma net
income of $0.7 million for the three months ended March 31, 1995. This increase
resulted principally from a $5.0 million or 164.4% increase in gain on sale of
loans, net of additional securitization transaction expense, to $8.0 million for
the three months ended March 31, 1996 from $3.0 million for the three months
ended March 31, 1995. Pro forma net income is calculated on the basis of
historical net income, adjusted for a pro forma income tax expense as if the
Company had been taxable as a corporation since its inception. In addition, a
$1.7 million or 2,404.8% increase in net warehouse interest income to $1.8
million for the three months ended March 31, 1996 from $0.1 million for the
three months ended March 31, 1995, a $0.9 million or 811.8% increase in
servicing fees to $1.0 million for the three months ended March 31, 1996 from
$0.1 million for the three months ended March 31, 1995 and a $0.4 million or
201.8% increase in other revenues to $0.6 million for the three months ended
March 31, 1996 from $0.2 million for the three months ended March 31, 1995 also
contributed to this increase in pro forma net income. The increase was partially
offset by a $2.7 million or 258.8% increase in compensation and benefits to $3.7
million for the three months ended March 31, 1996 from $1.0 million for the
three months ended March 31, 1995 and a $1.6 million or 304.6% increase in
selling, general and administrative expenses to $2.2 million for the three
months ended March 31, 1996 from $0.6 million for the three months ended March
31, 1995. The increase in pro forma net income was further offset by a $0.3
million increase in other expenses to $0.3 million for the three months ended
March 31, 1996 from a negligible amount for the three months ended March 31,
1995, a $1.9 million or 255.4% increase in sharing of proportionate value of
equity to $2.6 million for the three months ended March 31, 1996 from $0.7
million for the three months ended March 31, 1995 and a $0.6 million or 137.9%
increase in pro forma income tax expense to $1.0 million for the three months
ended March 31, 1996 from $0.4 million for the three months ended March 31,
1995.
26
<PAGE>
<PAGE>
Revenues. The following table sets forth information regarding components
of the Company's revenues for the three months ended March 31, 1995 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Gain on sale of loans........................................... $3,297,408 $10,875,466
Additional securitization transaction expense................... (254,507) (2,828,591)
----------- -----------
Gain on sale of loans, net................................. 3,042,901 8,046,875
----------- -----------
Warehouse interest income....................................... 1,090,933 5,160,943
Warehouse interest expense...................................... (1,019,643) (3,375,244)
----------- -----------
Net warehouse interest income.............................. 71,290 1,785,699
----------- -----------
Servicing fees.................................................. 109,167 995,439
Other........................................................... 208,243 628,536
----------- -----------
Total revenues............................................. $3,431,601 $11,456,549
----------- -----------
----------- -----------
</TABLE>
Gain on Sale of Loans, Net. Gain on sale of loans, net, which arose
primarily from securitizations, includes all related revenues and costs,
including the proceeds from sales of residual class certificates, the value of
excess servicing receivables, hedging gains or losses and underwriting fees and
other related securitization expenses and fees. See ' -- Transactions with
ContiFinancial -- Additional Securitization Transaction Expense.' For the three
months ended March 31, 1996, gain on sale of loans increased to $10.9 million
from $3.3 million for the three months ended March 31, 1995, an increase of
229.8%, reflecting increased loan production and securitizations for the three
months ended March 31, 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 121.1% to $264.0 million for the
three months ended March 31, 1996 as compared with a total volume of $119.4
million for the three months ended March 31, 1995. Originations by the
correspondent network increased 129.0% to $236.5 million for the three months
ended March 31, 1996 from $103.3 million for the three months ended March 31,
1995, while production from the Company's broker network and direct lending
operations increased to $27.5 million or 70.6% for the three months ended March
31, 1996 from $16.1 million for the three months ended March 31, 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; (iv) the acquisition of the assets and
business of Equitystars acquired by the Company; and (v) the Company's ability
to finance its growth. For the three months ended March 31, 1996, the Company
experienced higher gains as it sold more loans through securitization.
Securitizations increased by $65.0 million or 59.1% to $175.0 million in the
three months ended March 31, 1996 from $110.0 million in the three months ended
March 31, 1995. The number of approved correspondents increased by 113 or 83.7%
to 248 at March 31, 1996 from 135 at March 31, 1995 and the number of brokers
increased by 705 or 109.6% to 1,348 at March 31, 1996 from 643 at March 31,
1995. Additional securitization transaction expense increased by $2.6 million or
1,011.4% to $2.8 million in the three months ended March 31, 1996 from $0.2
million in the three months ended March 31, 1995. For the three months ended
March 31, 1996, gain on sale of loans, net, increased to $8.0 million from $3.0
million for the three months ended March 31, 1995, an increase of 164.4%,
reflecting increased loan production and securitizations in the 1996 period. See
' -- Transactions with ContiFinancial -- Additional Securitization Transaction
Expense.'
Net Warehouse Interest Income. Net warehouse interest income is interest
earned from the Company's mortgage loans which generally carry long-term
interest rates, less interest expense on borrowings to finance the funding of
such mortgage loans pending receipt of proceeds from their sale. The Company
generally sells loans in its inventory within 150 days and finances such loans
under its secured borrowing facilities, which bear short-term interest rates.
Ordinarily, short-term interest rates are lower than long-term interest rates,
and the Company earns net interest income from this difference, or spread,
during the period the mortgage loans are held by the Company.
27
<PAGE>
<PAGE>
Net warehouse interest income increased to $1.8 million for the three
months ended March 31, 1996 from $0.1 million for the three months ended March
31, 1995, an increase of 2,404.8%. The increase in the 1996 period reflected
higher interest income resulting from increased mortgage loan production which
was offset by interest costs associated with warehouse facilities. The holding
period of loans increased in the three months ended March 31, 1996 from the
three months ended March 31, 1995 as the Company increased the portion of its
loans in warehouse sold through securitizations.
Servicing Fees. Servicing fees increased to $1.0 million for the three
months ended March 31, 1996 from $0.1 million for the three months ended March
31, 1995, an increase of 811.8%. Servicing fees for the three months ended March
31, 1996 were positively affected due to an increase in loans serviced over the
prior year. The increase in loans serviced came from the Company's normal
purchase and origination channels.
Other. Other revenues, consisting principally of interest on excess
servicing receivables, increased by $0.4 million or 201.8% to $0.6 million in
the three months ended March 31, 1996 from $0.2 million in the three months
ended March 31, 1995 as a result of increased securitization volume.
Expenses. The following table sets forth information regarding components
of the Company's expenses for the three months ended March 31, 1995 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Compensation and benefits......................................... $1,021,815 $3,666,685
Selling, general and administrative expenses...................... 553,910 2,240,856
Other............................................................. 16,084 342,534
Sharing of proportionate value of equity.......................... 718,952 2,555,000
---------- ----------
Total expenses............................................... $2,310,761 $8,805,075
---------- ----------
---------- ----------
</TABLE>
Compensation and benefits increased by $2.7 million or 258.8% to $3.7
million in the three months ended March 31, 1996 from $1.0 million in the three
months ended March 31, 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 Equitystars and an increase in executive bonuses.
Selling, general and administrative expenses increased by $1.6 million or
304.6% to $2.2 million in the three months ended March 31, 1996 from $0.6
million in the three months ended March 31, 1995, principally due to an increase
in the volume of loan production and the acquisition of the assets and business
of Equitystars.
Other expenses increased to $0.3 million in the three months ended March
31, 1996 from a negligible amount in the three months ended March 31, 1995 as a
result of increased loan production and securitization volume in 1996.
The sharing of proportionate value of equity, representing the amount
payable under the Conti VSA, increased by $1.9 million or 255.4% to $2.6 million
in the three months ended March 31, 1996 from $0.7 million in the three months
ended March 31, 1995. See ' -- Transactions with ContiFinancial -- Sharing of
Proportionate Value of Equity,' 'Certain Accounting Considerations Relating to
the Conti VSA' and Note 4 to Notes to Consolidated Financial Statements.
Pro Forma Income Taxes. The effective pro forma income tax rate for the
three months ended March 31, 1996 was 38.7% which differed from the federal tax
rate of 35% primarily due to state income taxes. The increase in pro forma
income taxes of $0.6 million or 137.9% to $1.0 million in the three months ended
March 31, 1996 from $0.4 million in the three months ended March 31, 1995 was
proportionate to the increase in pre-tax income.
Acquisition of Equitystars. On January 1, 1996, the Company acquired all of
the assets of Equitystars, a Rhode Island corporation and a mortgage banking
company, operating primarily in Rhode Island, New York, Connecticut and
Massachusetts, with smaller operations in Maine and New Hampshire. Equitystars
originated over $95 million of residential loans during 1995, of which
approximately $17 million or 18% was conforming loan origination and
approximately $78 million or 82% was non-conforming loan origination. During
1995, IMC purchased $11.3 million of non-
28
<PAGE>
<PAGE>
conforming loans from Equitystars. The purchase price of all the assets of
Equitystars was paid by delivery to Equitystars of Convertible Preferred Stock.
There may be a contingent payout based on the results of operations of
Equitystars. See 'Recent Events' and 'Business -- Loans -- Acquisition of
Equitystars.'
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Pro forma net income for the year ended December 31, 1995 was $4.0 million,
representing an increase of $2.1 million or 117.3% over pro forma net income of
$1.9 million for the year ended December 31, 1994. This increase resulted
principally from a $7.1 million or 88.6% increase in gain on sale of loans, net
of additional securitization transaction expense, to $15.1 million for the year
ended December 31, 1995 from $8.0 million for the year ended December 31, 1994.
Pro forma net income is calculated on the basis of historical net income,
adjusted for a pro forma income tax expense as if the Company had been taxable
as a corporation since its inception. In addition, a $1.0 million or 108.8%
increase in net warehouse interest income to $1.9 million for the year ended
December 31, 1995 from $0.9 million for the year ended December 31, 1994 and a
$1.4 million or 1,445.4% increase in servicing fees to $1.5 million for the year
ended December 31, 1995 from $0.1 million for the year ended December 31, 1994
also contributed to this increase in pro forma net income. The increase was
partially offset by a $1.8 million or 53.5% increase in compensation and
benefits to $5.1 million for the year ended December 31, 1995 from $3.3 million
for the year ended December 31, 1994 and a $1.5 million or 73.8% increase in
selling, general and administrative expenses to $3.5 million for the year ended
December 31, 1995 from $2.0 million for the year ended December 31, 1994. The
increase in pro forma net income was further offset by a $0.3 million increase
in other expenses to $0.3 million for the year ended December 31, 1995 from $0
for the year ended December 31, 1994, a $2.5 million or 148.9% increase in
sharing of proportionate value of equity to $4.2 million for the year ended
December 31, 1995 from $1.7 million for the year ended December 31, 1994 and a
$1.3 million or 112.5% increase in pro forma income tax expense to $2.5 million
for the year ended December 31, 1995 from $1.2 million for the year ended
December 31, 1994.
Revenues. The following table sets forth information regarding components
of the Company's revenues for the years ended December 31, 1994 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
Gain on sale of loans.......................................... $8,583,277 $20,680,848
Additional securitization transaction expense.................. (560,137) (5,547,037)
----------- -----------
Gain on sale of loans, net................................ 8,023,140 15,133,811
----------- -----------
Warehouse interest income...................................... 2,510,062 7,884,679
Warehouse interest expense..................................... (1,610,870) (6,006,919)
----------- -----------
Net warehouse interest income............................. 899,192 1,877,760
----------- -----------
Servicing fees................................................. 99,224 1,543,339
Other.......................................................... 1,072,855 1,117,903
----------- -----------
Total revenues............................................ $10,094,411 $19,672,813
----------- -----------
----------- -----------
</TABLE>
Gain on Sale of Loans, Net. Gain on sale of loans, net, which arose
primarily from securitizations, includes all related revenues and costs,
including the proceeds from sales of residual class certificates, the value of
excess servicing receivables, hedging gains or losses and underwriting fees and
other related securitization expenses and fees. See ' -- Transactions with
ContiFinancial -- Additional Securitization Transaction Expense.' For the year
ended December 31, 1995, gain on sale of loans increased to $20.7 million from
$8.6 million, an increase of 140.9%, reflecting increased loan production and
securitizations in the 1995 period. The total volume of loans produced increased
by 119.7% to $621.6 million for the year ended December 31, 1995 as compared
with a total volume of $282.9 million in 1994. Originations by the correspondent
network increased 132.9% to $543.6 million in 1995 from $233.5 million in 1994,
while production from the Company's broker network and direct lending operations
increased to $78.0 million or 57.6% for the year ended December 31, 1995 from
$49.5 million for the year ended
29
<PAGE>
<PAGE>
December 31, 1994. Production volume increased during the period due to: (i) the
Company's expansion program; (ii) the development of a securitization
capability; (iii) the development of a loan servicing capability; and (iv) the
Company's ability to finance its growth. In 1995 the Company experienced higher
gains as it sold more loans through securitization. Securitizations increased by
$290.0 million or 322.2% to $380.0 million in the year ended December 31, 1995
from $90.0 million in the year ended December 31, 1994. The number of approved
correspondents increased by 108 or 102.9% to 213 at December 31, 1995 from 105
at December 31, 1994 and the number of brokers increased by 600 or 120.5% to
1,098 at December 31, 1995 from 498 at December 31, 1994. Additional
securitization transaction expense increased by $5.0 million or 890.3% to $5.6
million in the year ended December 31, 1995 from $0.6 million in the year ended
December 31, 1994. For the year ended December 31, 1995, gain on sale of loans,
net, increased to $15.1 million from $8.0 million, an increase of 88.6%,
reflecting increased loan production and securitizations in the 1995 period. See
' -- Transactions with ContiFinancial -- Additional Securitization Transaction
Expense.'
Net Warehouse Interest Income. Net warehouse interest income is interest
earned from the Company's mortgage loans which generally carry long-term
interest rates, less interest expense on borrowings to finance the funding of
such mortgage loans pending receipt of proceeds from their sale. The Company
generally sells loans in its inventory within 150 days and finances such loans
under its secured borrowing facilities, which bear short-term interest rates.
Ordinarily, short-term interest rates are lower than long-term interest rates,
and the Company earns net interest income from this difference, or spread,
during the period the mortgage loans are held by the Company.
Net warehouse interest income increased to $1.9 million for the year ended
December 31, 1995 from $0.9 million for the year ended December 31, 1994, an
increase of 108.8%. The increase in 1995 reflected higher interest income
resulting from increased mortgage loan production which was offset by interest
costs associated with warehouse facilities. The holding period of loans
increased in 1995 from 1994 as the Company increased the portion of its loans in
warehouse sold through securitizations.
Servicing Fees. Servicing fees increased to $1.5 million for the year ended
December 31, 1995 from $0.1 million for the year ended December 31, 1994, an
increase of 1,455.4%. Servicing fees for the year ended December 31, 1995 were
positively affected due to an increase in loans serviced over the prior year.
The increase in loans serviced came from the Company's normal purchase and
origination channels.
Other. Other revenues increased by a negligible amount to $1.1 million in
the year ended December 31, 1995 from $1.1 million in the year ended December
31, 1994.
Expenses. The following table sets forth information regarding components
of the Company's expenses for the years ended December 31, 1994 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995
---------- -----------
<S> <C> <C>
Compensation and benefits........................................ $3,348,236 $5,139,386
Selling, general and administrative expenses..................... 2,000,401 3,477,677
Other............................................................ 14,143 297,743
Sharing of proportionate value of equity......................... 1,689,000 4,204,000
---------- -----------
Total expenses.............................................. $7,051,780 $13,118,806
---------- -----------
---------- -----------
</TABLE>
Compensation and benefits increased by $1.8 million or 53.5% to $5.1
million in the year ended December 31, 1995 from $3.3 million in the year ended
December 31, 1994, principally due to an increase in the number of employees to
service the Company's increased loan production.
Selling, general and administrative expenses increased by $1.5 million or
73.8% to $3.5 million in the year ended December 31, 1995 from $2.0 million in
the year ended December 31, 1994, principally due to an increase in the volume
of loan production.
Other expenses increased to $0.3 million in the year ended December 31,
1995 from $0 in the year ended December 31, 1994 as a result of increased loan
production and securitization volume in 1995.
30
<PAGE>
<PAGE>
The sharing of proportionate value of equity, representing the amount
payable under the Conti VSA, increased by $2.5 million or 148.9% to $4.2 million
in the year ended December 31, 1995 from $1.7 million in the year ended December
31, 1994. See ' -- Transactions with ContiFinancial -- Sharing of Proportionate
Value of Equity,' 'Certain Accounting Considerations Relating to the Conti VSA'
and Note 4 to Notes to Consolidated Financial Statements.
Pro Forma Income Taxes. The effective pro forma income tax rate for the
year ended December 31, 1995 was 38.5% which differed from the federal tax rate
of 35% primarily due to state income taxes. The increase in pro forma income
taxes of $1.3 million or 112.5% to $2.5 million in the year ended December 31,
1995 from $1.2 million in the year ended December 31, 1994 was proportionate to
the increase in pre-tax income.
Year Ended December 31, 1994 Compared to the Period from August 12, 1993
(Inception) to December 31, 1993
The Company commenced operations on August 12, 1993. The period from August
12, 1993 to December 31, 1993 was a start-up period which had low production
levels and resulted in a loss. Due to the nature of the period ended December
31, 1993, the inclusion of percentage comparisons would not be meaningful.
Pro forma net income for the year ended December 31, 1994 was $1.9 million
representing an increase of $2.1 million over the $0.2 million pro forma loss
for the period ended December 31, 1993. This increase resulted principally from
a $7.6 million increase in gain on sale of loans, net of additional
securitization transaction expense to $8.0 million for the year ended December
31, 1994 from $0.4 million for the period ended December 31, 1993. Pro forma net
income is calculated on the basis of historical net income, adjusted for a pro
forma income tax expense as if the Company had been taxable as a corporation
since its inception. In addition, a $0.9 million increase in net warehouse
interest income to $0.9 million for the year ended December 31, 1994 from a
negligible amount for the period ended December 31, 1993, a $0.1 million
increase in servicing fees to $0.1 million for the year ended December 31, 1994
from $0 for the period ended December 31, 1993 and a $1.1 million increase in
other revenues to $1.1 million for the year ended December 31, 1994 from a
negligible amount for the period ended December 31, 1993 also contributed to the
increase in pro forma net income. The increase was partially offset by a $2.8
million increase in compensation and benefits to $3.3 million for the year ended
December 31, 1994 from $0.5 million for the period ended December 31, 1993 and a
$1.6 million increase in selling, general and administrative expenses to $2.0
million for the year ended December 31, 1994 from $0.4 million for the period
ended December 31, 1993. The increase in pro forma net income was further offset
by a $1.7 million increase in sharing of proportionate value of equity to $1.7
million for the year ended December 31, 1994 from $0 for the period ended
December 31, 1993 and a $1.3 million increase in pro forma income tax expense to
$1.2 million for the year ended December 31, 1994 from an income tax credit of
$0.1 million for the period ended December 31, 1993.
Revenues. The following table sets forth information regarding the
components of the Company's revenues for the periods shown:
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
DECEMBER 31, 1993 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
Gain on sale of loans................................. $ 438,774 $8,583,277
Additional securitization transaction expense......... 0 (560,137)
----------------- -----------------
Gain on sale of loans, net....................... 438,774 8,023,140
----------------- -----------------
Warehouse interest income............................. 97,159 2,510,062
Warehouse interest expense............................ (50,709) (1,610,870)
----------------- -----------------
Net warehouse interest income.................... 46,450 899,192
----------------- -----------------
Servicing fees........................................ 0 99,224
Other................................................. 28,235 1,072,855
----------------- -----------------
Total revenues................................... $ 513,459 $10,094,411
----------------- -----------------
----------------- -----------------
</TABLE>
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Gain on sale of loans in the year ended December 31, 1994 increased by $8.2
million to $8.6 million from $0.4 million in the period ended December 31, 1993
due to an increase in loan production to $282.9 million in 1994 from $29.6
million in 1993 and the Company's initial securitization in November, 1994.
Additional securitization transaction expense increased to $0.6 million in the
year ended December 31, 1994 from $0 in the period ended December 31, 1993. Gain
on sale of loans, net, increased by $7.6 million to $8.0 million in the year
ended December 31, 1994 from $0.4 million in the period ended December 31, 1993.
See ' -- Transactions with ContiFinancial -- Additional Securitization
Transaction Expense.'
Net Warehouse Interest Income. Net warehouse interest income is interest
earned from the Company's mortgage loans which generally carry long-term
interest rates, less interest expense on borrowings to finance the funding of
such mortgage loans pending receipt of proceeds from their sale. The Company
generally sells loans in its inventory within 150 days and finances such loans
under its secured borrowing facilities, which bear short-term interest rates.
Ordinarily, short-term interest rates are lower than long-term interest rates,
and the Company earns net interest income from this difference, or spread,
during the period the mortgage loans are held by the Company.
Net warehouse interest income increased to $0.9 million in the year ended
December 31, 1994 from a negligible amount in the period ended December 31,
1993, resulting primarily from increased production and a longer holding period
for loans towards the end of the year as a result of the Company's initial
securitization.
Servicing Fees. The Company commenced servicing during 1994 and generated
servicing revenues of approximately $0.1 million during the year ended December
31, 1994.
Other. Other revenues, primarily consisting of origination and processing
fees, increased to $1.1 million in the year ended December 31, 1994 from a
negligible amount in the period ended December 31, 1993 due to increased
production and the expansion of the broker network and direct lending operations
which generate origination income and processing fees.
Expenses. The following table sets forth information regarding components
of the Company's expenses for the periods shown:
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
DECEMBER 31, 1993 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
Compensation and benefits....................................... $ 507,904 $ 3,348,236
Selling, general and administrative expenses.................... 355,526 2,000,401
Other........................................................... 0 14,143
Sharing of proportionate value of equity........................ 0 1,689,000
----------------- -----------------
Total expenses............................................. $ 863,430 $ 7,051,780
----------------- -----------------
----------------- -----------------
</TABLE>
Compensation and benefits increased by $2.8 million to $3.3 million in the
year ended December 31, 1994 from $0.5 million in the period ended December 31,
1993. This increase was generated by the increase in loan production due to the
growth of the business and the increase in the period of operations to 12 months
from approximately four months.
Selling, general and administrative expenses increased by $1.6 million to
$2.0 million in the year ended December 31, 1994 from $0.4 million in the period
ended December 31, 1993. This increase was generated by the increased production
due to the growth of the business and the increase in the period of operations
to 12 months from approximately four months.
There was no material change in other expenses between periods.
Sharing of proportionate value of equity increased to $1.7 million in the
year ended December 31, 1994 from $0 in the period ended December 31, 1993 as a
result of the increase in the equity of the Company. See ' -- Transactions with
ContiFinancial -- Sharing of Proportionate Value of Equity.'
Pro Forma Income Taxes. The effective pro forma income tax rates for the
year ended December 31, 1994 and the period ended December 31, 1993 were 39.0%
and 38.3%, respectively, which differed from the federal tax rate of 35%
primarily due to state income taxes. The increase in pro forma income tax
expense of $1.3 million from a $0.1 million pro forma income tax benefit in the
1993 period to $1.2
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<PAGE>
million income tax provision in the year ended December 31, 1994 was
proportionate to the change in pre-tax income.
FINANCIAL CONDITION
March 31, 1996 Compared to December 31, 1995
Mortgage loans held for sale at March 31, 1996 were $257.5 million,
representing an increase of $64.5 million or 33.4% 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.
Excess servicing receivables at March 31, 1996 were $22.9 million,
representing an increase of $8.8 million or 62.8% over excess servicing
receivables of $14.1 million at December 31, 1995. This increase was a result of
the completion of one securitization.
Warehouse financing facilities at March 31, 1996 were $261.4 million,
representing an increase of $71.6 million or 37.7% 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 March 31, 1996 was $23.7 million, representing an increase of
$12.6 million or 112.9% more than term debt of $11.1 million at December 31,
1995. This increase was primarily a result of financing the additional
securitization.
Stockholders' equity at March 31, 1996 was $12.1 million, representing an
increase of $6.5 million or 116.1% over stockholders' equity of $5.6 million at
December 31, 1995. This increase was primarily a result of the conversion of the
Conti VSA into the Conti Option.
December 31, 1995 Compared to December 31, 1994
Mortgage loans held for sale at December 31, 1995 were $193.0 million,
representing an increase of $164.0 million or 565.6% over mortgage loans held
for sale of $29.0 million at December 31, 1994. This increase was a result of
increased loan origination and purchasing as the Company expanded into new
states and as well as increased its origination and purchasing efforts in states
in which the Company has an existing market presence.
Excess servicing receivables at December 31, 1995 were $14.1 million,
representing an increase of $10.7 million or 313.5% over excess servicing
receivables of $3.4 million at December 31, 1994. This increase was the result
of completing two securitizations.
Warehouse financing facilities at December 31, 1995 were $189.8 million,
representing an increase of $162.1 million or 584.5% more than warehouse
financing facilities of $27.7 million at December 31, 1994. This increase was
primarily a result of the Company's increased loan purchases and originations.
Term debt at December 31, 1995 was $11.1 million, representing an increase
of $11.1 million over December 31, 1994. This increase was primarily a result of
the Company's securitizations and the financing thereof.
Stockholders' equity at December 31, 1995 was $5.6 million, representing a
decrease of $0.3 million or 4.2% from stockholders' equity of $5.9 million at
December 31, 1994. This decrease, which is negligible, represents the difference
between net income and distributions.
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 standby facility
to meet its working capital needs. The Company's cash requirements include the
funding of loan purchases and originations, payment of interest expenses,
funding the over-collateralization requirements for securitizations, operating
expenses, income taxes and capital expenditures.
33
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<PAGE>
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 fiscal 1994 and 1995 and the three months ended March 31, 1996, the
Company raised through its financing activity cash of $21.4 million, $167.7
million and $83.4 million, respectively. The Company's sale of loans through
securitizations has resulted in a significant increase in the amount of gain on
sale recognized by the Company. The recognition of this excess servicing spread
has a negative impact on the cash flow of the Company because significant costs
are incurred upon closing of the securitization transactions and the Company is
required to pay state and federal income taxes on the gain on sale in the period
recognized. The Company does, however, receive the cash representing the gain in
later periods, as the related loans are repaid or otherwise collected. During
the same periods, the Company received cash of $0.1 million, $1.2 million and
$0.6 million, respectively, related to excess servicing receivables. 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 March 31, 1996, the Company had available warehouse lines of credit
totaling $645.0 million for financing the acquisition of mortgage loans held for
sale, $261.4 million of which was outstanding at March 31, 1996. Of the
warehouse lines of credit available at March 31, 1996, the full amount matures
within one year. Interest rates on these facilities ranged from 6.3% to 6.9% as
of March 31, 1996. Outstanding borrowings under these lines of credit are
secured by all of the Company's mortgage loans held for sale and warehouse
financing due from stockholders. Upon the sale of these loans and repayment of
warehouse financing due from stockholders, the related amounts outstanding under
the lines will be repaid.
At March 31, 1996, the Company also had available a standby facility
totaling $25.0 million. Outstanding borrowings under this facility are secured
by the Company's interest in the excess servicing receivables. At March 31,
1996, outstanding borrowings under this facility were $15.0 million, accruing
interest at a rate of 7.1% per annum. This agreement terminates in January,
2000. The facility includes the $10.0 million Additional Draw which must be
repaid with a portion of the net proceeds from the Public Offering. The Company
intends to borrow the full $25.0 million available under this facility by the
time of the Public Offering.
On March 20, 1996, the Company issued the $1.8 million convertible secured
Rotch Debenture. The Rotch Debenture matures on September 20, 1996 at which time
the Company may extend the maturity for an additional six-month period, subject
to a 1% gross renewal fee. Interest is calculated at a rate of LIBOR plus 1%.
Rotch has the right to convert the Rotch Debenture into Common Stock at any time
prior to maturity at a conversion price per share of 93% of the price at which
the Company sells its Common Stock in the Public Offering. The Rotch Debenture
is expected to be repaid in full from a portion of the proceeds of the Public
Offering.
In February, 1996, the Company borrowed $2.9 million under a one-year
agreement bearing interest at 1.25% per annum in excess of LIBOR to finance
certain excess servicing receivables which were secured by such excess servicing
receivables.
On January 12, 1996, Lakeview, an affiliate of one of the Industry
Partners, extended the $7.0 million Lakeview Facility to the Company. Such
credit facility, which had an outstanding balance of $4.0 million as of March
31, 1996, is expected to be repaid in full from a portion of the proceeds of the
Public Offering. The Lakeview Facility provides that if it is still outstanding
on September 30, 1996, then Lakeview has the right to require that the Company
grant to Lakeview a second lien on the Company's excess servicing receivables.
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 warehouse lines and standby
facility also contain certain financial covenants requiring the maintenance of
certain debt-to-equity or debt-to-net worth ratios, restricting distributions to
equity holders and capital expenditures as well as establishing limits on the
ability of the Company to incur unsecured indebtedness. The Company does not
believe that the existing financial covenants will restrict its operations or
growth within the
34
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<PAGE>
next 12 months. Management believes the Company is in compliance with all such
covenants under these agreements.
The Company purchases and originates mortgage loans and then sells them
primarily through securitizations. At the time of securitization and the
delivery of the loans, the Company recognizes gain on sale based on a number of
factors including the difference, or 'spread' between the interest rate on the
loans and the interest rate on the treasury security with a maturity
corresponding to the anticipated life of the loans. If interest rates rise
between the time the Company originates or purchases the loans and the time the
loans are priced at securitization, the spread narrows, resulting in a loss in
value of the loans. To protect against such losses, the Company hedges the value
of the loans through the short sale of treasury securities. Prior to hedging,
the Company performs an analysis of its loans taking into account, among other
things, interest rates and maturities to determine the amount, type (usually
three and five years), duration (usually less than three months) and proportion
of each treasury security to sell short so that the risk to the value of the
loans is more effectively hedged. The Company will execute the sale of the
treasury securities (with large, reputable securities firms including
ContiFinancial) and uses the proceeds received to acquire treasury securities
under repurchase agreements. These securities are designated as hedges in the
Company's records and are closed out when the loans are sold.
If the value of the hedges decreases, offsetting an increase in the value
of the loans, the Company, upon settlement with its counterparty, will pay the
hedge loss in cash and realize the corresponding increase in the value of the
loans as part of its excess servicing receivables. Conversely, if the value of
the hedges increase, offsetting a decrease in the value of the loans, the
Company, upon settlement with its counterparty, will receive the hedge gain in
cash and realize the corresponding decrease in the value of the loans through a
reduction in the value of the corresponding excess servicing receivables.
The Company believes that its hedging activities using treasury securities
are substantially similar in purpose, scope and execution to customary hedging
activities using treasury securities engaged in by its competitors.
While most of the Company's strategies for expansion have been formulated
so as to require minimal cash outlay to implement, establishing branch offices
for direct originations and other strategies may require greater cash
commitments. If any of the Company's strategies are successful, they will result
in greater loan purchases and originations, larger or more frequent
securitizations and, therefore, greater liquidity needs. Funds available under
the Company's current warehouse and other credit 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 12 months. Consequently, the Company anticipates that
it will need to arrange for additional external cash resources by July, 1997
through additional financing. The Company has no commitments for additional
external financing and there can be no assurance that the Company will be
successful in consummating any such financing transactions in the future on
terms the Company would consider favorable. 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. The Company's business and growth strategies over
the next twelve months are dependent on the Company's ability to maintain its
current warehouse and credit facilities and the Company's growth beyond the next
12 months is dependent on the ability to acquire additional credit lines. While
the Company anticipates that it will be able to meet its warehouse and credit
needs for the next 12 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. See
'Risk Factors -- Dependence on Funding Sources.'
INFLATION
Inflation has had no material effect on the Company's results of
operations. Inflation affects the Company most significantly in the area of loan
originations and can have a substantial effect on interest rates. Interest rates
normally increase during periods of high inflation and decrease during periods
of low inflation.
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<PAGE>
Profitability may be directly affected by the level and fluctuation in
interest rates which affect the Company's ability to earn a spread between
interest received on its loans and the costs of its borrowings. The
profitability of the Company is likely to be adversely affected during any
period of unexpected or rapid changes in interest rates. A substantial and
sustained increase in interest rates could adversely affect the ability of the
Company to purchase and originate loans and affect the mix of first and second
mortgage loan products. Generally, first mortgage production increases relative
to second mortgage production in response to low interest rates and second
mortgage production increases relative to first mortgage production during
periods of high interest rates. A significant decline in interest rates could
decrease the size of the Company's loan servicing portfolio by increasing the
level of loan prepayments. Additionally, to the extent servicing rights and
excess servicing receivables have been capitalized on the books of the Company,
higher than anticipated rates of loan prepayments or losses could require the
Company to write down the value of such servicing rights and excess servicing
receivables that has been capitalized on the books of the Company, adversely
impacting earnings. Fluctuating interest rates also may affect the net interest
income earned by the Company resulting from the difference between the yield to
the Company on loans held pending sales and the interest paid by the Company for
funds borrowed under the Company's warehouse facilities. In addition, inverse or
flattened interest yield curves could have an adverse impact on the
profitability of the Company because the loans pooled and sold by the Company
have long-term rates, while the senior interests in the related REMIC trusts are
priced on the basis of intermediate rates.
Since 1994, ContiFinancial has received certain excess servicing
receivables in exchange for cash to provide a source of cash flow to fund the
Company's growing securitization program and other liquidity needs. Although the
Company intends to lessen its reliance on the disposition of excess servicing
receivables to third parties to meet its cash flow needs, no assurance can be
given that such transactions will not be necessary in the future.
The net proceeds from the Public Offering will be used by the Company for
the repayment of debt, general corporate purposes, including funding loan
originations and purchases, supporting securitization transactions (including
the retention of excess spread receivables) and other working capital needs. See
'Use of Proceeds.'
RECENT EVENTS
Commencement of UK Operations
The Company commenced operations in the UK in April, 1996 through Preferred
Mortgages, a joint venture formed in March, 1996, of which the Company owns 45%.
Through Preferred Mortgages, the Company intends to serve what management
believes to be an underserved segment of the home equity market in the UK by
lending to borrowers with impaired credit profiles similar to its domestic
customers. The Company paid $2.1 million, 50% of which was paid for in Common
Stock and 50% of which was paid for with a note receivable, for its interest in
Preferred Mortgages.
Recent Securitization
In April, 1996, the Company completed its sixth securitization through a
public offering of securities in the aggregate amount of $200.0 million. The
securities sold in the securitization were rated AAA/Aaa and had a weighted
average pass-through rate of 7.0% for the fixed-rate tranches plus an adjustable
rate tranche initially set at 7.3%. As part of its cash flow management
strategy, the securitization was structured so that ContiFinancial received, in
exchange for cash, 25% of the residual interests of such securitization.
CHANGE IN CERTIFYING ACCOUNTANT
Termination of Certifying Accountant
IMC terminated the engagement of Deloitte & Touche LLP ('D&T') as its
independent accountants, effective December, 1995 after completing the audit for
the year ended December 31, 1994.
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The decision to terminate D&T was approved by the Board of Directors of IMCI,
the general partner of IMC.
The audit reports of D&T on the financial statements of IMC for the period
from inception to December 31, 1993 and for the year ended December 31, 1994,
did not contain an adverse opinion or a disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope or accounting principles.
There were no disagreements with D&T during the period from inception to
December 31, 1993 and for the fiscal year ended December 31, 1994, or in any
subsequent interim period through the date of this Prospectus on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to the satisfaction of D&T, would have
caused D&T to make reference to such disagreement in connection with its opinion
on IMC's financial statements.
A letter from D&T is filed with the registration statement of which this
Prospectus is a part as Exhibit 16.1.
Engagement of New Certifying Accountant
Effective December, 1995, IMC engaged Coopers & Lybrand L.L.P. to serve as
independent accountants to audit and certify IMC's financial statements.
Pursuant to this engagement, Coopers & Lybrand L.L.P. has audited IMC's
financial statements for the period from inception to December 31, 1993, the
years ended December 31, 1994 and 1995 and the three months ended March 31,
1996.
37
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BUSINESS
IMC is a specialized consumer finance company engaged in purchasing,
originating, servicing and selling home equity loans secured primarily by first
liens on one- to four-family residential properties. The Company focuses on
lending to individuals whose borrowing needs are generally not being served by
traditional financial institutions due to such individuals' impaired credit
profiles and other factors. Loan proceeds typically are used by the Company's
borrowers for a variety of purposes such as to consolidate debt, to finance home
improvements and to pay educational expenses. By focusing on individuals with
impaired credit profiles and by providing prompt responses to their borrowing
requests, the Company has been able to charge higher interest rates for its loan
products than typically are charged by conventional mortgage lenders.
IMC was formed in 1993 by a team of executives experienced in the
non-conforming home equity loan industry. IMC was originally structured as a
partnership, with the limited partners consisting of the Industry Partners and
certain members of management. The original Industry Partners included: American
Industrial Loan Association; Champion Mortgage Co. Inc.; Cityscape Corp.;
Equitysafe, a Rhode Island General Partnership; Investors Mortgage, a Washington
LP; Mortgage America Inc.; Residential Money Centers; First Government Mortgage
and Investors Corp.; Investaid Corp.; and New Jersey Mortgage and Investment
Corp. The Money Store and Equity Mortgage, a Maryland LP, became Industry
Partners in 1994. Branchview, Inc. became an Industry Partner in 1995.
IMC purchases and originates home equity loans through a diversified
network of 248 correspondents, which includes the Industry Partners, and 1,348
mortgage loan brokers and, to a lesser extent, on a retail basis through its
recently initiated direct consumer lending effort. Since its inception in
August, 1993, IMC has experienced considerable growth in loan production, with
total purchases and originations of $29.6 million, $282.9 million, $621.6
million and $264.0 million in 1993, 1994, 1995 and the first three months of
1996, respectively. IMC's network of correspondents accounted for 82.5%, 87.5%
and 89.6% of IMC's loan production in 1994, 1995 and the first three months of
1996, respectively, with the largest correspondent contributing 7.1%, 9.7% and
9.5% of total loan production in such periods. Through its network of approved
mortgage brokers, IMC generated 17.5%, 10.7% and 8.0% of its loan production in
1994, 1995 and the first three months of 1996, respectively. IMC's direct
consumer lending effort contributed approximately 1.8% and 2.4% for 1995 and for
the first three months of 1996, respectively. IMC is seeking to expand its
direct consumer lending by opening branch offices and expanding its use of
advertising, direct mail and other marketing strategies.
The Industry Partners are currently required to sell to IMC, under market
terms and conditions, an aggregate of $102.0 million, on average, of home equity
loans per year. IMC has consistently purchased loan production from the Industry
Partners in excess of their aggregate annual commitment. Concurrent with the
Public Offering, the majority of the Industry Partners have agreed to increase
their annual loan sale commitment, or the economic equivalent, to an aggregate
of $162.0 million. See 'Certain Relationships and Related Transactions.'
IMC sells its loans through securitizations, which involve the private
placement or public offering of asset-backed securities, and whole loan sales,
which involve selling blocks of loans to individual purchasers. Whole loan sales
have declined from 100% of total loan sales in 1993 (prior to IMC's first
securitization of its loans) to 15.3% of total loan sales in 1995. Each of IMC's
securitizations has been credit-enhanced by an insurance policy provided through
a monoline insurance company to receive ratings of Aaa from Moody's and AAA from
Standard & Poor's. Through April 30, 1996, the Company had completed six
AAA/Aaa-rated REMIC securitizations totaling $845.0 million. As of December 31,
1995 and March 31, 1996, IMC had a servicing portfolio of $535.8 million and
$783.4 million, respectively.
IMC has had a financing and investment banking relationship with
ContiFinancial since 1993. As part of this relationship, ContiFinancial has
provided warehouse and revolving credit facilities to IMC and acted as placement
agent and underwriter of its securitizations. In addition, as part of its cash
flow management strategy, the securitizations were structured so that
ContiFinancial received, in exchange for cash, a portion of the residual
interests in such securitizations. These transactions reduced IMC's gain on sale
of loans by approximately $0.6 million in 1994, $5.5 million in 1995 and $2.8
million during the first three months of 1996. ContiFinancial also holds the
Conti Option.
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Loan purchases and originations increased 119.7% from $282.9 million in
1994 to $621.6 million in 1995, and the Company's servicing portfolio increased
482.4% from $92.0 million to $535.8 million. During this same period, the
Company's total revenues increased 94.9% from $10.1 million to $19.7 million,
pro forma net income increased 117.3% from $1.9 million to $4.0 million and
pre-tax income before the Conti VSA increased 127.4% from $4.7 million to $10.8
million. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Transactions with ContiFinancial -- Sharing of
Proportionate Value of Equity,' 'Certain Accounting Considerations Relating to
the Conti VSA' and Note 4 to Notes to Consolidated Financial Statements.
BUSINESS STRATEGY
IMC is following these strategies for expansion: (i) increasing the number
of correspondents and brokers in its networks and increasing the amount of loans
purchased or originated from correspondents (including the Industry Partners)
and brokers; (ii) expanding its direct consumer lending; (iii) acquiring
additional loan production capability through acquisitions of correspondents;
(iv) generating loan production in the home equity market in the UK; and (v)
broadening its product offerings.
Expansion of Correspondent and Broker Networks
In 1995 and the three months ended March 31, 1996, 87.5% and 89.6% of IMC's
loan production was purchased or originated through its correspondent network,
respectively, and 10.7% and 8.0% was purchased or originated through its broker
network, respectively. IMC intends to continue to increase its loan production
from correspondents and brokers by expanding its networks to include new
correspondents and brokers and increasing the efficiency and production of the
correspondents and brokers that are a part of IMC's network. IMC plans to
implement this strategy of increasing its market share through geographic
expansion, tailored marketing strategies and a continued focus on servicing
smaller correspondents in cities which have historically been underserved. IMC
believes that it strengthens its relationships with correspondents and brokers
by providing attractive products and responsive service in conjunction with
consistent underwriting, substantial funding sources and competitive prices.
Expansion of Direct Consumer Lending
IMC intends to expand its direct consumer lending efforts by opening eight
new branch offices nationwide to reach a total of 17 by the end of 1996. The
branch offices will allow IMC to focus on developing contacts with individual
borrowers, local brokers and referral sources such as accountants, attorneys and
financial planners, with a view toward expanding its direct consumer loan
business. In addition, IMC's direct consumer loan expansion strategy involves:
(i) targeting cities where the population density and economic indicators are
favorable for home equity lending, the foreclosure rate is within normal ranges
and the non-conforming loan market has been underserved; (ii) testing the target
market prior to the establishment of a branch office, where local regulations
permit, via newspaper, radio, direct mail advertising and through a toll-free
telephone number which routes borrower inquiries directly to a loan officer in
the Tampa, Florida office; (iii) if test marketing is positive, establishing a
small branch office, generally with an initial staff of two business development
representatives; and (iv) setting up branch offices in executive office space
with short-term leases, which eliminates the need for IMC to pay high startup
costs for office equipment, furniture and leasehold improvements, and allows IMC
to exit the market easily if the office is not successful.
Expansion Through Acquisitions
IMC intends to strengthen its loan production capabilities not only through
internal growth, but also through acquisitions from time to time. IMC's
management believes that acquisitions not only accelerate the pace of growth,
but also are often the most cost-effective growth strategy, enabling IMC to
realize significant economies of scale in the securitization and mortgage
servicing businesses. IMC will continue to seek out candidates for acquisition
which operate in geographic and product areas that complement its existing
businesses. These candidates may include both correspondents and brokers. In
January, 1996, IMC completed the Equitystars Acquisition which expanded the
Company's operations in New England in both the non-conforming and conforming
mortgage loan markets. See ' -- Loans -- Acquisition of Equitystars.'
39
<PAGE>
<PAGE>
Commencement of UK Operations
IMC commenced operations in the UK in April, 1996 through Preferred
Mortgages, a UK joint venture. The participants in the joint venture are IMC,
Foxgard and FSA. Preferred Mortgages is owned 45% by IMC, 45% by Foxgard and 10%
by FSA. Through Preferred Mortgages, IMC intends to serve what management
believes to be an underserved segment of the home equity market in the UK by
lending to borrowers with impaired credit profiles similar to its domestic
customers. Preferred Mortgages plans to market its products and services
directly to UK borrowers by means of newspaper, radio and television
advertising, in addition to direct mail. Preferred Mortgages plans to adapt the
loan application procedures, appraisal procedures and underwriting procedures
used by IMC to the UK market, while directing its underwriting and processing
staff to provide prompt, efficient and reliable service to the UK broker
community. Preferred Mortgages has received a commitment for a `L'47.5 million
(approximately $73.0 million as of June 7, 1996) line of credit from National
Westminster Bank, PLC for the purchase and origination of mortgage loans (the
'NatWest Facility'), and FSA has agreed to provide an insurance policy as credit
enhancement for the NatWest Facility.
Broadening Product Offerings
IMC frequently reviews its pricing and loan offerings for competitiveness
relative to the market. IMC introduces new loan products to meet the needs of
its correspondents, brokers and borrowers and to expand its market share to new
customers who are not traditionally a part of IMC's market.
Preferred Partners Program. IMC designed a program for traditional mortgage
lenders (the 'Preferred Partners Program') for the benefit of mortgage companies
that are attempting to diversify their product offering in the non-conforming
loan business. For correspondents participating in the Preferred Partners
Program (the 'Preferred Partners'), IMC acts as a consultant in all critical
areas of the non-conforming loan business, including marketing, regulatory
compliance, underwriting, risk-adjusted pricing, processing, funding, servicing
and selling loans. Experienced personnel from IMC work on-site with a Preferred
Partner, conducting internal training of employees of the Preferred Partner to
introduce an understanding of the credit profile of the non-conforming borrower.
In return, IMC is contractually granted the right of first refusal to purchase
all non-conforming mortgage originations of the Preferred Partner for the first
24 months of its participation in the Preferred Partners Program.
Since inception in November, 1995, three Preferred Partner relationships
have been formed with companies ranging in conforming production size from
approximately $300 million per year to $3 billion per year. IMC believes that
the Preferred Partners Program provides an opportunity for increasing its volume
of loan purchases. IMC's initial target is to develop 15 Preferred Partners,
each producing from $2 million to $3 million per month in non-conforming loan
originations for sale to IMC.
Home Equity Line of Credit ('HELOC'). IMC is developing a HELOC product,
which will enable customers to borrow on a revolving basis against the equity of
their homes. After repayment of the initial advance, the availability of credit
under the line will increase in proportion to the amount repaid. In the past,
this type of product has been offered primarily by commercial banks due to the
complexity of the methodology necessary to process and maintain the loans. IMC
has developed the methodology to facilitate the HELOC program through an
agreement with a large commercial bank. This new product will offer the
convenience of a revolving mortgage credit line to the non-conforming borrower.
IMC will offer HELOCs to borrowers using the same general underwriting criteria
IMC uses for its non-conforming lending business. IMC expects to introduce the
HELOC program to its customers in the second half of 1996.
LOANS
Overview
IMC's consumer finance activities consist primarily of purchasing,
originating, selling and servicing mortgage loans. The vast majority of these
loans are secured by first or second mortgages on one- to four-family residences
with the balance secured by small multi-family residences and mixed-use
properties. Once loan applications have been received, the underwriting process
completed and the loans funded, IMC typically packages the loans in a portfolio
and sells the portfolio, either through a
40
<PAGE>
<PAGE>
securitization or directly on a whole loan basis to institutional purchasers.
IMC retains the right to service the loans that it securitizes and may release
the right to service the loans it sells through whole loan sales.
Loan Purchases and Originations
IMC purchases and originates loans in 48 states and the District of
Columbia through its networks of 248 correspondents and 1,348 brokers, and
through its nine branch offices.
The following table shows channels of loan purchases and originations for
the periods shown:
<TABLE>
<CAPTION>
PERIOD
FROM
INCEPTION
(AUGUST 12,
1993) YEAR ENDED THREE MONTHS
THROUGH DECEMBER 31, ENDED
DECEMBER 31, -------------------- MARCH 31,
1993 1994 1995 1996
------------ -------- -------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Correspondent(1):
Principal balance.................................. $ 28,008 $233,460 $543,635 $ 236,537
Average principal balance per loan................. 66 66 62 65
Combined weighted average loan-to-value ratio(2)... 66.6% 69.2% 70.6% 71.2%
Weighted average interest rate..................... 10.2 11.2 12.1 11.5
Broker:
Principal balance.................................. $1,600 $49,376 $66,584 $21,079
Average principal balance per loan................. 55 56 47 54
Combined weighted average loan-to-value ratio(2)... 70.9% 71.8% 72.6% 74.6%
Weighted average interest rate..................... 11.2 12.0 12.0 11.2
Direct consumer loan originations:
Principal balance.................................. $0 $88 $11,410 $6,371
Average principal balance per loan................. 0 88 49 48
Combined weighted average loan-to-value ratio(2)... 0.0% 80.0% 72.6% 73.9%
Weighted average interest rate..................... 0.0 11.3 11.7 11.1
Total loan purchases and originations:
Principal balance.................................. $ 29,608 $282,924 $621,629 $ 263,987
Average principal balance per loan................. 65 64 60 64
Combined weighted average loan-to-value ratio(2)... 66.8% 69.7% 70.9% 71.5%
Weighted average interest rate..................... 10.3 11.4 12.1 11.4
</TABLE>
- ------------
(1) Includes purchases from the Industry Partners with principal balances of
$10.7 million, or 36.3% of total purchases and originations, for the period
ended December 31, 1993, $92.4 million, or 32.6% of total purchases and
originations, for the year ended December 31, 1994, $148.4 million, or 23.9%
of total purchases and originations, for the year ended December 31, 1995
and $63.9 million, or 24.2% of total purchases and originations, for the
three months ended March 31, 1996.
(2) The weighted average loan-to-value ratio of a loan secured by a first
mortgage is determined by dividing the amount of the loan by the lesser of
the purchase price or the appraised value of the mortgaged property at
origination. The weighted average loan-to-value ratio of loans secured by a
second mortgage is determined by taking the sum of the loans secured by the
first and second mortgages and dividing by the lesser of the purchase price
or the appraised value of the mortgaged property at origination.
41
<PAGE>
<PAGE>
The following table shows channels of loan purchases and originations on a
quarterly basis for the fiscal quarters shown:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1995 1995 1995 1995 1996
--------- -------- ------------- ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Correspondent(1):
Principal balance.............. $ 103,296 $104,727 $ 133,857 $201,755 $ 236,537
Average principal balance per
loan......................... 66 58 60 64 65
Combined weighted average
loan-to-value ratio(2)....... 69.7% 70.1% 70.8% 71.2% 71.2%
Weighted average interest
rate......................... 12.5 12.6 12.1 11.8 11.5
Broker:
Principal balance.............. $14,948 $17,327 $17,297 $17,012 $21,079
Average principal balance per
loan......................... 52 46 45 48 54
Combined weighted average
loan-to-value ratio(2)....... 72.7% 72.5% 72.7% 72.6% 74.6%
Weighted average average
interest rate................ 12.5 12.3 11.8 11.3 11.2
Direct consumer loan originations:
Principal balance.............. $1,141 $2,613 $3,836 $3,820 $6,371
Average principal balance per
loan......................... 52 47 49 50 48
Combined weighted average
loan-to-value ratio(2)....... 73.8% 70.0% 73.3% 73.2% 73.9%
Weighted average interest
rate......................... 12.4 11.9 11.6 11.4 11.1
Total loan purchases and
originations:
Principal balance.............. $ 119,385 $124,667 $154,990 $222,587 $ 263,987
Average principal balance per
loan......................... 57 50 51 54 64
Combined weighted average
loan-to-value ratio(2)....... 70.4% 70.5% 71.0% 71.4% 71.5%
Weighted average interest
rate......................... 12.5 12.5 12.0 11.8 11.4
</TABLE>
- ------------
(1) Includes purchases from the Industry Partners of an aggregate principal
balance of $148.4 million, or 23.9% of total purchases and originations, for
the year ended December 31, 1995 and $63.9 million, or 24.2% of total
purchases and originations, for the three months ended March 31, 1996.
(2) The weighted average loan-to-value ratio of a loan secured by a first
mortgage is determined by dividing the amount of the loan by the lesser of
the purchase price or the appraised value of the mortgaged property at
origination. The weighted average loan-to-value ratio of loans secured by a
second mortgage is determined by taking the sum of the loans secured by the
first and second mortgages and dividing by the lesser of the purchase price
or the appraised value of the mortgaged property at origination.
42
<PAGE>
<PAGE>
The following table shows lien position, weighted average interest rates
and loan-to-value ratios for the periods shown.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 12,
1993) YEAR ENDED THREE MONTHS
THROUGH DECEMBER 31, ENDED
DECEMBER 31, --------------- MARCH 31,
1993 1994 1995 1996
------------ ---- ---- ------------
<S> <C> <C> <C> <C>
First mortgage:
Percentage of total purchases and originations............. 88.3% 82.4% 77.0% 90.3%
Weighted average interest rate............................. 10.2 11.3 12.1 11.4
Weighted average initial loan-to-value ratio(1)............ 67.3 69.8 70.7 71.4
Second mortgage:
Percentage of total purchases and originations............. 11.7% 17.6% 23.0% 9.7%
Weighted average interest rate............................. 11.1 11.7 12.4 11.7
Weighted average initial loan-to-value ratio(1)............ 61.9 68.8 71.7 71.9
</TABLE>
- ------------
(1) The weighted average loan-to-value ratio of a loan secured by a first
mortgage is determined by dividing the amount of the loan by the lesser of
the purchase price or the appraised value of the mortgaged property at
origination. The weighted average loan-to-value ratio of loans secured by a
second mortgage is determined by taking the sum of the loans secured by the
first and second mortgages and dividing by the lesser of the purchase price
or the appraised value of the mortgaged property at origination.
Correspondents. The majority of IMC's loan volume is purchased through
correspondents. For the year ended December 31, 1995, $543.6 million or 87.5% of
IMC's loan purchases and originations were purchased through the mortgage
correspondent network as compared with $233.5 million or 82.5% of IMC's loan
purchases and originations for the year ended December 31, 1994. During the
three months ended March 31, 1996, $236.5 million or 89.6% of IMC's loan
purchases and originations were so acquired. The Industry Partners contributed
$10.7 million or 36.3% of total purchases and originations for the period ended
December 31, 1993, $92.4 million or 32.6% for the year ended December 31, 1994,
$148.4 million or 23.9% for the year ended December 31, 1995 and $63.9 million
or 24.2% for the three months ended March 31, 1996. No single correspondent
contributed 10.0% or more of IMC's total loan purchases and originations in
1994, 1995 or the first three months of 1996.
IMC has a list of approved correspondents from which it will purchase loans
on a wholesale basis. Prior to approving a financial institution or mortgage
banker as a loan correspondent, IMC performs an extensive investigation of,
among other things, the proposed loan correspondent's lending operations, its
licensing or registration and the performance of its previously originated
loans. The investigation includes contacting the agency that licenses or
registers such loan correspondent and other purchasers of the correspondent's
loans and reviewing the correspondent's financial statements. IMC requires that
the correspondent remain current on all licenses required by federal and state
laws and regulations and that it maintain sufficient equity to fund its loan
operations. IMC periodically reviews and updates the information it has relating
to each approved correspondent to insure that all legal requirements are current
and that lending operations continue to meet IMC's standards.
Before purchasing loans from correspondents, IMC requires that each loan
correspondent enter into a purchase and sale agreement with customary
representations and warranties regarding such loans. Correspondents will then
sell loans to IMC either on a flow basis or through block sales. IMC will make a
flow basis purchase when a correspondent approaches IMC with the application of
a prospective borrower. Because the correspondent has not granted a loan, IMC
has the opportunity to preapprove the loan. In the preapproval process, the
correspondent provides IMC with information about the borrower and the
collateral for the potential loan, including the applicant's credit, employment
history, current assets and liabilities, a copy of recent tax returns and the
estimated property value of the collateral. If IMC pre-approves the loan, the
correspondent lends to the borrower pursuant to certain IMC guidelines. After
the correspondent has made the loan, IMC purchases the loan from the
43
<PAGE>
<PAGE>
correspondent. A block purchase occurs when the correspondent has made numerous
loans without seeking preapproval from IMC. The correspondent offers a block of
loans to IMC, and IMC will purchase those loans in the block that meet its
underwriting standards.
Brokers. For the year ended December 31, 1995 and the three months ended
March 31, 1996, IMC originated $66.6 million or 10.7% and $21.1 million or 8.0%,
respectively, of loans through broker transactions. As with correspondents, IMC
maintains an approved list of brokers. Brokers become part of IMC's network
after IMC performs a thorough license and credit check. If a broker is approved,
IMC will accept loan applications from the broker for prospective borrowers.
Because brokers may submit loan applications to several prospective lenders
simultaneously, IMC makes every effort to provide a quick response. IMC will
process each application given by a broker from a prospective borrower and grant
or deny preliminary approval of the application within one business day. In the
case of an application denial, IMC will make all reasonable attempts to insure
that there is no missing information concerning the borrower that might change
the decision on the loan. In addition, IMC emphasizes service to the broker and
loan applicant by having loan processors follow the loan from the time of the
initial application, through the underwriting verification and audit process, to
the funding and closing process. Because brokers collect fees from the borrower
and are not compensated by IMC, IMC believes that consistent underwriting, quick
response times and personal service are critical to successfully originating
broker loans.
Direct Consumer Loans. For the year ended December 31, 1995 and the three
months ended March 31, 1996, IMC originated $11.4 million or 1.8% and $6.4
million or 2.4%, respectively, of loans directly to borrowers through its branch
offices. IMC has nine branch offices in Iowa, Georgia, Missouri, Wisconsin,
Colorado, Florida, Arizona, Washington and Illinois. Prior to the establishment
of a branch office, where local regulations permit, IMC tests the target market
via newspaper radio and direct mail advertising and through a toll-free
telephone number which routes borrower inquiries directly to a loan officer in
the Tampa, Florida office. If test marketing is positive, the branch offices are
staffed with two business development representatives and established in
executive office space with short-term leases, which eliminates the need for IMC
to pay high startup costs for office equipment, furniture and leasehold
improvements and allows IMC to exit the market easily if the office is not
successful. IMC plans to use the branch office network for marketing to and
meeting with individual borrowers, local brokers and referral sources such as
accountants, attorneys and financial planners. All advertising, payment of
branch expenses, regulatory disclosure, appraisals, title searches, loan
processing, underwriting and funding of branch office loans take place in the
Tampa, Florida office of IMC. The centralization of loan origination and
processing allows IMC to control branch expenses, supervise regulatory
compliance and offer consistent underwriting and processing to its customers.
IMC believes that this strategy will result in a more efficient use of its
capital and a higher success rate. Negative pre-testing results could limit
expansion into new locations, but would also limit the size of potential losses.
IMC plans to open eight new branch offices nationwide to reach a total of 17 by
the end of 1996, and estimates that new branches will reach a monthly operating
break-even point by the fourth or fifth month of operation. The start-up costs
and operating expenses prior to this break-even point are estimated at $25,000
per branch, with half of that expense allocated to marketing and advertising.
Additionally, IMC feels that, by centralizing its marketing and advertising
efforts in Tampa, Florida, economies of scale will be obtained and expenses will
be controlled.
Because borrowers may submit loan applications to several prospective
lenders simultaneously, IMC makes every effort to provide a quick response. IMC
will process each application from a borrower and grant or deny preliminary
approval for the application generally within one business day from receipt of
the application. In addition, IMC ensures direct contact with an underwriter in
the Tampa, Florida office who follows the loan from the application to the
closing process. IMC believes that consistent underwriting, quick response times
and personal service are critical to successfully originating loans directly
with potential borrowers.
Geographic Distribution of Loans. Although IMC is licensed or registered in
48 states and the District of Columbia, it has historically concentrated its
business in the mid-Atlantic states. While this concentration has declined,
Maryland and New York contributed 12.8% and 12.4%, respectively, of IMC's total
loan purchase and origination volume for the year ended December 31, 1995, and
New York and New Jersey contributed 14.6% and 10.9%, respectively, for the three
months ended March 31, 1996.
44
<PAGE>
<PAGE>
IMC intends to expand and geographically diversify its loan purchase and
origination activities through its nationwide branch office network, the
Preferred Partners Program and its joint venture in the UK. See ' -- Business
Strategy -- Broadening Product Offerings -- Preferred Partners Program' and
'Recent Events -- Commencement of UK Operations.'
The following table shows geographic distribution of loan purchases and
originations for the periods shown.
<TABLE>
<CAPTION>
PERIOD
FROM INCEPTION YEAR ENDED
(AUGUST 12, 1993) DECEMBER 31, THREE MONTHS
THROUGH ------------------- ENDED
DECEMBER 31, 1993 1994 1995 MARCH 31, 1996
----------------- ------- ------- --------------
<S> <C> <C> <C> <C>
States(1):
New York.................................. 17.5% 11.7% 12.4% 14.6%
New Jersey................................ 4.0 6.6 9.9 10.9
Maryland.................................. 14.4 18.6 12.8 9.3
Michigan.................................. 10.0 7.3 8.8 8.7
Florida................................... 1.8 4.2 6.2 6.8
Ohio...................................... 4.5 4.9 4.7 5.6
Georgia................................... 5.6 3.2 3.5 5.6
Pennsylvania.............................. 3.3 5.3 4.3 3.9
Virginia.................................. 2.0 5.4 3.8 3.6
District of Columbia...................... 3.2 4.6 3.3 2.8
All other states(39)...................... 33.7 28.2 30.3 28.2
</TABLE>
- ------------
(1) States are listed in order of percentage of loan purchases and originations
for the three months ended March 31, 1996.
Acquisition of Equitystars
In order to increase the flow of loans for purchase, IMC seeks to acquire
loan originators that would enhance or enlarge IMC's market penetration or
product offerings. Pursuant to that strategy, on January 1, 1996, IMC acquired
all of the assets of Equitystars, a mortgage banking company which does business
primarily in Rhode Island, New York, Connecticut and Massachusetts, with smaller
operations in Maine and New Hampshire. Equitystars originated over $95 million
of residential mortgage loans during 1995. Of the loans originated,
approximately $17 million or 18% were conforming loans and approximately $78
million or 82% were non-conforming loans. During 1995, IMC purchased a total of
$11.3 million of non-conforming loans from Equitystars.
The purchase price for the Equitystars Acquisition was a $2.0 million base
payment in the form of 20,060 shares of Convertible Preferred Stock, and up to
an aggregate of $2.55 million of contingent payments, based on formulae keyed to
the performances of the non-conforming and conforming mortgage loan business of
Equitystars. In accordance with the provisions governing the Convertible
Preferred Stock, the 20,060 shares of Convertible Preferred Stock issued in the
Equitystars Acquisition will be automatically converted upon the completion of
any public offering of the Common Stock to a number of shares of Common Stock
having a value, at 93% of the public offering price, of $2.0 million plus
interest at 8.0% per annum. Pursuant to the agreement governing the Equitystars
Acquisition, the contingent payments, if any, will be made at the end of 1996
and 1997 and, if the Convertible Preferred Stock has been converted into Common
Stock, will be made in Common Stock valued at the then-current market price. If
a public offering does not occur by June 30, 1996, holders of the Convertible
Preferred Stock have the right to 'put' those shares to IMC for an amount equal
to the liquidation preference of $100 per share plus interest at 8.0% per annum.
If the put is exercised, any contingency payments owed in respect of the
Equitystars Acquisition will be paid in cash.
Loan Underwriting
IMC's origination volume is generated primarily from correspondents selling
loans to IMC either on a flow basis or through block sales. For correspondents
and brokers that originate loans on a flow
45
<PAGE>
<PAGE>
basis, IMC provides them with its underwriting guidelines. Loan applications
received from correspondents and brokers on a flow basis are classified
according to certain characteristics including available collateral, loan size,
debt ratio, loan-to-value ratio and the credit history of the applicant. Loan
applicants with less favorable credit ratings generally are offered loans with
higher interest rates and lower loan-to-value ratios than applicants with more
favorable credit ratings. IMC also purchases loans on a block sale basis, in
which a correspondent makes several loans without the preapproval of the Company
and offers them to the Company for block purchase. Because IMC only chooses
loans that meet its underwriting requirements and reunderwrites them, block
loans follow the same underwriting guidelines as flow loan purchases.
IMC maintains a staff of 36 underwriters based in its Florida,
Pennsylvania, New Jersey, Ohio and Rhode Island offices. IMC's loan application
and approval process generally is conducted via facsimile submission of the
credit application to IMC's underwriters. An underwriter reviews the applicant's
credit history based on the information contained in the application and reports
available from credit reporting bureaus in order to determine if the applicant's
credit history is acceptable under IMC's underwriting guidelines. Based on this
review, the underwriter assigns a preliminary rating to the application. The
proposed terms of the loan are then communicated to the correspondent or broker
responsible for the application who in turn discusses the proposal with the loan
applicant. When a potential borrower applies for a loan through a branch office,
the underwriter will discuss the proposal directly with the applicant. IMC
endeavors to respond, and in most cases does respond, to the correspondent,
broker or borrower within one business day from when the application is
received. If the applicant accepts the proposed terms, the underwriter will
contact the broker or the loan applicant to gather additional information
necessary for the closing and funding of the loan.
All loan applicants must have an appraisal of their collateral property
prior to closing the loan. IMC requires correspondents and brokers to use
licensed appraisers that are listed on or qualify for IMC's approved appraiser
list. IMC approves appraisers based upon a review of sample appraisals,
professional experience, education, membership in related professional
organizations, client recommendations and review of the appraiser's experience
with the particular types of properties that typically secure IMC's loans. In
the case of loans purchased in blocks, if an appraisal was performed by an
appraiser that is not approved by IMC, IMC will review the appraisal and accept
it if the appraisal meets its underwriting standards.
The decision to provide a loan to an applicant is based upon the value of
the underlying collateral, the applicant's creditworthiness and IMC's evaluation
of the applicant's ability to repay the loan. A number of factors determine a
loan applicant's creditworthiness, including debt ratios (the borrower's average
monthly expenses for debts, including fixed monthly expenses for housing, taxes
and installment debt, as a percentage of gross monthly income), payment history
on existing mortgages and the combined loan-to-value ratio for all existing
mortgages on a property.
Assessment of the applicant's ability to pay is one of the principal
elements in distinguishing IMC's lending specialty from methods employed by
traditional lenders, such as thrift institutions and commercial banks. All
lenders utilize debt ratios and loan-to-value ratios in the approval process.
Many lenders simply use software packages to score an applicant for loan
approval and fund the loan after auditing the data provided by the borrower. In
contrast, IMC employs experienced non-conforming mortgage loan credit
underwriters to scrutinize the applicant's credit profile and to evaluate
whether an impaired credit history is a result of previous adverse circumstances
or a continuing inability or unwillingness to meet credit obligations in a
timely manner. Personal circumstances including divorce, family illnesses or
deaths and temporary job loss due to layoffs and corporate downsizing will often
impair an applicant's credit record. Among IMC's specialties is the ability to
identify and assist this borrower in the establishment of improved credit.
Upon completion of the loan's underwriting and processing, the closing of
the loan is scheduled with a closing attorney or agent approved by IMC. The
closing attorney or agent is responsible for completing the loan closing
transaction in accordance with applicable law and IMC's operating procedures.
Title insurance that insures IMC's interest as mortgagee and evidence of
adequate homeowner's insurance naming IMC as an additional insured are required
on all loans.
46
<PAGE>
<PAGE>
IMC has established classifications with respect to the credit profiles of
loans based on certain of the applicant's characteristics. Each loan applicant
is placed into one of four letter ratings 'A' through 'D,' with subratings
within those categories. Ratings are based upon a number of factors including
the applicant's credit history, the value of the property and the applicant's
employment status, and are subject to the discretion of IMC's trained
underwriting staff. Terms of loans made by IMC, as well as the maximum
loan-to-value ratio and debt service-to-income coverage (calculated by dividing
fixed monthly debt payments by gross monthly income), vary depending upon the
classification of the borrower. Borrowers with lower credit ratings generally
pay higher interest rates and loan origination fees. The general criteria
currently used by IMC's underwriting staff in classifying loan applicants are as
set forth below.
<TABLE>
<CAPTION>
'A' RISK 'B' RISK 'C' RISK 'D' RISK
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
General repayment.... Has repaid Has generally repaid May have experienced May have experienced
installment or installment or credit significant past significant past
revolving debt problems credit problems credit problems
Existing mortgage
loans.............. Current at Current at May not be current at Must be paid in full
application time and application time and application time and from loan proceeds
a maximum of two a maximum of three a maximum of four and no more than 149
30-day late payments 30-day late payments 30-day late payments days delinquent at
in the last 12 months in the last 12 months and one 60-day late closing and an
payment in the last explanation is
12 months required
Non-mortgage
credit............. Minor derogatory Some prior defaults Significant prior Significant prior
items allowed with a allowed but major delinquencies may defaults may have
letter of credit or installment have occurred, but occurred, but must
explanation; no open debt paid as agreed major credit or demonstrate an
collection accounts may offset some installment debt paid ability to maintain
or charge-offs, delinquency; open as agreed may offset regularity in payment
judgments or liens charge-offs, some delinquency of credit
judgments or liens obligations in the
are permitted on a future
case-by-case basis
Bankruptcy filings... Discharged more than Discharged more than Discharged more than Discharged prior to
four years prior to two years prior to one year prior to closing
closing and credit closing and credit closing and credit
reestablished reestablished reestablished
Debt service-to-
income ratio....... Generally 45% or less Generally 45% or less Generally 50% or less Generally 50% or less
Maximum loan-to-value
ratio:
Owner-occupied... Generally 80% (or Generally 80% (or Generally 75% (or 80% Generally 65% (or 70%
90%*) for a one- to 85%*) for a one- to for first liens*) for for first liens*) for
two-family residence; two-family residence a one- to two- family a one- to four- family
75% for a condominium residence; 65% for a residence; 60% for a
condominium; 60% for three- to four- family
a three- to residence or
four-family residence condominium
Non-owner-
occupied....... Generally 70% for a Generally 70% for a Generally 60% for a Generally 55% for a
one- to four-family one- to two-family one- to two-family one- to four-family
residence residence residence residence
</TABLE>
- ------------
* On an exceptional basis.
The Company uses the foregoing categories and characteristics as guidelines
only. On a case-by-case basis, the Company may determine that the prospective
borrower warrants an exception. Exceptions may generally be allowed if the
application reflects certain compensating factors such as loan-to-value ratio,
debt ratio, length of employment and other factors. For example, a higher debt
ratio may be acceptable with a lower loan-to-value ratio. Accordingly, the
Company may classify in a more favorable risk category certain mortgage loans
that, in the absence of such compensating factors, would satisfy only the
criteria of a less favorable risk category.
47
<PAGE>
<PAGE>
The following table sets forth certain information with respect to IMC's
loan purchases and originations by borrower classification, along with weighted
average coupons, for the periods shown.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
THREE MONTHS ENDED
1994 1995 MARCH 31, 1996
---------------------------- ---------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED
% OF AVERAGE % OF AVERAGE % OF AVERAGE
BORROWER CLASSIFICATION TOTAL TOTAL COUPON TOTAL TOTAL COUPON TOTAL TOTAL COUPON
- --------------------------- -------- ----- -------- -------- ----- -------- -------- ----- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
'A' Risk................... $155,729 55.0% 10.6% $276,120 44.4% 11.4% $113,890 43.1% 10.7%
'B' Risk................... 74,527 26.3 11.6 177,149 28.5 12.0 74,444 28.2 11.3
'C' Risk................... 38,022 13.5 13.0 125,811 20.2 13.0 56,367 21.4 12.3
'D' Risk................... 14,646 5.2 14.4 42,549 6.9 14.4 19,286 7.3 13.5
-------- ----- -------- ----- -------- -----
Total...................... $282,924 100.0% $621,629 100.0% $263,987 100.0%
-------- ----- -------- ----- -------- -----
-------- ----- -------- ----- -------- -----
</TABLE>
Loan Sales
Currently, IMC sells the loans it purchases or originates through one of
two methods: (i) securitization, which involves the private placement or public
offering of pass-through mortgage-backed securities; and (ii) whole loan sales,
which involve selling blocks of loans to single purchasers. This dual approach
allows IMC the flexibility to better manage its cash flow, take advantage of
favorable conditions in either the securitization or whole loan market when
selling its loan production, diversify its exposure to the potential volatility
of the capital markets and maximize the revenues associated with the gain on
sale of loans given market conditions existing at the time of disposition. For
the years ended December 31, 1994 and 1995 and the three months ended March 31,
1996, IMC sold $261.9 million, $458.8 million and $196.3 million, respectively,
of loan production.
The following table sets forth certain information with respect to IMC's
channels of loan sales by type of sale for the periods shown.
<TABLE>
<CAPTION>
PERIOD
FROM INCEPTION
(AUGUST 12, 1993)
YEAR ENDED DECEMBER 31,
THROUGH ---------------------------------------- THREE MONTHS
DECEMBER 31, 1993 ENDED
1994 1995 MARCH 31, 1996
----------------- ------------------ ------------------ ------------------
% OF % OF % OF % OF
TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL
------- ----- -------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Whole loan sales.................... $21,636 100.0% $180,263 68.8% $70,400 15.3% $21,272 10.8%
Securitizations..................... 0 0.0 81,637 31.2 388,363 84.7 175,000 89.2
------- ----- -------- ----- -------- ----- -------- -----
Total loan sales............... $21,636 100.0% $261,900 100.0% $458,763 100.0% $196,272 100.0%
------- ----- -------- ----- -------- ----- -------- -----
------- ----- -------- ----- -------- ----- -------- -----
</TABLE>
Whole Loan Sales. Whole loan sales represented all of IMC's loan sales
during 1993. With the initiation of the sale of loans through securitizations,
whole loan sales declined to 15.3% and 10.8% of total loan sales for the year
ended December 31, 1995 and the three months ended March 31, 1996, respectively.
For each of the years ended December 31, 1994 and 1995, IMC sold loans to five
institutional investors. Upon the sale of a loan portfolio, IMC generally
receives a premium, representing a cash payment in excess of the par value of
the loans (par value representing the unpaid balance of the loan amount). IMC
maximizes its premium on whole loan sale revenue by closely monitoring
institutional investors' requirements and focusing on originating the types of
loans that meet those requirements and for which institutional purchasers tend
to pay higher rates.
IMC will sell some of its loan volume to various institutional investors on
a non-recourse basis with customary representations and warranties covering
loans sold. IMC may be required to repurchase loans pursuant to its
representation and warranties. Occasionally, IMC will agree to rebate a portion
of the premium earned if a loan is prepaid during a limited period of time after
sale, usually six months and no greater than one year. For the years ended
December 31, 1994 and 1995, IMC was required to rebate $287,347 and $167,951,
respectively, in premiums when certain loans prepaid during the
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<PAGE>
<PAGE>
contractual rebate period. In its purchase agreements with its correspondents,
IMC requires its correspondents to rebate premium payments if loans sold to IMC
are prepaid within a specified period of time after the sale. For the years
ended December 31, 1994 and 1995, related premium rebates due to IMC were
$89,113 and $1.4 million, respectively. For the fiscal quarter ended March 31,
1996, $22,309 in premium rebates was required to be paid by IMC and $946,510 was
due to IMC under premium rebate agreements.
Securitizations. To date, IMC has completed six securitizations. The
following table sets forth certain information with respect to IMC's
securitizations by offering size, (including prefunded amounts) weighted average
pass-through rate and credit rating of securities sold.
<TABLE>
<CAPTION>
WEIGHTED CREDIT
AVERAGE RATING OF
OFFERING SIZE PASS-THROUGH SECURITIES
SECURITIZATION COMPLETED (MILLIONS) RATE SOLD(1)
- --------------- ---------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
1994 - 1 11/18/94 $90.0 8.4 % AAA/Aaa
1995 - 1 03/17/95 110.0 8.2 AAA/Aaa
1995 - 2 07/26/95 120.0 7.0 AAA/Aaa
1995 - 3 11/16/95 150.0 6.6 AAA/Aaa
1996 - 1 02/07/96 175.0 6.1 AAA/Aaa
1996 - 2 04/24/96 200.0 7.0(2) AAA/Aaa
</TABLE>
- ------------
(1) Ratings by Standard & Poor's and Moody's, respectively.
(2) Fixed-rate tranches only.
During the year ended December 31, 1995, IMC sold $388.4 million of its
loan volume through securitizations. IMC markets its loan inventory through
securitization when management believes that employing this strategy will create
greater long-term economic benefit to IMC stockholders. Outstanding
securitizations include three public and three private offerings. When IMC
securitizes loans, it sells a portfolio of loans to a trust (the 'Home Equity
Loan Trust') and issues classes of certificates representing undivided ownership
interests in the Home Equity Loan Trust. In its capacity as servicer for each
securitization, the Company collects and remits principal and interest payments
to the appropriate Home Equity Loan Trust which in turn passes through payments
to certificate owners. IMC retains the servicing rights and an interest in the
I/O and residual classes of certificates.
Each Home Equity Loan Trust has purchased insurance policies from a
monoline insurance company, which insures the timely payment of interest and the
ultimate payment of principal of the AAA/Aaa-rated interests in the related
REMIC. In addition to such insurance policies, credit enhancement is provided by
over-collateralization, which is intended to result in receipts and collections
on the loans in excess of the amounts required to be distributed to holders of
senior certificate interests. Although expected loss is calculated into the
pricing of the REMIC, to the extent that borrowers default on the payment of
principal and interest above the expected rate of default, such loss will reduce
the value of the residual class certificate. If payment defaults exceed the
amount of over-collateralization, the insurance policy maintained by the Home
Equity Loan Trust will pay any further losses experienced by certificate holders
of the senior interests in the related REMIC trust. IMC partially owns the
residual interest of its completed securitizations. Management believes that
lessening IMC's reliance on the ContiFinancial excess servicing receivable
sharing agreement will enhance the profit potential for IMC from future Home
Equity Loan Trust offerings. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Transactions with
ContiFinancial.' The remaining interests in the residual interests have been
transferred to ContiFinancial in exchange for cash at the time of the completion
of the securitization transaction.
IMC may be required either to repurchase or to replace loans which do not
conform to the representations and warranties made by IMC in the pooling and
servicing agreements entered into when the portfolios of loans are sold through
a securitization. IMC intends to continue to conduct loan sales through
securitizations, either in private placements or in public offerings, when
market conditions are attractive for such loan sales.
49
<PAGE>
<PAGE>
Loan Servicing and Collections
IMC has been servicing loans since April, 1994. IMC's loan servicing
operation is divided into three departments: (i) collections; (ii) customer
service for both borrowers and investors; and (iii) tax, insurance, and tax and
insurance escrow. These departments monitor loans, collect current payments due
from borrowers, remit principal and interest payments to current owners of loans
and pay taxes and insurance. The collections department furnishes reports and
enforces the holder's rights, including recovering delinquent payments,
instituting loan foreclosures and liquidating the underlying collateral. IMC
intends to increase its loan servicing operations and thus its revenue stream by
continuing to retain the servicing rights on all its securitized loans and
certain whole loan sales. IMC retained the servicing rights to 87.3% or $400.5
million in loans it sold in 1995 and to 98.9% or $194.1 million in loans it sold
in the three months ended March 31, 1996.
IMC funds and closes loans throughout the month. Most of IMC's loans
require a first payment 30 days after funding. Accordingly, IMC's servicing
portfolio consists of loans with payments due at varying times each month. This
system ameliorates the cyclical highs and lows that some servicing companies
experience as a result of heavily concentrated due dates.
As of March 31, 1996, IMC was servicing loans representing an aggregate of
$783.4 million. Revenues generated from loan servicing amounted to 7.8% of total
revenues for 1995 and 8.7% of total revenues for the three months ended March
31, 1996. IMC anticipates that loan servicing will contribute a larger portion
of total revenues in future periods. Management believes that the business of
loan servicing provides a consistent and profitable revenue stream to augment
its loan purchasing and originating activities.
IMC's collections policy is designed to identify payment problems
sufficiently early to permit IMC to quickly address delinquency problems and
when necessary, to act to preserve equity in a preforeclosure property. IMC
believes that these policies, combined with the experience level of independent
appraisers engaged by IMC, help to reduce the incidence of charge-offs of a
first or second mortgage loan.
Collection procedures commence upon identification of a past due account by
IMC's automated servicing system. If the first payment due is delinquent, a
collector will telephone to remind the borrower of the payment. Five days after
any payment is due, a written notice of delinquency is sent to the borrower.
Eleven days after payment is due, the account is automatically placed in the
appropriate collector's queue and the collector will send a late notice to the
borrower. During the delinquency period, the collector will continue to
frequently contact the borrower. Company collectors have computer access to
telephone numbers, payment histories, loan information and all past collection
notes. All collection activity, including the date collection letters were sent
and detailed notes on the substance of each collection telephone call, is
entered into a permanent collection history for each account. Additional
guidance with the collection process is derived through frequent communication
with IMC's senior management.
IMC's loan servicing software also tracks and maintains homeowners'
insurance information. Expiration reports are generated weekly listing all
policies scheduled to expire within 30 days. When policies lapse, a letter is
issued advising the borrower of the lapse and that IMC will obtain force-placed
insurance at the borrower's expense. IMC also has an insurance policy in place
that provides coverage automatically for IMC in the event that IMC fails to
obtain force-placed insurance.
Notwithstanding the above, there are occasions when a charge-off may be
necessary. Prior to a foreclosure sale, IMC performs a foreclosure analysis with
respect to the mortgaged property to determine the value of the mortgaged
property and the bid that IMC will make at the foreclosure sale. This analysis
includes: (i) a current valuation of the property obtained through a drive-by
appraisal conducted by an independent appraiser; (ii) an estimate of the sale
price of the mortgaged property obtained by sending two local realtors to
inspect the property; (iii) an evaluation of the amount owed, if any, to a
senior mortgagee and for real estate taxes; and (iv) an analysis of marketing
time, required repairs and other costs such as real estate broker fees, that
will be incurred in connection with the foreclosure sale.
50
<PAGE>
<PAGE>
All foreclosures are assigned to outside counsel located in the same state
as the secured property. Bankruptcies filed by borrowers are also assigned to
appropriate local counsel who are required to provide monthly reports on each
loan file.
The Company's servicing portfolio had aggregate principal balances of $0,
$92.0 million and $535.8 million at December 31, 1993, 1994 and 1995,
respectively, and $783.4 million at March 31, 1996.
The following table provides certain delinquency and default experience as
a percentage of outstanding principal balances of IMC's servicing portfolio for
the periods shown.
<TABLE>
<CAPTION>
AT AT
DECEMBER 31, MARCH 31,
--------------- ---------------
1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Delinquency percentages(1):
30-59 days.................................... 0.72% 2.54% 1.00% 1.73%
60-89 days.................................... 0.15 0.59 0.32 0.32
90+ days...................................... 0.00 0.30 0.00 0.29
---- ---- ---- ----
Total delinquency........................ 0.87% 3.43% 1.32% 2.34%
---- ---- ---- ----
---- ---- ---- ----
Default percentages(2):
Foreclosure................................... 0.00% 0.75% 0.03% 0.92%
Bankruptcy.................................... 0.12 0.25 0.03 0.30
Real estate owned............................. 0.00 0.16 0.06 0.18
---- ---- ---- ----
Total default............................ 0.12% 1.16% 0.12% 1.40%
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
- ------------
(1) Represents the percentages of account balances contractually past due,
exclusive of home equity loans in foreclosure, bankruptcy or real estate
owned.
(2) Represents the percentages of account balances on loans in foreclosure,
bankruptcy or real estate owned.
The following table provides certain delinquency and default experience as
a percentage of outstanding principal balance for each of the Company's
securitization trusts, prior to any potential recoveries, as of March 31, 1996.
<TABLE>
<CAPTION>
1994-1 1995-1 1995-2 1995-3 1996-1
------------------ ------------------ ------------------ ------------------ ------------------
DOLLAR PERCENTAGE DOLLAR PERCENTAGE DOLLAR PERCENTAGE DOLLAR PERCENTAGE DOLLAR PERCENTAGE
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Delinquency(1):
30-59 days.............. $1,317 2.07% $2,287 2.80% $1,028 0.99% $2,451 1.74% $3,462 2.04%
60-89 days.............. 274 0.43 243 0.30 580 0.56 103 0.07 629 0.37
90+ days................ 39 0.06 191 0.23 120 0.11 359 0.26 534 0.31
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total.............. $1,630 2.56% $2,721 3.33% $1,728 1.66% $2,913 2.07% $4,625 2.72%
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total defaults(2)....... $2,690 4.24% $2,241 2.75% $2,888 2.77% $1,666 1.19% $485 0.29%
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
</TABLE>
- ------------
(1) Delinquency is the dollar value of account balances contractually past due,
excluding loans in foreclosure, bankruptcy or real estate owned.
(2) Defaults are the dollar value of account balances contractually past due on
loans in foreclosure, bankruptcy or real estate owned.
51
<PAGE>
<PAGE>
The following table describes certain loan loss experience of IMC's
servicing portfolio of home equity loans for the fiscal years ended December 31,
1994 and 1995 and for the three months ended March 31, 1996.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1994 1995 1996
------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Average amount outstanding(1).................................................. $52,709 $294,252 $ 706,357
Losses(2)...................................................................... 0 279 72
Losses as a percentage of average amount outstanding........................... 0.00% 0.08% 0.01%
</TABLE>
- ------------
(1) Average amount outstanding during the period is the arithmetic average of
the principal balances of home equity loans outstanding on the last business
day of each month during the period.
(2) Losses are actual losses incurred on liquidated properties for each
respective period. Losses include all principal, foreclosure costs and
accrued interest to date.
MARKETING
Correspondent and Broker Networks
Marketing to correspondents and brokers is conducted through IMC's business
development representatives who establish and maintain relationships with IMC's
principal sources of loan purchases and originations, including financial
institutions and mortgage bankers. The business development representatives
provide various levels of information and assistance to correspondents and
brokers and are principally responsible for maintaining IMC's relationships with
its networks. Business development representatives endeavor to increase the
volume of loan originations from brokers and correspondents located within the
geographic territory assigned to that representative. The representatives visit
customers' offices, attend trade shows and supervise advertisements in broker
trade magazines. The representatives also provide IMC with information relating
to correspondents, borrowers and brokers, and products and pricing offered by
competitors and new market entrants, all of which assist IMC in refining its
programs in order to offer competitive products. The business development
representatives are compensated with a base salary and commissions based on the
volume of loans that are purchased or originated as a result of their efforts.
Direct Consumer Lending
IMC markets its direct consumer lending services through nine branch
offices nationwide and intends to open eight new locations in 1996. IMC's direct
consumer loan expansion strategy involves: (i) targeting cities where the
population density and economic indicators are favorable for home equity
lending, the foreclosure rate is within normal ranges and the non-conforming
loan market has been underserved; (ii) testing the target market prior to the
establishment of a branch office, where local regulations permit, via newspaper,
radio and direct mail advertising and through a toll-free telephone number which
routes borrower inquiries directly to a loan officer in the Tampa, Florida
office; (iii) if test marketing is positive, establishing a small branch office,
generally with an initial staff of two business development representatives; and
(iv) setting up branch offices in executive office space with short-term leases,
which eliminates the need for IMC to pay high startup costs for office
equipment, furniture and leasehold improvements, and allows IMC to exit the
market easily if the office is not successful. The branch office network is used
for marketing to and meeting with IMC's local borrowers and brokers.
COMPETITION
As a mortgage banking company, IMC faces intense competition. Traditional
competitors in the financial services business include other mortgage banking
companies, commercial banks, credit unions, thrift institutions, credit card
issuers and insurance and finance companies. Many of these competitors in the
consumer finance business are substantially larger and have considerably greater
financial, technical
52
<PAGE>
<PAGE>
and marketing resources than IMC. In addition, many financial service
organizations have formed national networks for loan originations which are
substantially similar to IMC's loan programs. Competition can take many forms,
including convenience in obtaining a loan, service, marketing and distribution
channels, amount and term of the loan and interest rates. The current level of
gains realized by IMC and its existing competitors on the sale of loans is
attracting additional competitors into this market with the effect of lowering
gain on loan sales through increased loan origination competition. However, IMC
believes that the talents and experience of its employees together with its
large network of customer relationships in the non-conforming mortgage business
make it a strong competitor in the industry.
REGULATION
IMC's business is subject to extensive regulation, supervision and
licensing by federal, state and local governmental authorities and is subject to
various laws and judicial and administrative decisions imposing requirements and
restrictions on part or all of its operations. IMC's consumer lending activities
are subject to the Federal Truth-in-Lending Act and Regulation Z (including the
Home Ownership and Equity Protection Act of 1994), ECOA, the Fair Credit
Reporting Act of 1970, as amended, RESPA, and Regulation X, the Home Mortgage
Disclosure Act and the Federal Debt Collection Practices Act, as well as other
federal and state statutes and regulations affecting IMC's activities. IMC is
also subject to the rules and regulations of, and examinations by, HUD and state
regulatory authorities with respect to originating, processing, underwriting,
and servicing loans. These rules and regulations, among other things, impose
licensing obligations on IMC, establish eligibility criteria for mortgage loans,
prohibit discrimination, provide for inspections and appraisals of properties,
require credit reports on loan applicants, regulate assessment, collection,
foreclosure and claims handling, investment and interest payments on escrow
balances and payment features, mandate certain disclosures and notices to
borrowers and, in some cases, fix maximum interest rates, fees and mortgage loan
amounts. Failure to comply with these requirements can lead to loss of approved
status, termination or suspension of servicing contracts without compensation to
the servicer, demands for indemnifications or mortgage loan repurchases, certain
rights of rescission for mortgage loans, class action lawsuits and
administrative enforcement actions. IMC believes that it is in compliance in all
material respects with applicable federal and state laws and regulations.
ENVIRONMENTAL MATTERS
To date, IMC has not been required to perform any investigation or clean up
activities, nor has it been subject to any environmental claims. There can be no
assurance, however, that this will remain the case in the future. In the
ordinary course of its business, IMC from time to time forecloses on properties
securing loans. Although IMC primarily lends to owners of residential
properties, there is a risk that IMC could be required to investigate and clean
up hazardous or toxic substances or chemical releases at such properties after
acquisition by IMC, and may be held liable to a governmental entity or to third
parties for property damage, personal injury and investigation and cleanup costs
incurred by such parties in connection with the contamination. In addition, the
owner or former owners of a contaminated site may be subject to common law
claims by third parties based on damages and costs resulting from environmental
contamination emanating from such property.
EMPLOYEES
As of March 31, 1996, IMC had a total of 236 employees, 126 of whom were
working at its Tampa, Florida headquarters. None of IMC's employees is covered
by a collective bargaining agreement. IMC considers its relations with its
employees to be good. Several members of senior management have previously
worked as a team at other lending institutions. Many employees have been
associated with senior management in previous employment positions. IMC believes
that these long-term working relationships will continue to contribute to its
growth and success.
53
<PAGE>
<PAGE>
PROPERTIES
IMC's executive and administrative offices, including its servicing
operation and full-service production office, are located at 3450 Buschwood Park
Drive, Suite 250, Tampa, Florida, where IMC leases approximately 21,300 square
feet of office space at an aggregate annual rent of approximately $310,572. The
lease provides for certain scheduled rent increases and expires in August, 1998.
IMC maintains full-service offices in Ft. Washington, Pennsylvania,
Cincinnati, Ohio, Cherry Hill, New Jersey, Lincoln, Rhode Island, Bellevue,
Washington and Roselle, Illinois. The Ft. Washington office is located at 501
Office Center Drive, 4th floor, Ft. Washington, Pennsylvania 19034. The
Cincinnati office is located at 144 Merchant Street, Cincinnati, Ohio 45246. The
Cherry Hill office is located at 1060 North Kings Highway, Suite 303, Cherry
Hill, New Jersey 08034. The Lincoln office is located at 25 Blackstone Valley
Place, Lincoln, Rhode Island 02865. The Bellevue office is located at 10900 N.E.
8th Street, Suite 900, Bellevue, Washington 98004. The Roselle office is located
at E. Nerge Rd., Suite N140, Roselle, Illinois 60172. Further, IMC maintains
short-term leases for its branch offices in executive office space in West Des
Moines, Iowa, Atlanta, Georgia, St. Louis, Missouri, Brookfield, Wisconsin,
Englewood, Colorado, Jacksonville, Florida and Phoenix, Arizona. Preferred
Mortgages, IMC's joint venture in the UK, is located at Leconfield House, 7th
floor, Curzon Street, London, UK W147FB.
LEGAL PROCEEDINGS
IMC is a party to various routine legal proceedings arising out of the
ordinary course of its business. Management believes that none of these actions,
individually or in the aggregate, will have a material adverse effect on the
results of operations or financial condition of IMC.
54
<PAGE>
<PAGE>
MANAGEMENT
DIRECTORS AND OFFICERS
The directors and executive officers of IMC and their ages and positions
are:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------------------ ---- -----------------------------------------------------
<S> <C> <C>
George Nicholas........................... 53 Chairman of the Board of Directors, Chief Executive
Officer and Assistant Secretary, Member of the
Compensation and Executive Committees
Thomas G. Middleton....................... 49 Director, President, Chief Operating Officer and
Assistant Secretary, Member of the Compensation and
Executive Committees
George Freeman............................ 59 Chief Financial Officer
Timothy W. Griffin........................ 40 Vice President
Susan W. McCarthy......................... 39 Vice President
Karen S. Bausman.......................... 43 Vice President
Laurie S. Wockenfuss...................... 32 Vice President and Secretary
David B. MacDonald........................ 39 Vice President
Dennis J. Pitocco......................... 43 Vice President/Director of European Operations
Jean S. Schwindt.......................... 40 Vice President/Director of Investor Relations and
Strategic Planning
Joseph P. Goryeb.......................... 65 Director, Member of the Audit and Option Committees
Mitchell W. Legler........................ 54 Director, Member of the Compensation and Audit
Committees
Allen D. Wykle............................ 49 Director, Member of the Audit and Option Committees
</TABLE>
George Nicholas has served as Chief Executive Officer and Chairman of the
Board of IMC since the formation of the corporation in December, 1995 and as
Assistant Secretary of IMC since April, 1996. Since his founding of the
Partnership in August, 1993, Mr. Nicholas has served as Chief Executive Officer
of the Partnership and Chairman of the Board and sole stockholder of IMCI, its
general partner. Mr. Nicholas' experience in the lending business spans 32
years. He has previously held positions at General Electric Credit Corp.,
Household Finance Corp. and American Financial Corporation of Tampa ('AFC'), a
company of which he was owner and Chief Executive Officer from its formation in
February, 1986 until it was acquired by Equibank in 1988. From February, 1988
until May, 1992, Mr. Nicholas was president of AFC, a subsidiary of Equibank
which was a wholesale lending institution specializing in the purchase of
non-conforming mortgage loans. From June, 1992 until July, 1993, Mr. Nicholas
was an independent mortgage industry consultant. In 1993, Mr. Nicholas organized
the original Industry Partners and headed negotiations with investment bankers
for the Partnership.
Thomas G. Middleton has served as Director and President of IMC since
December, 1995 and as Assistant Secretary of IMC since April, 1996. Mr.
Middleton has served as Chief Operating Officer of the Partnership since August,
1993 and as President of the Partnership since July, 1995. Mr. Middleton has 26
years of experience in the lending business. From April, 1992 until August, 1993
Mr. Middleton was Senior Vice President with Shawmut National Corporation and
from February, 1991 until April, 1992, Mr. Middleton was Managing Director of
STG Financial Inc. Mr. Middleton served as Executive Vice President and Chief
Credit Officer of Equimark Corp. from June, 1987 until February, 1991.
George Freeman has served as Chief Financial Officer of IMC since April,
1996. Mr. Freeman has served as Chief Financial Officer of IMCI since April,
1995. Mr. Freeman has 23 years of experience in the lending business. From
November, 1991 until January, 1995 Mr. Freeman was a Senior Vice President of
Margaretten & Company, Inc., a lending institution specializing in purchasing,
originating and servicing mortgage loans. Mr. Freeman was responsible for the
areas of taxes, servicing acquisitions and finance. From 1987 until 1991, Mr.
Freeman was Senior Vice President and Chief Financial Officer of Margaretten &
Company, Inc. Mr. Freeman is a certified public accountant.
55
<PAGE>
<PAGE>
Timothy W. Griffin has served as a Vice President of IMC since April, 1996.
Mr. Griffin has served as Vice President of the Partnership since its inception
in August, 1993. Mr. Griffin has 16 years of experience in the mortgage lending
business. Mr. Griffin is primarily responsible for managing the loan
underwriting department in IMC's Tampa, Florida office and directing loan
acquisition activity. Mr. Griffin served as Vice President and National Sales
Manager for AFC from 1990 through 1993. He held the position of Vice President
with Essex Mortgage Corporation from 1980 to 1990.
Susan W. McCarthy has served as a Vice President of IMC since April, 1996.
Ms. McCarthy has served as Vice President of the Partnership since September,
1993. Ms. McCarthy is primarily responsible for the underwriting, funding and
acquisition of loans for the Pennsylvania regional office. Ms. McCarthy has 14
years of experience in the mortgage lending business. From December, 1988 to
September, 1993, Ms. McCarthy was Senior Vice President of AFC, where she was
responsible for managing the direct loan division. From April, 1982, to
December, 1988, Ms. McCarthy was Vice President of Advanta Mortgage USA/Apex
Financial Corporation, where she was an underwriter of non-conforming loans.
Karen S. Bausman, Vice President of IMC, joined the Company in April, 1994.
Ms. Bausman has 17 years of experience in the mortgage lending business and was
director of national credit and client support for Advanta Mortgage, a
non-conforming mortgage company from March, 1992 to April, 1994. From March,
1991 to April, 1992, Ms. Bausman ran an independent credit portfolio consulting
firm. Ms. Bausman's prior experience includes positions with Landmark Financial
Services Inc. and Associates Financial Services Company.
Laurie S. Wockenfuss joined the Company in November, 1993 and has served as
Vice President and Secretary of IMC since April, 1996. Ms. Wockenfuss is
primarily responsible for trust administration of asset-backed securities,
administration of state mortgage lending licenses and federal Home Mortgage
Disclosure Act reporting. Ms. Wockenfuss has nine years of experience in the
mortgage lending industry, having served as Vice President of AFC from October,
1991 to October, 1993 and as Secondary Marketing Officer of The Dime Savings
Bank of New York from October, 1988 to June, 1990. From January, 1991 to
October, 1991, Ms. Wockenfuss attended The Crummer Graduate School of Business
at Rollins College.
David B. MacDonald has served as Vice President of IMC since January, 1996,
as of IMC's acquisition of Equitystars. Mr. MacDonald has 17 years of experience
in the lending business. Mr. MacDonald was the owner of Equitystars since its
inception in 1979. Mr. MacDonald owned and operated Equitysafe, one of the
original Industry Partners.
Dennis J. Pitocco has served as Vice President/Director of European
Operations of IMC since March, 1996. Mr. Pitocco has 22 years of experience in
the consumer financial services industry, having served in executive level
positions at a number of major banking institutions. From June, 1995 to
February, 1996 Mr. Pitocco served as Senior Vice President and General Manager
of Boatmen's Bancshares. From July, 1992 to April, 1995, Mr. Pitocco served as
Senior Vice President and General Manager of PNC Bank. From 1986 to July, 1992,
Mr. Pitocco served as Senior Vice President of Equimark Corporation, also
serving as Executive Vice President of AFC from May, 1991 to July, 1992.
Jean S. Schwindt has served as Vice President/Director of Investor
Relations and Strategic Planning since March, 1996. Ms. Schwindt has 19 years of
experience in the financial services industry, having served from April, 1989 to
March, 1996 as Senior Vice President/Director and Secretary of Anderson and
Strudwick Inc., a member of the New York Stock Exchange and full-service broker.
Since 1992 Ms. Schwindt has served as a director of American Industrial Loan
Association, a non-conforming mortgage lending institution. Ms. Schwindt is a
Chartered Financial Analyst and is a Registered Investment Advisor.
Joseph P. Goryeb has served as a director of IMC since April, 1996. Mr.
Goryeb is the Chairman and Chief Executive Officer of Champion Mortgage Co.
Inc., a leading non-conforming residential mortgage institution that was founded
by Mr. Goryeb in 1981. His 40 years of experience in the consumer lending
industry include previous positions with Beneficial Finance Company and Suburban
Finance Company.
Mitchell W. Legler has served as a director of IMC since April, 1996. Mr.
Legler is the sole stockholder of Mitchell W. Legler, P.A. and has been general
counsel to IMC since August, 1995. Mr.
56
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Legler is currently a director of Stein Mart, Inc. a Nasdaq listed company. From
January, 1991 to August, 1995, Mr. Legler was a partner of Foley & Lardner,
prior to which he was a partner of Commander, Legler, Werver, Daws, Sadler &
Howell, P.A.
Allen D. Wykle has served as a director of IMC since April, 1996. Mr. Wykle
has been the Chairman of the Board and Chief Executive Officer of American
Industrial Loan Association, a non-conforming mortgage lending institution since
1984, for which Mr. Wykle negotiated the initial public offering in April, 1992.
Mr. Wykle was owner, President and Chief Executive Officer of Best Homes of
Tidewater, Inc., a residential construction and remolding company in Virginia
from 1972 to 1986.
TERMS OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation provide that the Company's Board of
Directors consist of such number of persons as shall be fixed by the Board of
Directors from time to time by resolution and to be divided into three classes,
with each class to be as nearly equal in number of directors as possible. The
Company's Bylaws provide that the Board of Directors shall consist of no fewer
than one nor more than 10 persons (currently there are five directors). The term
of office of the directors in each of the three classes expires at the annual
meetings of stockholders in 1997 through 1999, respectively. At each annual
meeting, the successors to the class of directors whose term expires at that
time are to be elected to hold office for a term of three years, and until their
respective successors are elected and qualified, so that the term of one class
of directors expires at each such annual meeting. In the case of any vacancy on
the Board of Directors, including a vacancy created by an increase in the number
of directors, the vacancy will be filled by election of the Board of Directors,
with the director so elected to serve for the remainder of the term of the
director being replaced; any newly-created directorships or decreases in
directorships are to be assigned by the Board of Directors so as to make all
classes as nearly equal in number as possible. Directors may be removed only for
cause. See 'Description of Capital Stock -- Provisions of Articles of
Incorporation and Bylaws.' Officers are elected annually and serve at the
discretion of the Board of Directors.
COMMITTEES OF THE BOARD
Audit Committee. The Audit Committee consists of Messrs. Goryeb, Legler and
Wykle. The Audit Committee will make recommendations concerning the engagement
of independent public accountants, review with the independent public
accountants the plans and results of the audit engagement, approve professional
services provided by the independent public accountants, review the independence
of the independent public accountants, consider the range of audit and non-audit
fees and review the adequacy of the Company's internal accounting controls.
Compensation Committee. The Compensation Committee consists of Messrs.
Nicholas, Middleton and Legler. The Compensation Committee will determine the
compensation of the Company's executive officers. Previously, Messrs. Nicholas
and Middleton have determined the compensation of the executive officers of the
Partnership.
Other Committees. The Board of Directors may establish other committees as
deemed necessary or appropriate from time to time, including, but not limited
to, an Executive Committee of the Board of Directors.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive stock options
pursuant to the Directors' Stock Option Plan (the 'Directors' Plan'). Each of
Messrs. Goryeb, Legler and Wykle has received options to purchase 6,466 shares
of Common Stock pursuant to the Directors' Plan. See ' -- Stock Option
Plans -- Directors' Plan.' None of the directors of the Company has received any
separate compensation for service on the Board of Directors or on any committee
thereof. Following the consummation of the Public Offering, the Company expects
to pay non-employee directors $6,000 per year plus $2,500 for each meeting
attended. All directors will receive reimbursement of reasonable out-of-pocket
expenses incurred in connection with meetings of the Board of Directors. No
director who is an employee of the Company will receive separate compensation
for services rendered as a director.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the stock option grants
made to each of the Named Executive Officers for the year ended December 31,
1995. No stock appreciation rights were granted to these individuals during such
year:
<TABLE>
<CAPTION>
INDIVIDUAL GRANT POTENTIAL REALIZABLE
----------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO PER SHARE OPTION TERM(3)
OPTIONS EMPLOYEES IN EXERCISE ----------------------------------
NAME GRANTED(1) FISCAL YEAR PRICE(2) EXPIRATION DATE 5% 10%
- ------------------------------------- --------- ------------- --------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
George Nicholas...................... 282,866 49.16% $4.70 12/11/05 $836,097 $2,118,833
Thomas G. Middleton.................. 141,433 24.58 4.70 12/11/05 418,048 1,059,474
Timothy W. Griffin................... 21,013 3.65 4.70 12/11/05 62,110 157,400
Susan W. McCarthy.................... 21,013 3.65 4.70 12/11/05 62,110 157,400
Karen S. Bausman..................... 12,931 2.25 4.70 12/11/05 38,224 96,866
</TABLE>
- ------------
(1) Each option was granted on December 11, 1995 and was immediately exercisable
to the extent of 60% of the option shares, with an additional 20% to vest on
the first anniversary of the grant date and the remaining 20% to vest on the
second anniversary of the grant date.
(2) The exercise price may be paid in cash, in shares of Common Stock valued at
fair market value on the date of exercise or pursuant to a cashless exercise
procedure involving a same-day sale of the purchased shares. The Company may
also allow the optionee to pay the aggregate exercise price plus any tax
liability incurred in connection with the exercise with a promissory note.
The plan administrator has the discretionary authority to reprice the
options through the cancellation of those options and grant of replacement
options with an exercise price based on the fair market value of the option
shares on the regrant date.
(3) The 5% and 10% assumed annual rates of compounded stock price appreciation
are permitted by rules of the Securities and Exchange Commission. There can
be no assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the
10-year option term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the Common Stock appreciates over
the option term, no value will be realized from the option grants made to
the executive officers.
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information concerning the value of
unexercised options held by each of the Named Executive Officers for the year
ended December 31, 1995. No options or stock appreciation rights were exercised
during such year and no stock appreciation rights were outstanding at the end of
that year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR END OPTIONS AT FISCAL YEAR END(1)
---------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- ----------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
George Nicholas.......... 169,720 113,146 $ 0 $ 0
Thomas G. Middleton...... 84,860 56,573 0 0
Timothy W. Griffin....... 12,608 8,405 0 0
Susan W. McCarthy........ 12,608 8,405 0 0
Karen S. Bausman......... 7,759 5,172 0 0
</TABLE>
- ------------
(1) Based on the fair market value of the option shares at fiscal year-end
($4.70 per share) less the exercise price ($4.70 per share) payable for such
shares.
58
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS
No interlocking relationship exists between the Company's Board of
Directors or officers responsible for compensation decisions and the board of
directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information regarding compensation
paid and accrued during fiscal 1995 to the Company's Chief Executive Officer and
the other executive officers of the Company whose compensation exceeded $100,000
(collectively, the 'Named Executive Officers').
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION --------------
--------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS (#)(2)
- ------------------------------------------------ ---- -------- -------- --------------- --------------
<S> <C> <C> <C> <C> <C>
George Nicholas, Chairman of the Board, Chief
Executive Officer and Assistant Secretary..... 1995 $233,492 $100,000 $ 4,927 282,866
Thomas G. Middleton, President, Chief Operating
Officer and Assistant Secretary............... 1995 208,144 25,000 6,500 141,433
Timothy W. Griffin, Vice President.............. 1995 95,185 10,000 2,925 21,013
Susan W. McCarthy, Vice President............... 1995 95,185 10,000 2,925 21,013
Karen S. Bausman, Vice President................ 1995 103,493 0 2,250 12,931
</TABLE>
- ------------
(1) Represents matching contributions by IMC under the IMC Savings Plan, a
defined contribution plan under Section 401(k) of the Internal Revenue Code,
as amended.
(2) Represents number of shares of Common Stock underlying options. Includes
options granted under the Partnership Option Plan, as amended.
Employment Agreements
The Company has employment agreements with George Nicholas, its Chairman
and Chief Executive Officer, and Thomas G. Middleton, its President and Chief
Operating Officer (the 'Employment Agreements').
Mr. Nicholas' previous employment agreement commenced on July 1, 1993 and
was replaced as of January 1, 1996. The previous agreement provided for an
annual salary of $220,000, plus an increase of $25,000 commencing each
September. In addition, the agreement provided for payment of a bonus of
$100,000 for the first 12-month period and $125,000 for each 12-month period
thereafter if the pre-tax gross operating income of the Company exceeded certain
specified levels.
Mr. Nicholas' current Employment Agreement commenced on January 1, 1996 and
terminates on December 31, 2001 (subject to a five-year extension). The
Employment Agreement provides for an annual salary of $475,000, plus an increase
each year of the greater of (i) the change in the cost of living in the Tampa,
Florida, or (ii) an amount equal to 10% of the base salary for the prior year,
but only if the Company has achieved an increase in net income on an earnings
per share basis of 10% or greater. In addition, the Employment Agreement
provides for payment of a bonus equal to 15% of the base salary of the relevant
year for each one percent by which the increase in net income on an earnings per
share basis exceeds 10% up to a maximum of 300% of his base salary. For example,
if the increase in net income on an earnings per share basis for a particular
year were 20%, the bonus payment would equal 150% of the base salary for such
year. The Employment Agreement also provides that the Company shall use its best
efforts to elect Mr. Nicholas to the Company's Board of Directors and to its
Executive Committee, if constituted. Mr. Nicholas' employment may be terminated
by the Company at any time for 'cause' (including material breach of the
Employment Agreement, certain criminal or intentionally dishonest and misleading
acts, breaches of confidentiality and failure to follow directives of
59
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the Board). If Mr. Nicholas is terminated for cause or voluntarily terminates
his employment (in the absence of a Company breach or a 'change of control') he
does not receive any deferred compensation. Mr. Nicholas is entitled to deferred
compensation upon (i) his termination by the Company without cause, (ii) the
Company's failure to renew his Employment Agreement on expiration, (iii) death
or disability, (iv) voluntary termination after a material breach by the
Company, and (v) voluntary termination after a 'change of control' (defined as
any (A) acquisition of 50% or more of the equity of the Company before a public
offering, or 25% after a public offering, has occurred, (B) change in a majority
of the members of the Board excluding any change which was approved by the
Board, or (C) approval by the Company's stockholders of a liquidation or
dissolution of the Company, the sale of substantially all of its assets, or a
merger in which the Company's stockholders own a minority interest of the
surviving entity). The amount, if any, of deferred compensation payable to Mr.
Nicholas will be determined at the time of termination equal to the greater of
(i) his base salary for the remainder of the then-current term of the Employment
Agreement, or (ii) an amount equal to 150% of the highest annualized
compensation earned by him during the preceding three years; provided, however,
that if the deferred compensation calculation is made prior to January 1, 1997,
the deferred compensation shall be $3.0 million. Receipt of deferred
compensation is Mr. Nicholas' sole remedy in the event of a wrongful termination
by the Company. Mr. Nicholas' Employment Agreement contains a restrictive
covenant prohibiting him, for a period of 18 months following the termination of
employment for any reason, from competing with the Company within the
continental United States or from soliciting any employees from the Company who
are earning in excess of $50,000 per year. However, this restrictive covenant is
not applicable if Mr. Nicholas is terminated without cause or if the Company
defaults in the payment of deferred compensation to Mr. Nicholas.
Mr. Middleton's previous employment agreement commenced on September 1,
1993 and was replaced as of January 1, 1996. The previous agreement provided for
an annual salary of $200,000. Upon a change of control or an initial public
offering of stock of the Company, Mr. Middleton would have been entitled to a
payment of $250,000.
Mr. Middleton's current Employment Agreement commenced on January 1, 1996
and extends until December 31, 2001 (subject to a five-year extension). The
terms of Mr. Middleton's Employment Agreement are substantially the same as
those of Mr. Nicholas' Employment Agreement, with the exception that Mr.
Middleton's annual salary is $380,000, plus increases as provided therein.
The Company also has an employment agreement with David MacDonald, Vice
President. Mr. MacDonald's employment agreement commenced on January 1, 1996 and
extends until December 31, 1998, unless terminated upon 30 days' notice by
either party. The agreement provides for an annual salary of $145,000, plus
increases based on the percentage increase, if any, in the Consumer Price Index.
STOCK OPTION PLANS
On December 11, 1995, the Partnership approved the Partnership Option Plan.
In April, 1996, in anticipation of the transactions to be effected pursuant to
the Reorganization Plan, the Company's Board of Directors adopted and the
stockholders of the Company approved two separate plans: the Company Incentive
Plan (the 'Incentive Plan') and the Directors' Stock Option Plan (the
'Directors' Plan'). In connection with the Reorganization Plan, all options
granted under the Partnership Option Plan will be assumed by the Company
pursuant to the Incentive Plan and the Directors' Plan.
The maximum aggregate ownership interest in the Company which can be
granted pursuant to the Incentive Plan and the Directors' Plan is 12.0% of the
outstanding interest of the Company as such outstanding equity interests existed
as of December 11, 1995. Accordingly, the maximum number of shares which may be
subject to the grant of options under the Incentive Plan and the Directors' Plan
is 957,727 shares and 65,000 shares, respectively.
Incentive Plan
Purpose. The purpose of the Incentive Plan is to promote the interests of
the Company and its stockholders by attracting and retaining highly competent
individuals to serve as key employees and as non-employee advisors who will
contribute to the Company's success and to motivate such persons to achieve
long-term objectives which will inure to the benefit of the Company.
60
<PAGE>
<PAGE>
Administration/Eligible Participants. The Incentive Plan is administered by
a committee (the 'Committee') appointed by the Company's Board of Directors. The
persons eligible to receive stock option grants under the Incentive Plan are any
officer or other key employee of the Company or any affiliate who is in a
position to make a significant contribution to the management, growth or
profitability of the Company or any affiliate as determined by the Committee
('Key Employees'), and any consultant or independent contractor who is not an
employee of the Company or an affiliate but is in a position to make a
significant contribution to the management, growth or profitability of the
Company or any affiliate as determined by the Committee ('Non-Employee
Advisors').
The Committee has the sole power and authority, among other things to: (i)
designate persons to be participants in the Incentive Plan ('Participants'),
(ii) determine the type, amount, duration and other terms and conditions of
grants awarded to Participants, (iii) interpret and administer the Incentive
Plan and (iv) waive any condition or other restriction with respect to any
option granted pursuant to such plan.
Awards. The Company has granted options under the Incentive Plan to acquire
8.2% of the Common Stock of the Company. Of those grants, the following persons
received options:
<TABLE>
<CAPTION>
PARTICIPANT SHARES SUBJECT TO OPTIONS
- ------------------------------------------------------------------------------ -------------------------
<S> <C>
George Nicholas
Chairman and Chief Executive Officer........................................ 282,866
Thomas G. Middleton
President and Chief Operating Officer....................................... 141,433
Other key employees, directors and advisors................................... 246,283
----------
Total.................................................................... 670,582
----------
----------
</TABLE>
On December 11, 1995, the Partnership granted Mr. William Dacey an option
to acquire a 0.08% interest in the Partnership at an exercise price of $3,802
for each 0.01% interest in return for Mr. Dacey's assistance in organizing the
Partnership and negotiating the Partnership's initial credit facility.
Terms and Conditions of Options Granted Under the Incentive Plan.
Non-qualified and incentive stock options granted under the Incentive Plan are
subject to such terms, including exercise price, conditions and timing of
exercise, as may be determined by the Committee. However, all options shall be
granted with an exercise price of not less than 100% of the fair market value of
the interest in the Company subject to such options as of the date of each
grant. The Committee is authorized to grant appreciation rights to participants
in lieu of options.
Options granted on December 11, 1995 were granted at an exercise price of
$3,802 for each 0.01% interest in the Company as of December 11, 1995. Upon
completion of the Public Offering, options for each 0.01% interest in the
Partnership will, subject to vesting, be exercisable into 808.2 shares of Common
Stock at an exercise price of $4.70 per share. Sixty percent of all options
granted on December 11, 1995 vested upon their grant, with an additional 20% to
vest on the first anniversary of the grant date and the remaining 20% to vest on
the second anniversary of the grant date.
On May 22, 1996, the Option Committee granted options to new employees and
additional options to certain existing key employees and advisors. Options
exercisable into 40,000 shares of common stock at an exercise price of $16 per
share were granted to new employees, to vest 20% at the end of their first year
of employment and 1 2/3% each month thereafter, in order to be fully vested at
the end of five years. In addition, options exercisable into 55,151 shares were
also granted to existing employees and advisors at an exercise price of $16 per
share, to vest 60% on grant and 1 2/3% each month thereafter, in order to be
fully vested at the end of two years.
If the employment or advisor relationship of any Participant is terminated
for any reason other than death or disability, all unvested options held by such
Participant shall be automatically canceled, provided that all unvested options
of a Key Employee or Non-Employee Advisor will vest when the employee is
terminated by the Company without cause. Additionally, all unvested options will
vest upon the occurrence of a change of control. In effect, a change of control
is: (i) the adoption of a plan of reorganization, merger, share exchange or
consolidation of the Company with one or more other entities as a result of
which the holders of Common Stock as a group would receive less than 50% of the
voting power of the capital stock or other interests of the surviving or
resulting entity; (ii) the adoption
61
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<PAGE>
of a plan of liquidation or the approval of the dissolution of the Company;
(iii) the approval by the Board of Directors of an agreement providing for the
sale or transfer of the assets of the Company; or (iv) the acquisition of more
than 20% of the outstanding shares of Common Stock by any person within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended, if
such acquisition is not preceded by a prior expression of approval by the Board
of Directors.
The options granted under the Incentive Plan are exercisable for a period
of 10 years, provided, however, that if a Key Employee or Non-Employee Advisor
is terminated for cause, all unexercised options (whether vested or non-vested)
shall be immediately forfeited. In addition, if a Key Employee or Non-Employee
Advisor terminates such Participant's relationship with the Company voluntarily,
then all unexercised but vested options may be exercised for a period of six
months following such termination. If termination is as a result of disability
or death, the Participant (or such Participant's personal representative) shall
have a period of one year following such termination to exercise vested options.
All awards made to date under the Incentive Plan have been non-qualified
options.
Adjustments. In the event that the Committee determines any corporate
transaction or event affects the interest in the Company subject to options
granted pursuant to the 1995 Stock Plan, then the Committee may take such steps
to adjust the benefits due under the Incentive Plan in such a manner as to
prevent dilution or enlargement of benefits or potential benefits intended to be
made available under the Incentive Plan.
Transferability. Each award under the Incentive Plan shall be exercisable
only by the Participant (or the Participant's legal representative) and is not
subject to transfer except with the permission of the Committee to family
members without consideration.
Directors' Plan
The Directors' Plan provides for the automatic grant of non-qualified stock
options to directors who are not employees of the Company or any affiliate. Each
of Messrs. Goryeb, Legler and Wykle has received options to purchase 6,466
shares of Common Stock at an exercise price of $4.70 per share. Any other person
who becomes an outside director will receive on the date of election to the
Board, options to purchase 6,466 shares of Common Stock at an exercise price
equal to the fair market value of the Common Stock on the date of grant. All
options granted under the Directors' Plan are 60% vested on the date of grant,
with an additional 20% vesting on the first and second anniversary dates of
grant, respectively. All unvested options will vest upon the occurrence of a
change of control. Options granted under the Directors' Plan will expire on the
earlier of the tenth anniversary date of grant, the date that the director
ceases to be a director for any reason other than death or disability, or one
year after a director ceases to be a director by reason of death or disability.
Industry Partners' Incentive Plan
At the time the Partnership became a subsidiary of the Company, the
Industry Partners were given an opportunity to double the monthly dollar amount
of mortgage loans which they committed to sell to the Company. To encourage
Industry Partners to continue to sell even more mortgage loans than required
under their commitments, the Company has created an incentive option plan for
Industry Partners (the 'Industry Partners' Incentive Plan'). Under that Plan,
options to acquire 10,000 shares of the Company's common stock at the price at
which shares are sold to the public in the Public Offering will be awarded to
Industry Partners each calendar quarter beginning September 30, 1996. The 10,000
options will be allocated among those Industry Partners which doubled their
commitments, pro rata, to the extent the Industry Partners exceeded that doubled
commitment for the calendar quarter. The Industry Partners' Incentive Plan will
continue for five years, with a total of 200,000 options available under such
Plan. All options granted will be exercisable for five years after their
respective dates of grant.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of the Common Stock after giving effect to the transactions described in the
Reorganization Plan, of: (i) each person known by the Company to own
beneficially five percent or more of the outstanding Common Stock immediately
prior to the Public Offering; (ii) each of the Company's directors; (iii) each
of the executive officers named in the Summary Compensation Table; and (iv) all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE PUBLIC OFFERING THE PUBLIC OFFERING
----------------------------- -----------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OF CLASS NUMBER PERCENT OF CLASS
- ----------------------------------------------------- --------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
ContiTrade Services Corporation(1) .................. 1,350,000 17.70% 1,350,000 12.60%
277 Park Avenue
New York, New York 10172
Branchview, Inc. .................................... 825,045 13.16 825,045 8.81
989 McBride Avenue
West Patterson, New Jersey 07424
JRJ Associates Inc. ................................. 573,414 9.15 573,414 6.12
20 Waterview Blvd.
Parsippany, New Jersey 07054
Cityscape Corp. ..................................... 545,455 8.70 545,455 5.82
565 Taxter Road
Elmsford, New York 10523-2300
Mortgage America .................................... 567,822 9.06 567,822 6.06
305 5th Street, Suite 200
Bay City, Michigan 48708
Investors Mortgage, a Washington LP(2) .............. 494,988 7.89 494,988 5.28
10220 N.E. Points Drive, Suite 200
Kirkland, Washington 98033
American Industrial Loan Association ................ 601,373 9.59 601,373 6.42
3420 Holland Road, Suite 107
Virginia Beach, Virginia 23452
The Money Store ..................................... 384,563 6.13 384,563 4.10
3301 C Street, Suite 100M
Sacramento, California 95816
George Nicholas(3) .................................. 715,173 11.11 715,173 7.50
3450 Buschwood Park Drive
Tampa, Florida 33618
Thomas G. Middleton(4) .............................. 188,209 2.96 188,209 1.99
3450 Buschwood Park Drive
Tampa, Florida 33618
Karen S. Bausman(5) ................................. 13,759 0.22 13,759 0.15
3450 Buschwood Park Drive
Tampa, Florida 33618
Susan W. McCarthy(6) ................................ 104,733 1.66 104,733 1.12
3450 Buschwood Park Drive
Tampa, Florida 33618
Timothy W. Griffin(6) ............................... 32,962 0.52 32,962 0.35
3450 Buschwood Park Drive
Tampa, Florida 33618
David McDonald(7) ................................... 263,550 4.12 263,550 2.86
3450 Buschwood Park Drive
Tampa, Florida 33618
Joseph P. Goryeb(8)(12) ............................. 577,293 9.20 577,293 6.16
Waterview Corporate Centre
20 Waterview Boulevard
Parsippany, New Jersey 07054-1267
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<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE PUBLIC OFFERING THE PUBLIC OFFERING
----------------------------- -----------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OF CLASS NUMBER PERCENT OF CLASS
- ----------------------------------------------------- --------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
Allen D. Wykle(8)(11) ............................... 3,880 0.06% 3,880 0.04%
3420 Holland Road
Virginia Beach, Virginia 23452
Mitchell W. Legler(8)(9) ............................ 22,487 0.36 22,487 0.24
Independent Drive, Suite 3104
Jacksonville, Florida 32202
All directors and executive officers as a group (13
persons)(10)....................................... 1,949,804 29.39 1,949,804 20.03
</TABLE>
- ------------
(1) Includes 1,350,000 shares of Common Stock issuable upon the exercise of the
immediately exercisable Conti Warrant.
(2) Shares owned through Investors Mortgage, a Washington LP. The voting power
with respect to these shares is held by Seattle Management Company the
general partner of Investors Mortgage, a Washington LP.
(3) Includes options to purchase 282,866 shares of Common Stock pursuant to the
Incentive Plan.
(4) Includes options to purchase 141,433 shares of Common Stock pursuant to the
Incentive Plan.
(5) Includes options to purchase 22,931 shares of Common Stock held pursuant to
the Incentive Plan.
(6) Includes options to purchase 31,013 shares of Common Stock held pursuant to
the Incentive Plan.
(7) Includes 245,455 shares of Common Stock owned by Equitysafe. Mr. McDonald,
who owns 61% of the partnership interest of Equitysafe, has voting and
investment control of the Common Stock owned by Equitysafe. Also includes
18,095 shares of Common Stock issuable to Mr. McDonald upon conversion of
the Convertible Preferred Stock.
(8) Includes options to purchase 6,466 shares of Common Stock held pursuant to
the Director's Plan.
(9) Includes options to purchase 31,013 shares of Common Stock held pursuant to
the Incentive Plan.
(10) Includes options to purchase 670,582 shares of Common Stock held pursuant
to various stock option plans.
(11) Excludes 601,373 shares of Common Stock owned by American Industrial Loan
Association. Mr. Wykle, who owns 32% of the voting stock of American
Industrial Loan Association, has voting, but not investment control of the
Common Stock owned by American Industrial Loan Association. Mr. Wykle
disclaims beneficial ownership of the 601,373 shares of Common Stock owned
by American Industrial Loan Association.
(12) Includes 517,414 shares of Common Stock owned by JRJ Associates, Inc. Mr.
Goryeb has voting and investment control of the Common Stock owned by JRJ
Associates, Inc.
The following Industry Partners are not included in this table because they
own less than 5% of the Common Stock: Joel E. Furst and Stan L. Furst,
Equitysafe, Portfolio Placement Partners, Mr. Lillienfield, Equity Mortgage, a
Maryland LP and Investaid Corporation.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since its inception, the Company has had business relationships and engaged
in certain transactions with affiliated companies and parties as described
below. It is the policy of the Company to engage in transactions with related
parties only on terms that, in the opinion of the Company, are no less favorable
to the Company than could be obtained from unrelated parties and each of the
transactions described below conforms to that policy.
PARTNERSHIP AGREEMENT
The Partnership was formed as a limited partnership in 1993 and capitalized
pursuant to the Original Partnership Agreement (the 'Original Partnership
Agreement') dated as of July 1, 1993 among American Industrial Loan Association;
Champion Mortgage Co. Inc.; Cityscape Corp.; Equitysafe, a Rhode Island General
Partnership; Investors Mortgage, a Washington LP; Mortgage America Inc.;
Residential Money Centers; First Government Mortgage and Investors Corp.;
Investaid Corp.; New Jersey Mortgage and Investment Corp.; George Nicholas;
certain members of management; and IMCI, the general partner. Pursuant to the
Reorganization Plan and prior to the closing of the Public Offering, the
Partnership will become a wholly-owned subsidiary of the Company. The
Partnership is divided into Full Shares (representing a 9.090% ownership
interest) and Half Shares (representing a 4.545% ownership interest). The
Industry Partners each own either a Full Share or a Half Share of the
Partnership. The Management Partners own a Half Share in the aggregate, and Mr.
Nicholas owns an 8.09% interest and an additional 1% interest through IMCI. The
Industry Partners, the Management Partners and Mr. Nicholas are collectively
referred to as the 'LPs.' Each LP owning a Full Share contributed $100,000 to
the Partnership upon formation and each LP owning a Full Share, except for Mr.
Nicholas, was required to make additional contributions in either loan volume
(via foregone premiums) or in cash until their respective capital contribution
reached $380,000. Foregone premiums represent the difference in the amount paid
by the Partnership for mortgage loans and the value set forth in a price
schedule (estimated fair value) delivered to the LP at the time the mortgage
loans are purchased. As of December 31, 1993, the LPs, with the exception of Mr.
Nicholas, had contributed to the Partnership the aggregate amount of $1.43
million, with total contributions increasing from $1.8 million to $3.9 million
at December 31, 1994. Additional contributions in the amount of $20,000 were
received during 1995. Mr. Nicholas, who is also the Chief Executive Officer of
the Company, was required to make an additional contribution up to a total
capital balance of $380,000. For this purpose, Mr. Nicholas received a special
allocation of profits, as defined in the Original Partnership Agreement, for the
gain on sale of any loans originated from non-LP sources, up to a maximum of
$40,000 per month. Mortgage sales gains represent the excess of the sales price
over the amount paid by the Partnership. As of December 31, 1994, Mr. Nicholas
had contributed special allocation profits of $280,000.
Pursuant to the First Amended and Restated Partnership Agreement, the
Partnership was obligated to make aggregate cash distributions to the LPs equal
to 45% of the Partnership's net profits to enable the LPs to pay taxes owed in
respect of their Partnership interest (the 'Tax Distributions'). At March 31,
1996, the Partnership was required to make Tax Distributions in the aggregate
amount of $5.7 million. The following LPs agreed to forego receipt of cash in
respect of the Tax Distributions: George Nicholas; Branchview, Inc.; JRJ
Associates Inc.; Cityscape Corp.; New Jersey Mortgage and Investment Corp.;
American Industrial Loan Association; Investaid Corp.; Equity Mortgage, a
Maryland LP; First Government Mortgage and Investors Corp.; and The Money Store.
All such debt will be repaid from the proceeds of the Public Offering. See 'Use
of Proceeds.'
Under the terms of the First Amended and Restated Partnership Agreement,
each of the LPs owning a Full Share is required to sell to the Partnership, on
average, $1.0 million per month in loan volume ($500,000 per month for each LP
owning a Half Share), at market prices (the 'Mortgage Loan Commitments').
The First Amended and Restated Partnership Agreement was amended by the
First Amendment as of March 15, 1994 and the Second Amendment as of July 8,
1994, and later restated as the Second Amended and Restated Partnership
Agreement (the 'Second Amended and Restated Partnership Agreement') on November
1, 1994. Equity Mortgage, a Maryland LP, joined the Partnership on
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February 1, 1994. The Money Store joined the Partnership on November 29, 1994.
On October 1, 1994, Equitysafe sold one half of its Full Share in the
Partnership to Portfolio Placement Partners.
The Second Amended and Restated Partnership Agreement was amended and
restated as the Third Amended and Restated Partnership Agreement (the 'Third
Amended and Restated Partnership Agreement') in November, 1995. During 1995,
four partnership changes occurred: Residential Money Centers sold its interest
to Branchview, Inc. on July 31, 1995; Champion Mortgage Co. Inc. transferred its
interest to JRJ Associates Inc. on September 29, 1995; First Government Mortgage
and Investors Corp. sold its interest to Gerald S. Lilienfield on December 28,
1995; and New Jersey Mortgage and Investment Corp. transferred its interest to
Stan L. Furst and Joel E. Furst on December 31, 1995.
PRE-IPO AGREEMENT
Pursuant to the Pre-IPO Agreement, dated as of March 28, 1996 and executed
by each LP, the Partnership and the Company prior to the filing of the
Registration Statement of which this Prospectus is a part, each of the LPs
irrevocably committed that it would exchange its partnership interests for
shares of Common Stock as described in the Reorganization Plan.
Pursuant to the Third Amended and Restated Partnership Agreement, each LP
had a Mortgage Loan Commitment to sell a certain volume of mortgage loans to the
Partnership. Pursuant to the Pre-IPO Agreement, certain LPs have agreed to
double their Mortgage Loan Commitments or its economic equivalent to $2.0
million a month ($1.0 million for LPs owning a Half Share). In addition,
pursuant to the Pre-IPO Agreement, the LPs will be eligible for 10,000 options
('Incentive Options') to be divided each fiscal quarter among those LPs that
have (i) committed to double their monthly loan volumes and (ii) exceeded their
doubled commitment. The Company believes the Incentive Options will encourage
LPs to increase their loan volume sold to the Company.
AGREEMENTS WITH CONTIFINANCIAL
Warehouse Facility. The Company and ContiFinancial are party to the Amended
and Restated Loan and Security Agreement (the 'Wholesale Warehouse Mortgage
Agreement'), dated as of September 1, 1995 (together with its predecessor
agreement, the 'Warehouse Facility'). Pursuant to the Warehouse Facility, the
Company has a $125.0 million line of credit that is secured by its mortgage
loans. Amounts outstanding under the Warehouse Facility bear interest at a rate
of LIBOR plus 1.5% per annum. During fiscal years 1994 and 1995 and the three
months ended March 31, 1996, the Company made interest payments under the
Warehouse Facility of $0.5 million, $5.1 million and $2.0 million, respectively.
Standby Agreement. The Company and ContiFinancial are party to the Standby
Agreement through which the Company funds the tax consequences of the
recognition of the securitization gain on sale and other working capital needs
prior to receipt of any cash flow from the residual interests in its
securitizations. Amounts borrowed under the Standby Agreement bear interest at a
rate of LIBOR plus 1.7% per annum. The Standby Agreement expires on January 12,
2000. ContiFinancial has agreed to lend the Company the Additional Draw of $10.0
million under the Standby Agreement which bears interest at a rate of LIBOR plus
8.0% and which amount must be repaid with a portion of the net proceeds from the
Public Offering. The Company has borrowed the full $15.0 million available under
the Standby Agreement and $1.2 million under the Additional Draw. During fiscal
years 1994 and 1995 and the three months ended March 31, 1996, the Company made
interest payments to ContiFinancial under the Standby Agreement of $0, $0.2
million and $0.3 million, respectively.
Investment Banking Relationship. As part of the 1995 Agreement, the Company
and ContiFinancial entered into an agreement for investment banking services
dated January 12, 1995 (the '1995 Investment Banking Agreement'). The 1995
Investment Banking Agreement replaced a prior agreement between the parties
under the 1993 Agreement (together with the 1995 Investment Banking Agreement,
the 'Investment Banking Agreements'). Pursuant to the 1995 Investment Banking
Agreement, unless the Company determines, in its sole discretion, that
materially better terms are available from others, ContiFinancial has a right
(the 'Retention Right') to act as underwriter, placement agent or sponsor
('Mortgage Banker') with respect to $2.0 billion of placement or
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underwriting of securitizations and whole loan acquisitions or dispositions of
the Company mortgage loans (the 'Mortgage Transactions'). In addition,
ContiFinancial may retain all underwriting fees from the Mortgage Transaction in
any instance in which it acts as Mortgage Banker for the Company, receive
information from the Company regarding any Mortgage Transaction in which it is
not chosen to be the Mortgage Banker and receive certain minimum allocations of
Retention Rights on a per annum basis which, if not fulfilled, are rolled over
into the minimum allocation of Retention Rights for the following year. The 1995
Investment Banking Agreement expires in 2000, unless extended through the mutual
agreement of the parties. Under the Investment Banking Agreements, the Company
paid $0.3 million, $0.2 million and $0 million, respectively, for services as
Mortgage Banker in 1994, 1995 and the three months ended March 31, 1996.
Conti Warrant. In August, 1993, the Company entered into the 1993 Agreement
with Conti-Financial which provided IMC with the $15.0 million Standby Agreement
to fund retention of excess servicing receivables and certain investment banking
services and also committed ContiFinancial to provide a warehouse facility to
IMC, subject to the satisfaction of certain conditions. Pursuant to the 1993
Agreement, IMC agreed to share a portion of its equity with ContiFinancial
through an agent fee based on a percentage of increases in equity (as defined)
at the termination of the 1993 Agreement. On January 12, 1995, IMC and
ContiFinancial entered into the 1995 Agreement which replaced the 1993 Agreement
and provided for agent fees to ContiFinancial based on the fair market value of
the Company (as defined in the 1995 Agreement). The amount of the agent fee
ranges from 15% of the fair market value of the Company in the event
ContiFinancial elects to terminate the 1995 Agreement to 25% of the fair market
value of the Company in the event IMC elects to terminate the 1995 Agreement.
Pursuant to the 1995 Agreement, the Conti VSA was established. See 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Transactions with ContiFinancial -- Sharing of Proportionate Value
of Equity.' A professional valuation firm valued the Company as of December 31,
1995 in order to calculate the value of the Conti VSA at that time. The Conti
VSA was valued at $5.9 million. The Conti VSA was converted into the Conti
Option effective December 31, 1995 by an agreement executed March 26, 1996. Upon
the Public Offering, the Conti Option will be converted into the Conti Warrant.
The Conti Warrant will contain certain dilution protections in favor of
ContiFinancial, and will grant ContiFinancial certain registration rights. After
the Public Offering, the Conti Warrant will be exercisable for 1.35 million
shares (after giving effect to Conti Financial's proposed sale of 10% of its
interest in the Conti Warrant) of Common Stock subject to adjustment if the
Company issues Common Stock below fair market value. See 'The Reorganization
Plan.'
ADDITIONAL SECURITIZATION TRANSACTION EXPENSE
The Company has entered into excess servicing receivable sharing
arrangements with ContiFinancial in connection with its securitizations pursuant
to which the Company arranges to have issued to ContiFinancial a percentage of
the residual interest in the related REMIC trust in exchange for cash.
ContiFinancial received 50% of the residual interests (valued at $3.0 million)
in the Company's 1994-1 securitization in exchange for $2.1 million, 50% of the
residual interests (valued at $4.2 million) in the Company's 1995-1
securitization in exchange for $3.3 million, 100% of the residual interests
(valued at $12.4 million) in the Company's 1995-2 securitization in exchange for
$10.0 million, 55% of the residual interests (valued at $8.5 million) in the
Company's 1995-3 securitization in exchange for $5.1 million, 50% of the
residual interests (valued at $9.5 million) in the Company's 1996-1
securitization in exchange for $6.2 million. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Transactions with
ContiFinancial -- Additional Securitization Transaction Expense.'
IMC ASSOCIATES, INC.
IMC Associates, Inc. ('IMC Associates') was formed to lease a skybox suite
in the Ice Palace stadium for games of the Tampa Bay Lightning, a national
hockey league franchise. The Company purchases tickets for the hockey games from
IMC Associates for an aggregate amount equal to the $75,000 annual lease cost of
the skybox. IMC Associates is owned by George Nicholas, the Chairman of the
Board and Chief Executive Officer of the Company.
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GENERAL COUNSEL
The Company paid $28,000 in legal fees in 1995 to Mr. Legler who acted as
general counsel for the Company through his professional association, Mitchell
W. Legler, P.A. The Company anticipates it will pay approximately $250,000 in
legal fees to Mr. Legler in 1996. In addition, on December 11, 1995, Mr. Legler
was granted options to purchase 21,013 shares of Common Stock at an exercise
price of $4.70 per share pursuant to the 1995 Plan for advisory services to the
Company and options to purchase 6,466 shares of Common Stock at an exercise
price of $4.70 per share pursuant to the Directors' Plan and options to purchase
10,000 shares of Common Stock at an exercise price of $16.00 per share pursuant
to the Incentive Plan.
TRANSACTIONS WITH PARTNERS
Lakeview
The Company entered into the Lakeview Facility in January, 1996 with
Lakeview, an affiliate of Branchview, Inc. The Company expects to repay
outstanding amounts under the Lakeview Facility with a portion of the proceeds
of the Public Offering. See 'Use of Proceeds.'
JRJ Associates Inc.
JRJ Associates Inc. sold loans in the aggregate amount of $15.6 million to
the Company during 1995 and has agreed to sell $24.0 million in loans to the
Company in 1996. Mr. Goryeb, a member of the Board of Directors of IMC, is
Chairman and Chief Executive Officer of Champion Mortgage Co. Inc., an affiliate
of JRJ Associates Inc.
Cityscape Corp.
Cityscape Corp. sold loans in the aggregate amount of $8.7 million to the
Company and contributed $420,000 to the Company in lieu of additional loan sales
in satisfaction of its aggregate loan sale commitments for 1995 and 1996.
Mortgage America Inc.
Mortgage America Inc. sold loans in the aggregate amount of $9.4 million to
the Company during 1995. The Partnership determined that $9.4 million of loan
sales was sufficient to meet Mortgage America's loan sale commitment to the
Company for 1995 based on several factors, including Mortgage America's sale to
the Company of substantially more mortgage loans than its commitment in 1994.
Mortgage America has agreed to sell $24.0 million in loans to the Company in
1996.
Investors Mortgage, a Washington LP
Investors Mortgage, a Washington LP ('Investors Mortgage'), sold loans in
the aggregate amount of $5.5 million to IMC during 1995. The Partnership
determined that $5.5 million of loan sales was sufficient to meet Investors
Mortgage's loan sale commitment to the Company for 1995 based on several
factors, including Investors Mortgage's commitment to sell at least $6.5 million
of mortgage loans in excess of its commitment to the Company in 1996. Investors
Mortgage has agreed to sell $12.0 million in loans to the Company in 1996.
American Industrial Loan Association
American Industrial Loan Association sold loans in the aggregate amount of
$38.1 million to IMC during 1995 and has agreed to sell $24.0 million in loans
to IMC in 1996. Mr. Wykle, a member of the Board of Directors of IMC, is
Chairman and Chief Executive Officer of American Industrial Loan Association. In
January, 1996, IMC and American Industrial Loan Association entered into a
warehouse financing facility pursuant to which IMC committed to lend American
Industrial Loan Association $8.0 million secured by mortgage loans. Borrowings
under the facility bear interest at a rate
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of LIBOR plus 1.75%, and American Industrial Loan Association paid IMC $35,100
in interest payments during the first three months of 1996.
TRANSACTIONS WITH EQUITYSTARS
At the time IMC acquired the assets of Equitystars, Equitystars was
licensed as a mortgage banker in certain states in which IMC was not so
licensed. In order to enable IMC to benefit immediately from Equitystars assets,
IMC and Equitystars entered into a warehouse credit facility (the 'Equitystars
Warehouse') and a management agreement pursuant to which IMC directs
substantially all of the business activities of Equitystars (the 'Management
Agreement'). Pursuant to the Equitystars Warehouse, IMC has committed to fund,
from time to time, up to $10 million of Equitystars' mortgage loan origination,
subject to certain conditions. Amounts outstanding under the Equitystars
Warehouse bear interest at an annual rate equal to LIBOR. The Equitystars
Warehouse is for a term of one year (from January 2, 1996) and may be terminated
by IMC quarterly, on 30 days notice. Pursuant to the Management Agreement, IMC
controls all business activities of Equitystars, and Equitystars sells all of
its mortgage loans to IMC. IMC receives a management fee for its services
substantially equal to the difference between the interest earned on the
mortgage loans during the time they are funded through the Equitystars Warehouse
and the LIBOR due to IMC under the Warehouse Line. David McDonald is the general
partner and 61% owner of Equitysafe, an Industry Partner and owns a portion of
the shares of the Convertible Preferred Stock. Equitysafe owns 4.5% of the
limited partnership interests of IMC (which will be exchanged for 272,000 shares
of Common Stock pursuant to the Reorganization Plan).
CERTAIN ACCOUNTING CONSIDERATIONS RELATING TO THE CONTI VSA
BACKGROUND
As originally conceived by the founders of IMC, the general equity of the
Company would be allocated (i) 65% to the limited partners which were to sell
loans to the Company to provide its core business volume, (ii) 15% to management
and (iii) 20% to ContiFinancial which was to provide the initial credit
facilities necessary for the Company's business. However, due to
ContiFinancial's lender position and the complexity of ContiFinancial's being a
partner in a partnership (as opposed to a stockholder in a corporation),
ContiFinancial did not wish to take a 20% partnership interest in the Company.
Instead, since the formation of IMC in 1993, IMC has operated under three value
sharing agreements with ContiFinancial (the 'Conti VSA').
1993 Agreement
The 1993 Agreement between ContiFinancial and the Company was entered into
at the time of the founding of the Company. That agreement provided for
ContiFinancial to receive an amount calculated as an increasing percentage of
the partners' capital account in excess of the amount actually contributed by
the partners.
1995 Agreement
On January 12, 1995, the 1993 Agreement was replaced by the 1995 Agreement
which granted ContiFinancial a right to receive an amount equal to 20% of the
fair market value (as defined) of the Company at the end of the ten-year term of
the agreement, or upon any disposition or windup of the Company, as well as 20%
of any distributions to partners of the Company in excess of the distributions
necessary to allow the partners to pay income taxes on their respective share of
the Company's earnings. ContiFinancial also had the right to demand payment (a
'put') at 15% of the fair market value of the Company, and the Company had the
right to satisfy ContiFinancial's VSA (a 'call') by paying ContiFinancial 25% of
the fair market value of the Company.
1996 Conti Warrant
In March, 1996, the 1995 Agreement was replaced by the Conti Option
entitling ContiFinancial upon exercise to approximately 18% of the equity in the
Partnership. Upon the exchange by the
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Industry Partners of their partnership interests in the Partnership for Common
Stock, the Conti Option automatically converts into the Conti Warrant
exercisable for 1.5 million shares of the Common Stock (subject to certain
adjustments). The Conti Warrant will not contain any put feature permitting
ContiFinancial to require cash for the Conti Warrant.
ACCOUNTING PRINCIPLES
Under Emerging Issues Task Force Issue 88-9 ('EITF 88-9'), the accounting
task force reached a consensus that securities such as put warrants, where the
issuer can be required to redeem the securities for cash, are treated as a
liability on the issuer's balance sheet at the value assigned to that put
warrant at the time of issue. Moreover, EITF 88-9 concluded that where a
security has a mandatory redemption feature or put at an amount which varies
based, for example, upon the value of the issuer, then any increase in value
from accounting period to accounting period is treated as an increase in the
amount of liability recorded and as an additional expense in the period of
increased value.
ACCOUNTING TREATMENT OF CONTI VSA
Applying generally accepted accounting principles ('GAAP'), the Company
concluded that as the 1993 Agreement provided for ContiFinancial to receive a
cash amount at the end of the agreement's term or earlier on the happening of
certain contingencies (such as default), the amount which was due to
ContiFinancial from time to time should be booked as a liability. Applying the
task force determinations described above, the existence of the put feature of
the 1995 Agreement required the Company to record a liability for the value
assigned to the put feature at issuance. Moreover, any increase in the value of
the put feature of the 1995 Agreement was treated by the Company as a charge to
earnings for the period during which the increase in value occurred.
CALCULATION OF BOOK ENTRIES FOR CONTI VSA
The partner's capital account balance did not exceed the amounts
contributed by the Industry Partners when the 1993 Agreement was executed. Thus,
no liability was initially booked upon execution of that agreement. Moreover, as
the formula for calculating the value of the Conti VSA produced no value during
1993 (when the Company had a loss) no charge to earnings was booked during the
year. However, in 1994, the Company earned $4.7 million (without consideration
of the value of the Conti VSA) and the corresponding increase in the partner's
capital accounts in excess of contributions resulted in the Conti VSA under the
1993 Agreement having a value of $1.7 million. Accordingly, during 1994, the
Company booked a liability and an expense of $1.7 million.
The 1995 Agreement provided a calculation of the value of Conti VSA based
not on the partners' capital account but on fair market value. A professional
valuation firm valued the Company as of December 31, 1995 in order to calculate
the value of the Conti VSA at that time. As ContiFinancial could exercise its
put for 15% of the fair market value of the Company, that 15% was calculated at
$5.9 million as of December 31, 1995. The Company, as reflected above, had
already valued the Conti VSA at the end of 1994 at $1.7 million. Thus, the
increase over that amount, or $4.2 million, was recorded as an expense in 1995.
The appraisal of the fair market value of the Company as of December 31,
1995, was based on the assumption that the Conti VSA under the 1995 Agreement
was outstanding as a put. The appraisal firm arrived at the fair market value of
the Company as a non-public company by applying a multiplier of eight times the
Company's 1995 earnings (reduced by a 40% income tax rate) of $6.5 million
producing a gross value for the Company of approximately $51 million. The
appraisers determined that it was unlikely that the Company would find a willing
buyer to purchase the Company unless that buyer simultaneously eliminated the
Conti VSA. The Company could call the Conti VSA only by paying ContiFinancial
25% of the Company's fair market value. Thus, the appraisers determined that the
fair market value of the Company as of December 31, 1995 was approximately $40
million. The Company therefore concluded that the value of the Conti VSA (the
put for 15% of the Company's value) was approximately $5.9 million.
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FIRST QUARTER 1996
On March 26, 1996, the Conti VSA under the 1995 Agreement was replaced by
the Conti Option which has no put feature or right for ContiTrade to demand that
it be redeemed for cash. Accordingly, the periodic determination of the
liability and charge to earnings which had applied to the Conti VSA under the
1993 and 1995 Agreements does not apply to the Conti Option and will not apply
to the Conti Warrant. However, the fair market value of the Conti Option on the
date of grant, March 26, 1996, in excess of amounts previously recorded amounted
to $2.6 million and has been charged to expense in the first quarter of 1996 in
accordance with GAAP.
RECLASSIFICATION OF LIABILITY TO STOCKHOLDERS' EQUITY
Under GAAP, ContiFinancial's right to receive cash for the Conti VSA under
the 1993 and the 1995 Agreements resulted in a charge against earnings and an
equivalent reduction in the Company's stockholders' equity. The substitution of
the Conti Option for the 1995 Agreement on March 26, 1996 eliminated any put or
other right for ContiFinancial to obtain cash from the Company for the Conti
VSA. That substitution resulted in the reclassification of the liabilities
associated with the value of the Conti VSA to the Company's stockholders'
equity. Accordingly, on March 26, 1996, the Company's stockholders' equity was
increased by the sum of the 1994 liability of $1.7 million, the 1995 additional
liability of $4.2 million and the additional liability reflected in the first
quarter of 1996 for the value of the Conti VSA on March 26, 1996. Also on March
26, 1996 the value of the Conti Option in excess of amounts previously recorded
was charged to expense with a corresponding amount reflected in stockholders'
equity. Moreover, neither the Conti Option nor the Conti Warrant will affect
earnings of the Company after March 26, 1996.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, par value $0.01 per share, and 10,000,000 shares of Preferred
Stock, par value $0.01 per share (the 'Preferred Stock'). Immediately prior to
the completion of the Public Offering, there will be issued and outstanding
6,269,833 shares of Common Stock held of record by 25 stockholders and an escrow
agent. Immediately prior to the completion of the Public Offering, 5,331,820
shares of Common Stock will be held by the Industry Partners, 290,822 shares
will be held by the Management Partners and 545,453 shares will be held by Mr.
Nicholas, and the shares held by the Partnership will be cancelled. In addition,
pursuant to the terms thereof, all the outstanding shares of Convertible
Preferred Stock will be converted immediately prior to the completion of the
Public Offering into the number of shares of Common Stock arrived at by dividing
the aggregate liquidation preference thereof ($2,006,000) by 93% of the initial
public offering price per share of the Common Stock. An additional 670,582
shares of Common Stock will be issuable upon the exercise of stock options held
by officers, directors and key outside advisors. See 'Management -- Stock Option
Plans.' Of the shares of Common Stock issuable upon the mandatory conversion of
the Convertible Preferred Stock, the shares issuable upon conversion of 2,750
shares of Convertible Preferred Stock will be held in escrow pending the
satisfaction by June 30, 1998 of certain conditions in connection with the
Equitystars Acquisition. Depending on the extent to which such conditions are
satisfied, the shares will be released to the stockholders of Equitystars, with
any remaining shares returned to the Company and cancelled. In certain
circumstances, additional shares of Common Stock may be issued to the
stockholders of Equitystars. See 'Business -- Loans -- Acquisition of
Equitystars.'
The following description is qualified in its entirety by reference to the
Company's Articles of Incorporation and Bylaws, which are filed as exhibits to
the registration statement of which this Prospectus is a part. No information is
set forth concerning the Convertible Preferred Stock, which will not be
outstanding following the completion of the Public Offering.
71
<PAGE>
<PAGE>
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Cumulative voting in
the election of directors is not permitted, which means that holders of more
than one half of the outstanding shares of Common Stock can elect all the
directors of the Company. Subject to preferences that may be granted to holders
of Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. See 'Dividend Policy.' In the event of liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share ratably in all assets remaining after payment of liabilities and the
liquidation preference, if any, which may be payable to the holders of Preferred
Stock. Holders of Common Stock have no conversion, preemptive or other rights to
subscribe for additional shares or other securities, and there are no redemption
or sinking fund provisions with respect to such shares. The issued and
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby will be upon payment therefor, validly issued, fully paid and
nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 10,000,000 shares
of Preferred Stock and to fix the number of shares constituting any such class
or series and the rights and preferences thereof, including dividend rights,
terms of redemption (including sinking fund provisions), redemption price or
prices, voting rights, conversion rights and liquidation preferences of the
shares constituting such class or series, without any further vote or action by
the Company's stockholders.
The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized but unissued and unreserved
Common Stock and Preferred Stock may enable the Board of Directors to issue
shares to persons friendly to current management which could render more
difficult or discourage an attempt to obtain control of the Company by means of
a proxy contest, tender offer, merger, or otherwise, and thereby protect the
continuity of the Company's management.
CERTAIN STATUTORY PROVISIONS
Control Share Acquisitions
The Company is subject to several anti-takeover provisions under Florida
law that apply to a public corporation organized under Florida law unless the
corporation has elected to opt out of such provisions in its Articles of
Incorporation or (depending on the provision in question) its Bylaws. The
Company has not elected to opt out of these provisions. The Florida Business
Corporation Act (the 'Florida Act') contains a provision that prohibits the
voting of shares in a publicly held Florida corporation which are acquired in a
'control share acquisition' unless the board of directors approves the control
share acquisition or the holders of a majority of the corporation's voting
shares (exclusive of shares held by officers of the corporation, inside
directors or the acquiring party) approve the granting of voting rights as to
the shares acquired in the control share acquisition. A control share
acquisition is defined as an acquisition that immediately thereafter entitles
the acquiring party to vote in the election of directors within each of the
following ranges of voting power: (i) one-fifth or more but less than one-third
of such voting power; (ii) one-third or more but less than a majority of such
voting power and; (iii) a majority or more of such voting power. This statutory
voting restriction is not applicable in certain circumstances set forth in the
Florida Act.
Affiliated Transactions
The Florida Act also contains an 'affiliated transaction' provision that
prohibits a publicly-held Florida corporation from engaging in a broad range of
business combinations or other extraordinary corporate transactions with an
'interested stockholder' unless (i) the transaction is approved by a
72
<PAGE>
<PAGE>
majority of disinterested directors before the person becomes an interested
stockholder, (ii) the interested stockholder has owned at least 80% of the
Company's outstanding voting shares for at least five years, or (iii) the
transaction is approved by the holders of two-thirds of the Company's voting
shares other than those owned by the interested stockholder. An interested
stockholder is defined as a person who, together with affiliates and associates,
beneficially owns (as defined in Section 607.0901(1)(e), Florida Statutes) more
than 10% of the Company's outstanding voting shares.
Indemnification
The Florida Act authorizes Florida corporations to indemnify any person who
was or is a party to any proceeding (other than an action by, or in the right
of, the corporation), by reason of the fact that he or she is or was a director,
officer, employee, or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation or other entity, against liability incurred in connection with such
proceeding, including any appeal thereof, if he or she acted in good faith and
in a manner he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
In the case of an action by or on behalf of a corporation, indemnification may
not be made if the person seeking indemnification is adjudged liable, unless the
court in which such action was brought determines such person is fairly and
reasonably entitled to indemnification. The indemnification provisions of the
Florida Act require indemnification if a director or officer has been successful
on the merits or otherwise in defense of any action, suit or proceeding to which
he or she was a party by reason of the fact that he or she is or was a director
or officer of the corporation. The indemnification authorized under Florida law
is not exclusive and is in addition to any other rights granted to officers and
directors under the Articles of Incorporation or Bylaws of the corporation or
any agreement between officers and directors and the corporation. A corporation
may purchase and maintain insurance or furnish similar protection on behalf of
any officer or director against any liability asserted against the officer or
director and incurred by the officer or director in such capacity, or arising
out of the status, as an officer or director, whether or not the corporation
would have the power to indemnify him or her against such liability under the
Florida Act.
Limitation of Liability
Under the Florida Act, a director is not personally liable for monetary
damages to the Company or any other person for acts or omissions in his or her
capacity as a director except in certain limited circumstances such as certain
violations of criminal law and transactions in which the director derived an
improper person benefit. As a result, stockholders may be unable to recover
monetary damages against directors for actions taken by them which constitute
negligence or gross negligence or which are in violation of their fiduciary
duties, although injunctive or other equitable relief may be available. These
provisions will not limit the liability of the Company's directors under the
Federal securities laws.
PROVISIONS OF ARTICLES OF INCORPORATION AND BYLAWS
Certain provisions of the Company's Articles of Incorporation and Bylaws
summarized in the following paragraphs may have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in its best interest, including those attempts that might result
in a premium over the market price for the shares held by stockholders.
Classified Board of Directors
Under the Company's Articles of Incorporation and Bylaws, the Board of
Directors of the Company is divided into three classes, with staggered terms of
three years each. Each year the term of one class expires. The Company's
Articles of Incorporation provide that any vacancies on the Board of Directors
shall be filled only by the affirmative vote of a majority of the directors then
in office, even if less than a quorum.
73
<PAGE>
<PAGE>
Supermajority Required for Actions by Written Consent
The Company's Articles of Incorporation provide that all actions taken by
the stockholders must be taken at an annual or special meeting of the
stockholders or by the written consent of the holders of 90% of the Company's
outstanding voting shares. This provision may be amended only with the
affirmative vote of the holders of 90% of the Company's outstanding voting
shares.
Special Meetings of Stockholders
The Articles of Incorporation provide that special meetings of the
stockholders may be called by only a majority of the members of the Board of
Directors, the Chairman of the Board or the holders of not less than 35% of the
Company's outstanding voting shares. This provision will make it more difficult
for stockholders to take actions opposed by the Board of Directors.
Advance Notice Requirements
Under the Company's Bylaws, stockholders will be required to comply with
advance notice provisions with respect to any proposal submitted for stockholder
vote, including nominations for elections to the Board of Directors. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Company not less than 60 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 70 days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must be
received no later than the close of business on the 10th day following the day
on which such notice of the date of the meeting was mailed or such public
disclosure was made. These provisions may preclude some stockholders from
bringing matters before the stockholders at an annual or special meeting or from
making nominations for directors at an annual or special meeting.
TRANSFER AGENT
The transfer agent for the Common Stock is American Stock Transfer
Corporation.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Public Offering, the Company will have outstanding
an aggregate of 11,065,092 shares (assuming the exercise of all vested options
and the Conti Warrant) of Common Stock. Of these shares, 3,100,000 of the shares
sold in the Public Offering will be freely tradable without restriction or
further registration under the Securities Act, except for any shares purchased
by 'affiliates' of the Company as that term is defined under the Securities Act
and all of the 310,000 shares purchased pursuant to the Directed Share Program
will be subject to the lock-up agreement described below.
The remaining 7,965,092 shares (assuming the exercise of all vested options
and the Conti Warrant) held by existing stockholders of the Company (including
the Industry Partners) are 'restricted securities' within the meaning of Rule
144 under the Securities Act and will become eligible for sale subject to the
provisions of Rule 144. Of such shares, none of such shares of Common Stock have
been held for more than two years by stockholders who are not affiliates of the
Company and will be eligible for sale in the public market upon the expiration
of the referenced lock-up agreements in reliance on Rule 144(k) under the
Securities Act.
In general, under Rule 144 under the Securities Act as currently in effect,
a person (or persons whose shares are aggregated), including an affiliate, may
sell an amount of restricted securities which were last purchased from the
issuer or an affiliate of the issuer a minimum of two years prior to such sale,
such that, within any three-month period, such person's sales do not exceed the
greater of 1% of the then outstanding shares of the Company's Common Stock
(93,698 shares immediately after the Public Offering excluding any exercise of
options or 1.35 million shares pursuant to the Conti Warrant), or the average
weekly trading volume in the Common Stock on Nasdaq during the four calendar
weeks preceding the date on which notice of such sale is filed under Rule 144(h)
of the Securities Act, or if no such notice is required, the date of receipt of
the order to execute the transaction. In addition, under
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<PAGE>
Rule 144(k), a stockholder who is not deemed an affiliate, and has not been an
affiliate for at least three months prior to the sale, is entitled to sell
restricted securities which were last purchased from the issuer or an affiliate
of the issuer a minimum of at least three years prior to such sale without
complying with the foregoing requirements. In calculating the two and three year
holding periods described above, a holder of restricted securities can include
the holding period of a prior owner who was not an affiliate.
Notwithstanding the limitations on sale described above, otherwise
restricted securities may be sold at any time through an effective registration
statement pursuant to the Securities Act.
The Company has agreed with the Underwriters that it will not, without the
prior written consent of the Representatives, offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock or any security convertible or
exchangeable for Common Stock, for a period of 180 days after the date of the
completion of the Public Offering, subject to certain limited exceptions. Any
person purchasing shares of Common Stock pursuant to the Directed Share Program,
if any, will agree with the Underwriters that he/she will not, without the prior
written consent of the Representatives, offer, sell, contract to sell or
otherwise dispose of any such shares for a period of 180 days after the
completion of the Public Offering, subject to certain limited exceptions. See
'Underwriting.'
UNDERWRITING
The Underwriters named below, for whom Bear, Stearns & Co. Inc. and
Oppenheimer & Co., Inc. are acting as representatives (the 'Representatives'),
have severally agreed, subject to the terms and conditions of the Underwriting
Agreement, to purchase from the Company the number of shares of Common Stock set
forth opposite their respective names below. The Underwriters are committed to
purchase and pay for all of such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
UNDERWRITER OF COMMON STOCK
- --------------------------------------------------------------------------- ---------------
<S> <C>
Bear, Stearns & Co. Inc. ..................................................
Oppenheimer & Co., Inc. ...................................................
---------------
Total................................................................. 3,100,000
---------------
---------------
</TABLE>
The Underwriters have advised the Company that they propose to offer the
Common Stock to the public on the terms set forth on the cover page of this
Prospectus. The Underwriters may allow selected dealers a concession of not more
than $ per share, and the Underwriters may allow, and such dealers may
re-allow, a concession of not more than $ to certain other dealers. After
the Public Offering, the price and concessions and re-allowances to dealers may
be changed by the Underwriters. The Common Stock is offered subject to receipt
and acceptance by the Underwriters and to certain other conditions, including
the right to reject orders in whole or in part.
Bear Stearns Home Equity Trust 1996-1, an affiliate of Bear, Stearns & Co.
Inc., currently provides the Company with a $200.0 million warehouse borrowing
facility which extends through March, 1997. Bear Stearns Home Equity Trust
1996-1 has informed the Company that, subject to the completion of appropriate
documentation, it has approved an increase to $300.0 million in the warehouse
borrowing facility. In addition, Bear, Stearns & Co. Inc. acted as lead manager
for the Company's November, 1995, February, 1996 and April, 1996
securitizations.
The Company has granted a 30-day option to the Underwriters, to purchase up
to a maximum of 465,000 additional shares of Common Stock to cover
over-allotments, if any, at the same price per share as the initial 3,100,000
shares to be purchased by the Underwriters. To the extent the Underwriters
75
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<PAGE>
exercise this option, each of the Underwriters will be committed, subject to
certain conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with the sale of Common
Stock offered hereby.
At the request of the Company, the Underwriters have initially reserved up
to 310,000 shares of Common Stock for sale at the initial public offering price
to certain employees, Industry Partners and their affiliates. The number of
shares of Common Stock available for sale to the general public will be reduced
to the extent such persons purchase such reserved shares. Any such reserved
shares which are not so purchased will be offered by the Underwriters to the
general public on the same basis as other shares offered thereby.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof.
The Company has also agreed not to offer, issue, sell, contract to sell,
grant any option for the sale of, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or any rights to acquire Common
Stock for a period of 180 days after the completion of the Public Offering,
without the prior written consent of the Representatives, subject to certain
limited exceptions. The Industry Partners have agreed with the Underwriters that
they will not, without the prior written consent of the Representatives, offer,
sell, contract to sell or otherwise dispose of any shares of Common Stock
purchased pursuant to the Directed Share Program for a period of 180 days after
the completion of the Public Offering, subject to certain limited exceptions.
See 'Shares Eligible for Future Sale.' Prior to the Public Offering, there has
been no public market for the Common Stock. The initial public offering price
for the Common Stock offered hereby will be determined by negotiation among the
Company and the Representatives. In determining such price, consideration will
be given to various factors, including the market valuation of comparable
companies, market conditions for initial public offerings, the history of and
prospects for the consumer finance industry, the Company's past and present
operations, its past and present earnings and current financial position, an
assessment of the Company's management, the general condition of the securities
markets and other relevant factors.
LEGAL MATTERS
Certain legal matters relating to the Common Stock being offered hereby
will be passed upon for the Company by Dewey Ballantine, 1301 Avenue of the
Americas, New York, New York 10019 and for the Underwriters by Gibson, Dunn &
Crutcher LLP, 200 Park Avenue, New York, New York 10166.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1994, 1995 and March 31, 1996, and for the period from inception (August 12,
1993) through December 31, 1993 and for each of the two years in the period
ended December 31, 1995 and the first three months ended March 31, 1996,
appearing in this Prospectus have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as stated in its report appearing elsewhere herein, and
are included in reliance upon the report of such firm given upon its authority
as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act of 1933, with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and the schedules thereto. For further
information with respect to the Company and the Common Stock, reference is made
to the Registration Statement and exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete, and, with respect to any
contract or other document filed as an exhibit to the Registration Statement,
each such statement is qualified in all respects by reference to such exhibit.
Copies of the
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<PAGE>
Registration Statement and the exhibits thereto are on file at the offices of
the Commission and may be obtained upon payment of the prescribed fee or may be
examined without charge at the Commission's Public Reference Section, Room 1024,
450 Fifth Street, N.W., Washington D.C. 20549, as well as at the Commission's
Regional Offices at Seven World Trade Center, New York, New York 10048, and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can be obtained in person from the
Public Reference Section of the Commission at its principal office located at
450 Fifth Avenue, N.W., Washington, D.C. 20549, upon payment of the prescribed
fees.
Upon completion of the Public Offering, the Company will be subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended, and
in accordance therewith will file annual and quarterly reports, proxy statements
and other information with the Commission. Such reports, proxy statements and
other information may be inspected, and copies of such material may be obtained
upon payment of the prescribed fees, at the Commission's Public Reference
Section at the addresses set forth above.
The Company intends to furnish to its stockholders annual reports
containing financial statements of the Company audited by its independent
auditors and quarterly reports containing unaudited condensed financial
statements for each of the first three quarters of each fiscal year.
77
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<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Financial Statements:
Consolidated Balance Sheets as of December 31, 1994, 1995 and March 31, 1996.......................... F-3
Consolidated Statements of Operations for the period August 12, 1993 (inception) through December 31,
1993 and for the years ended December 31, 1994 and 1995 and the three months ended March 31, 1996.... F-4
Consolidated Statements of Stockholders' Equity for the period August 12, 1993 (inception) through
December 31, 1993 and for the years ended December 31, 1994 and 1995 and the three months ended March
31, 1996............................................................................................. F-5
Consolidated Statements of Cash Flows for the period August 12, 1993 (inception) through December 31,
1993 and for the years ended December 31, 1994 and 1995 and the three months ended March 31, 1996.... F-6
Notes to Consolidated Financial Statements............................................................ F-8
</TABLE>
F-1
<PAGE>
<PAGE>
WHEN THE RECAPITALIZATION DESCRIBED IN NOTE 1 OF NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS RELATING TO THE REORGANIZATION OF THE COMPANY HAS BEEN CONSUMMATED,
WE WILL BE IN A POSITION TO ISSUE THE FOLLOWING REPORT.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
IMC MORTGAGE COMPANY AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of IMC
Mortgage Company and Subsidiaries as of December 31, 1994, 1995, and March 31,
1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the period August 12, 1993 (inception) through
December 31, 1993 and for each of the two years in the period ended December 31,
1995 and the three month period ended March 31, 1996. These financial statements
are the responsibility of IMC Mortgage Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of IMC Mortgage
Company and Subsidiaries as of December 31, 1994, 1995 and March 31, 1996, and
the consolidated results of their operations and their cash flows for the period
August 12, 1993 (inception) through December 31, 1993 and for each of the two
years in the period ended December 31, 1995 and the three month period ended
March 31, 1996, in conformity with generally accepted accounting principles.
Jacksonville, Florida
May 21, 1996
F-2
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1994 1995 1996
----------- ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents........................................ $ 3,091,180 $ 5,133,718 $ 7,566,695
Securities purchased under agreements to resell.................. 0 138,058,262 218,835,000
Accrued interest receivable...................................... 218,717 1,872,129 1,993,853
Accounts receivable.............................................. 295,003 1,179,907 3,002,890
Mortgage loans held for sale..................................... 28,995,750 193,002,835 257,458,182
Furniture, fixtures and equipment -- net......................... 431,750 679,950 914,725
Excess servicing receivables..................................... 3,403,730 14,072,771 22,905,311
Warehouse financing due from stockholders (Note 10).............. 57,000 53,200 6,677,044
Capitalized mortgage servicing rights............................ 0 0 1,322,180
Other assets..................................................... 148,861 498,662 851,092
Investment in joint venture...................................... 0 0 1,960,456
Goodwill......................................................... 0 0 1,712,769
----------- ------------ ------------
Total.................................................. $36,641,991 $354,551,434 $525,200,197
----------- ------------ ------------
----------- ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Warehouse finance facilities................................ $27,731,859 $189,819,046 $261,417,193
Term debt................................................... 0 11,120,642 21,879,297
Convertible debenture....................................... 0 0 1,800,000
Securities sold but not yet purchased....................... 0 139,200,000 216,479,966
Accrual for sharing of proportionate value of equity (Note
4)........................................................ 1,689,000 5,893,000 0
Accrued interest payable.................................... 508,576 1,055,550 1,323,311
Amounts payable to stockholders for taxes (Note 2).......... 0 1,306,645 5,126,471
Accrued and other liabilities............................... 405,945 547,707 2,522,323
Deferred income............................................. 450,600 0 523,201
----------- ------------ ------------
Total liabilities...................................... 30,785,980 348,942,590 511,071,762
----------- ------------ ------------
Commitments (Note 14)
Convertible preferred stock...................................... 0 0 2,006,000
Stockholders' equity:
Common stock, par value $.01 per share; 50,000,000
authorized; 6,000,000 shares issued and outstanding....... 60,000 60,000 60,000
Additional paid-in capital.................................. 3,824,601 3,844,601 12,292,601
Retained earnings (deficit)................................. 1,971,410 1,704,243 (230,166)
----------- ------------ ------------
Total stockholders' equity............................. 5,856,011 5,608,844 12,122,435
----------- ------------ ------------
Total.................................................. $36,641,991 $354,551,434 $525,200,197
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
FOR THE PERIOD MARCH 31,
AUGUST 12, 1993 FOR THE YEAR -------------------------
(INCEPTION) ENDED DECEMBER 31, 1995
THROUGH DECEMBER 31, ------------------------- -----------
1993 1994 1995 1996
-------------------- ----------- ----------- (UNAUDITED) -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Gain on sales of loans.......... $ 438,774 $ 8,583,277 $20,680,848 $ 3,297,408 $10,875,466
Additional securitization
transaction expense (Note
4)............................ 0 (560,137) (5,547,037) (254,507) (2,828,591)
-------------------- ----------- ----------- ----------- -----------
Net gain on sale of
loans.................... 438,774 8,023,140 15,133,811 3,042,901 8,046,875
-------------------- ----------- ----------- ----------- -----------
Warehouse interest income....... 97,159 2,510,062 7,884,679 1,090,933 5,160,943
Warehouse interest expense...... (50,709) (1,610,870) (6,006,919) (1,019,643) (3,375,244)
-------------------- ----------- ----------- ----------- -----------
Net warehouse interest
income................... 46,450 899,192 1,877,760 71,290 1,785,699
-------------------- ----------- ----------- ----------- -----------
Servicing fees.................. 0 99,224 1,543,339 109,167 995,439
Other........................... 28,235 1,072,855 1,117,903 208,243 628,536
-------------------- ----------- ----------- ----------- -----------
Total servicing fees and
other.................... 28,235 1,172,079 2,661,242 317,410 1,623,975
-------------------- ----------- ----------- ----------- -----------
Total revenues............. 513,459 10,094,411 19,672,813 3,431,601 11,456,549
-------------------- ----------- ----------- ----------- -----------
Expenses:
Compensation and benefits....... 507,904 3,348,236 5,139,386 1,021,815 3,666,685
Selling, general and
administrative expenses....... 355,526 2,000,401 3,477,677 553,910 2,240,856
Other........................... 0 14,143 297,743 16,084 342,534
Sharing of proportionate value
of equity (Note 4)............ 0 1,689,000 4,204,000 718,952 2,555,000
-------------------- ----------- ----------- ----------- -----------
Total expenses............. 863,430 7,051,780 13,118,806 2,310,761 8,805,075
-------------------- ----------- ----------- ----------- -----------
Net income (loss).................... $ (349,971) $ 3,042,631 $ 6,554,007 $ 1,120,840 $ 2,651,474
-------------------- ----------- ----------- ----------- -----------
-------------------- ----------- ----------- ----------- -----------
Unaudited Pro Forma Data (giving
effect to provision for income
taxes):
Income before provision for
income taxes.................. $ 6,554,007 $ 2,651,474
Pro forma provision for income
taxes (Note 3)................ 2,522,000 1,026,000
----------- -----------
Pro forma net income............ $ 4,032,007 $ 1,625,474
----------- -----------
----------- -----------
Pro forma net income per common
share......................... $0.51 $0.20
----- -----
----- -----
Weighted average number of
shares outstanding............ 7,935,752 7,935,752
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
-------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
--------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Initial equity contributions (August 12, 1993)................ 6,000,000 $60,000 $ 810,000 $ 0 $ 870,000
Cash contributions............................................ 0 0 696,488 0 696,488
Contributions in foregone premiums............................ 0 0 232,575 0 232,575
Net loss...................................................... 0 0 0 (349,971) (349,971)
--------- ------- ----------- ----------- -----------
Stockholders' equity at December 31, 1993..................... 6,000,000 60,000 1,739,063 (349,971) 1,449,092
Cash contributions............................................ 0 0 1,554,959 0 1,554,959
Contributions in foregone premiums............................ 0 0 530,579 0 530,579
Net income.................................................... 0 0 0 3,042,631 3,042,631
Distributions for taxes (Note 2).............................. 0 0 0 (721,250) (721,250)
--------- ------- ----------- ----------- -----------
Stockholders' equity at December 31, 1994..................... 6,000,000 60,000 3,824,601 1,971,410 5,856,011
Additional cash contributions................................. 0 0 20,000 0 20,000
Net income.................................................... 0 0 0 6,554,007 6,554,007
Distributions for taxes (Note 2).............................. 0 0 0 (6,821,174) (6,821,174)
--------- ------- ----------- ----------- -----------
Stockholders' equity at December 31, 1995..................... 6,000,000 60,000 3,844,601 1,704,243 5,608,844
Issuance of options to ContiFinancial (Note 4)................ 0 0 8,448,000 0 8,448,000
Net income.................................................... 0 0 0 2,651,474 2,651,474
Distributions for taxes (Note 2).............................. 0 0 0 (4,585,883) (4,585,883)
--------- ------- ----------- ----------- -----------
Stockholders' equity at March 31, 1996........................ 6,000,000 $60,000 $12,292,601 $ (230,166) $12,122,435
--------- ------- ----------- ----------- -----------
--------- ------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 12, 1993 FOR THE
(INCEPTION) FOR THE YEAR ENDED DECEMBER THREE MONTHS ENDED
THROUGH DECEMBER 31, 31, MARCH 31,
-------------------- ----------------------------- ----------------------------
1993 1994 1995 1996
-------------------- ------------- ------------- 1995 -------------
------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)............................ $ (349,971) $ 3,042,631 $ 6,554,007 $ 1,120,840 $ 2,651,474
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Sharing of proportionate value of
equity.................................. 0 1,689,000 4,204,000 718,952 2,555,000
Foregone premiums......................... 232,575 530,579 0 0 0
Depreciation and amortization............. 17,651 98,285 163,798 34,423 112,344
Deferred hedge............................ 0 0 (1,141,738) 0 3,496,772
Capitalized mortgage servicing rights..... 0 0 0 0 (1,360,366)
Net loss in joint venture................. 0 0 0 0 103,018
Net change in operating assets and
liabilities, net of effects from
purchase of Mortgage Central Corp.:
Mortgages purchased or originated....... (29,608,000) (282,924,000) (621,628,753) (119,385,000) (263,987,237)
Sales of mortgage loans................. 21,636,010 261,900,240 458,763,406 95,547,000 196,272,412
Decrease (increase) in securities
purchased under agreement to resell
and securities sold but not yet
purchased............................ 0 0 1,141,738 0 (3,496,772)
Increase in organization costs.......... (104,330) 0 0 0 0
Increase in accrued interest receivable
on mortgage loans held for sale...... (43,247) (175,470) (1,653,412) (252,327) (121,724)
Decrease (increase) in warehouse
financing due from stockholders...... 0 0 3,800 (50,350) (6,623,844)
Increase in excess servicing
receivables.......................... 0 (2,953,130) (10,669,041) (4,690,246) (8,832,540)
(Increase) decrease in other assets..... (87,663) 13,338 (370,667) 73,654 (357,646)
Increase in accounts receivable......... (2,950) (292,053) (884,904) (585,917) (1,822,983)
Increase (decrease) in accrued interest
payable.............................. 21,748 486,828 546,974 (334,630) 267,761
Increase (decrease) in deferred
income............................... 0 0 (450,600) 2,929,060 523,201
Increase in accrued and other
liabilities.......................... 108,871 185,596 141,762 (112,226) 1,917,690
-------------------- ------------- ------------- ------------ -------------
Net cash used in operating
activities......................... (8,179,306) (18,398,156) (165,279,630) (24,986,767) (78,703,440)
-------------------- ------------- ------------- ------------ -------------
Investing activities:
Investment in joint venture.................. 0 0 0 0 (2,063,474)
Purchase of furniture, fixtures and
equipment................................. (225,427) (292,809) (391,132) (100,198) (190,854)
-------------------- ------------- ------------- ------------ -------------
Net cash used in investing
activities......................... (225,427) (292,809) (391,132) (100,198) (2,254,328)
-------------------- ------------- ------------- ------------ -------------
</TABLE>
F-6
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 12, 1993 FOR THE
(INCEPTION) FOR THE YEAR ENDED DECEMBER THREE MONTHS ENDED
THROUGH DECEMBER 31, 31, MARCH 31,
-------------------- ----------------------------- ----------------------------
1993 1994 1995 1996
-------------------- ------------- ------------- 1995 -------------
------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Financing activities:
Contributions from stockholders.............. $ 1,566,488 $ 1,554,959 $ 20,000 $ 20,000 $ 0
Distributions to stockholders for taxes...... 0 (721,250) (5,514,529) (1,891,184) (766,057)
Borrowings -- warehouse...................... 28,803,402 288,530,292 711,907,906 120,792,822 312,026,441
Borrowings -- term debt...................... 0 0 11,120,642 4,496,694 12,558,655
Repayments of borrowings -- warehouse........ (21,538,670) (268,008,343) (549,820,719) (98,380,320) (240,428,294)
-------------------- ------------- ------------- ------------ -------------
Net cash provided by financing
activities......................... 8,831,220 21,355,658 167,713,300 25,038,012 83,390,745
-------------------- ------------- ------------- ------------ -------------
Net increase (decrease) in cash and cash
equivalents.................................. 426,487 2,664,693 2,042,538 (48,953) 2,432,977
Cash and cash equivalents, beginning of
period....................................... 0 426,487 3,091,180 3,091,180 5,133,718
-------------------- ------------- ------------- ------------ -------------
Cash and cash equivalents, end of period....... $ 426,487 $ 3,091,180 $ 5,133,718 $ 3,042,227 $ 7,566,695
-------------------- ------------- ------------- ------------ -------------
-------------------- ------------- ------------- ------------ -------------
Supplemental disclosure cash flow information:
Cash paid during the year for interest....... $ 30,424 $ 1,364,920 $ 5,459,945 $ 1,329,786 $ 3,299,900
-------------------- ------------- ------------- ------------ -------------
-------------------- ------------- ------------- ------------ -------------
Supplemental disclosure of noncash financing
and investing activities:
Contributed capital via foregone premiums
(Note 2)................................ $ 232,575 $ 530,579 $ 0 $ 0 $ 0
-------------------- ------------- ------------- ------------ -------------
-------------------- ------------- ------------- ------------ -------------
Acquisition of assets of Mortgage Central
Corp. (Note 5).......................... $ 0 $ 0 $ 0 $ 0 $ 2,006,000
-------------------- ------------- ------------- ------------ -------------
-------------------- ------------- ------------- ------------ -------------
Amounts payable to stockholders for taxes
(Note 2)................................ $ 0 $ 0 $ 1,306,645 $ 0 $ 3,819,826
-------------------- ------------- ------------- ------------ -------------
-------------------- ------------- ------------- ------------ -------------
Issuance of options to ContiFinancial..... $ 0 $ 0 $ 0 $ 0 $ 8,448,000
-------------------- ------------- ------------- ------------ -------------
-------------------- ------------- ------------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
Industry Mortgage Company, LP 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 is owned 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 owns 100% of the common stock of its subsidiaries, IMC Corporation of
America, IMC Securities, Inc. and IMC Mortgage Company.
The Partnership purchases and originates mortgages made to borrowers who
may not otherwise qualify for conventional loans for the purpose of
securitization and sale. The Partnership securitizes these mortgages into the
form of a Real Estate Mortgage Investment Conduit ('REMIC'). A significant
portion of the mortgages are sold on a servicing retained basis.
In contemplation of a proposed public offering, the Limited Partners will
exchange their limited partnership interest and the General Partner will
exchange the voting common stock of the General Partner for 100% of the voting
common shares (the exchange or recapitalization) of IMC Mortgage Company. The
exchange will be consummated on an historical cost basis as all entities are
under common control. After the exchange, IMC Mortgage Company (the 'Company')
will own 100% of the limited partnership interests in the Partnership and 100%
of the general partnership interest in the Partnership.
The accompanying consolidated financial statements include the accounts of
the Partnership, IMC Corporation of America, IMC Securities, Inc. and IMC
Mortgage Company, 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. DESCRIPTION OF PARTNERSHIP AGREEMENT:
CAPITAL CONTRIBUTIONS
Each voting limited partner ('VLP') owning a full partnership share
contributed $100,000 in cash and was required to make additional contributions
in either loan volume (via foregone premiums) or in cash until its respective
capital contribution reached $380,000, which occurred in 1994. Foregone premiums
represent the difference in the amount paid by the Partnership for mortgage
loans to VLPs who opted to make additional contributions in loan volume and the
value set forth in a pricing schedule (estimated fair value) delivered to the
VLP at the time of purchase. As of December 31, 1993, 1994, 1995 and March 31,
1996, contributions from VLPs totaled $1,601,063, $3,684,601, $3,704,601 and
$3,704,601, respectively, and contributions from certain key employee
(nonvoting) partners were $188,000, $190,000, $190,000 and $190,000,
respectively. Additionally, total contributions from the General Partner were
$10,000 as of December 31, 1993, 1994, and 1995 and March 31, 1996.
PURCHASES/SALES TO PARTNERS
Under the terms of the partnership agreement, each of the VLPs is required
to sell to the Partnership $1,000,000 per month in loan volume for each full
share ($500,000 per month for a 1/2 share), at market prices. Loans purchased
from limited partners during 1993, 1994, 1995, and the first quarter of 1996,
approximated $10,740,000, $92,362,000, $148,420,000 and $63,920,000,
respectively.
INCOME TAXES
All the tax effects of the Partnership's income or loss are passed through
to the partners individually, therefore, no Federal income taxes are payable by
the Partnership. State and Federal income taxes related to the Partnership's
corporate subsidiaries were not material.
F-8
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the terms of the partnership agreement, the Company is obligated to
make quarterly cash distributions to the partners equal to 45% of profits (as
defined in the partnership agreement) to enable the partners to pay taxes in
respect of their partnership interests. Distributions to partners for income
taxes were $721,250, $6,821,174 and $4,585,883 for the years ended December 31,
1994, 1995 and the three months ended March 31, 1996, respectively.
Distributions include cash paid to partners as well as distributions accrued but
not yet paid. Certain partners agreed to forego the receipt of the cash
distributions until the public offering, at which time they will receive the
accrued amount plus 10% interest per annum. The amount payable to stockholders
for taxes (including interest) at December 31, 1995 and March 31, 1996 was
$1,306,645 and $5,126,471, respectively.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL STATEMENTS
The consolidated financial statements, as of March 31, 1995 (unaudited) and
March 31, 1996, and for the three months ended March 31, 1995 (unaudited) and
the three months ended March 31, 1996, reflect all adjustments (consisting
solely of normal recurring adjustments) which, in the opinion of management, are
necessary to present fairly the financial position and results of operations for
the period presented. The results of operations for the three months ended March
31, 1995 and 1996 are not necessarily indicative of the results for a full year.
Certain information and footnote disclosures as of March 31, 1995 and for the
three months ended March 31, 1995 normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission, although the Company believes that the disclosures are
adequate to make the information not misleading.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and on deposit at
financial institutions. Cash and cash equivalents include interest bearing
deposits of $2,789,580, $5,133,718 and $7,566,695 at December 31, 1994, 1995,
and March 31, 1996, respectively.
EXCESS SERVICING RECEIVABLES
The Company originates and purchases mortgages for the purpose of
securitization and whole loan sale. The Company securitizes these mortgages into
the form of a REMIC. A REMIC is a multi-class security with certain tax
advantages which derives its monthly principal paydowns from a pool of
underlying mortgages. The senior classes of the REMICs are sold, with the
subordinated classes (or a portion thereof) retained by the Company. The
subordinated classes are in the form of residual and interest-only mortgage
securities and are classified as excess servicing receivables. The amount of
senior classes of REMICs outstanding at December 31, 1994, 1995 and March 31,
1996 were $89,103,000, $418,251,000 and $559,508,000, respectively. During 1994,
the Company securitized $90 million of loans through one REMIC; during 1995, the
Company securitized $380 million of loans through three REMICs; and during the
three months ended March 31, 1996, the Company securitized $175 million of loans
through one REMIC.
The Company initially records these securities at their allocated cost
based upon the present value of the interest in the cash flows retained by the
Company after considering various economic factors, including interest rates,
collateral value, and estimates of the value of future cash flows from the REMIC
mortgage pools under expected loss and prepayment assumptions discounted at a
market yield. The weighted average rate used to discount the cash flows was
approximately 11%, and the assumed loss ratio was 50 basis points per year.
In 1994, the Company adopted SFAS No. 115, 'Accounting for Certain
Investments in Debt and Equity Securities' ('SFAS 115') which requires fair
value accounting for these securities. In accordance
F-9
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
with the provisions of SFAS 115, the Company classifies excess servicing
receivables as 'trading securities' and, as such, they are recorded at fair
value with the resultant unrealized gain or loss recorded in the results of
operations in the period of the change in value. The Company determines fair
value at inception and on an ongoing basis based on a discounted cash flow
analysis. The cash flows are estimated as the excess of the weighted average
coupon on each pool of mortgage loans sold over the sum of the pass-through
interest rate plus a normal servicing fee, a trustee fee, an insurance fee and
an estimate of annual future credit losses related to the mortgage loans
securitized over the life of the mortgage loans.
These cash flows are projected over the life of the mortgage loans using
prepayment, default, and interest rate assumptions that market participants
would use for similar financial instruments subject to prepayment, credit and
interest rate risk. The fair valuation includes consideration of the following
characteristics: loan type, size, interest rate, date of origination, term and
geographic location. The Company also used other available information such as
externally prepared reports on prepayment rates, interest rates, collateral
value, economic forecasts and historical default and prepayment rates of the
portfolio under review.
CAPITALIZED SERVICING FEES RECEIVABLE
Effective January 1, 1996, the Company adopted SFAS No. 122 'Accounting for
Mortgage Servicing Rights' ('SFAS 122') which requires that upon sale or
securitization 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.
Prior to the adoption of SFAS 122, servicing rights acquired through loan
origination activities were recorded in the period the loans were serviced.
Under SFAS 122, the Company capitalized, at fair value, $1,360,366 of such costs
during the three months ended March 31, 1996. During the same period,
amortization of capitalized servicing rights was $38,186. At March 31, 1996, the
capitalized servicing rights approximated fair value. The Company periodically
reviews capitalized servicing fees receivable for impairment. This review is
performed on a disaggregated basis for the predominant risk characteristics of
the underlying loans which are loan type, term and credit quality. The Company
generally makes loans to borrowers whose borrowing needs may not be met by
traditional financial institutions due to credit exceptions. The Company has
found that these borrowers are payment sensitive rather than interest rate
sensitive. As such the Company does not consider interest rates a predominant
risk characteristic for purposes of impairment. Impairment is recognized in a
valuation allowance for each disaggregated stratum in the period of impairment.
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL/SECURITIES SOLD BUT NOT YET
PURCHASED
To hedge the interest rate risk on loan purchases, the Company sells short
United States Treasury securities which match the duration of the mortgage loans
held for sale and borrows the securities under agreements to resell.
Securities sold but not yet purchased are recorded on a trade date basis
and are carried at their sale amount. The unrealized gain or loss on these
instruments is deferred and recognized upon securitization as an adjustment to
the carrying value of the hedged asset. Interest expense on the securities sold
but not yet purchased is recorded as incurred.
Securities purchased under agreements to resell are recorded on a trade
date basis and are carried at the amounts at which the securities will be
resold, plus accrued interest.
F-10
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are mortgages the Company plans to sell or
securitize. Mortgage loans held for sale are stated at lower of cost, the
origination cost, or market. The cost or origination cost is net of any deferred
hedging gain or loss. Market value is determined by outstanding commitments from
investors, if any, or current investor yield requirements on the aggregate
basis. The Company evaluates the need for an allowance for loan losses to cover
losses related to mortgage loans held for sale based upon periodic analysis of
the portfolio, economic conditions and trends, historical credit loss
experience, borrowers ability to repay and collateral values. There was no
allowance for loan losses at December 31, 1994, 1995 and March 31, 1996.
REVENUE RECOGNITION
Gains on the sale of mortgage loans representing the difference between the
sales price and the net carrying amount of the loan, are recognized when
mortgage loans are sold and delivered to investors. For securitizations of
mortgage loans, the gain on the sale of the loans includes any hedging gains or
losses and represents the present value of the differential between interest
earned on the portion of loans sold and interest paid to investors less related
costs over the expected life of the loans, adjusted for projected prepayments,
expected charge-offs, foreclosure expenses, and a normal servicing fee.
Interest income on the excess servicing receivables is recorded as earned,
which is the recognition of the increased time value of the discounted excess
spread receivable over time. Warehouse interest income on mortgage loans held
for sale is recognized on the accrual method.
The Company generally retains servicing rights and recognizes servicing
income from fees, prepayment penalties and late payment charges earned for
servicing the loans owned by certificate holders and others. Servicing and other
fees are generally earned at a rate of approximately 1/2 of 1% of the
unamortized loan balance being serviced. Servicing fee income is recognized as
collected.
Other income consists primarily of interest on excess servicing receivables
and earnings on deposits.
FURNITURE, FIXTURES AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION
Furniture, fixtures and equipment are carried at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets. Leasehold
improvements are amortized over the useful life of the improvements.
GOODWILL
Goodwill represents the excess of cost over fair value of net tangible
assets acquired through acquisition. Such excess of cost over fair value of net
tangible assets acquired is being amortized on a straight-line basis over
twenty-five years. Amortization expense was $17,000 for the three months ended
March 31, 1996. Management periodically reviews the potential impairment of
goodwill on a non-discounted cash flow basis to assess recoverability. If the
estimated future cash flows are projected to be less than the carrying amount,
an impairment write-down (representing the carrying amount of the goodwill which
exceeds the present value of estimated expected future cash flows) would be
recorded as a period expense.
ORGANIZATION COSTS
Organization costs incurred in connection with the formation of the Company
amounted to $104,330, and are being amortized over five years. At December 31,
1994, 1995 and March 31, 1996, accumulated amortization was $29,450, $50,316 and
$55,533, respectively.
F-11
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In 1996, the Company will adopt 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 period options are
issued the pro forma net income and earnings per share amounts assuming the fair
value method was adopted on January 1, 1995. The adoption of this standard will
not have a material impact on results of operations, financial position or cash
flows.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the 1993, 1994 and 1995 financial statements have been
reclassified to conform with the 1996 classifications.
PRO FORMA DATA
The Partnership which is included in the consolidated financial statements
will become a wholly owned subsidiary of the Company after the plan of the
exchange is consummated. The Partnership made no provision for income taxes
since the Partnership's income or losses were passed through to the partners
individually.
When the public offering has occurred, and, accordingly, this exchange is
consummated, the Partnership will become subject to income taxes as of the
transaction's effective date. The pro forma data included in the consolidated
statements of operations of the Company include a pro forma provision for income
taxes to indicate what these taxes would have been had the exchange occurred in
prior years. Also, deferred income taxes reflecting the tax effect of the
temporary differences between the Company's financial statement and tax bases of
certain assets and liabilities will become a net asset of the Company and will
be reflected on the consolidated balance sheet with a corresponding non-
recurring benefit being reflected in the consolidating statement of operations
in the period when the public offering becomes effective. Deferred taxes would
relate primarily to mark-to-market adjustments recognized for tax purposes under
IRS Section 475, accrued contingent fees, and REMIC income recognition. The
approximate amount of such net deferred tax asset computed using the provisions
of SFAS No. 109 'Accounting for Income Taxes' would have been approximately
$5,600,000 at March 31, 1996.
The following unaudited pro forma information reflects the incremental
income tax expense that the Company would have incurred if it had been subject
to Federal and State income taxes for the year ended December 31, 1995 and the
three months ended March 31, 1996.
F-12
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------------- ------------------
<S> <C> <C>
Pro forma current:
Federal........................................... $ 3,904,000 $ 2,919,000
State............................................. 649,000 485,000
----------------------- ------------------
4,553,000 3,404,000
----------------------- ------------------
Pro forma deferred:
Federal........................................... (1,843,000) (2,157,000)
State............................................. (188,000) (221,000)
----------------------- ------------------
(2,031,000) (2,378,000)
----------------------- ------------------
Pro forma provision for income taxes................... $ 2,522,000 $ 1,026,000
----------------------- ------------------
----------------------- ------------------
</TABLE>
The following unaudited pro forma information reflects the reconciliation
between the statutory provision for income taxes and the pro forma provision
relating to the income tax expense the Partnership would have incurred as it had
been subject to federal and state income taxes.
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------------- ------------------
<S> <C> <C>
Income tax at federal statutory rate................... $ 2,272,000 $ 928,000
State taxes, net of federal benefit.................... 232,000 95,000
Nondeductible expenses................................. 18,000 3,000
----------------------- ------------------
Pro forma provision for income taxes................... $ 2,522,000 $1,026,000
----------------------- ------------------
----------------------- ------------------
</TABLE>
PRO FORMA EARNINGS PER SHARE
Pro forma 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) and convertible preferred stock.
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 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.
4. STRATEGIC ALLIANCE:
The Company relies on ContiFinancial Corporation and its subsidiaries and
affiliates ('ContiFinancial') to provide a credit facility for funding its loan
purchases and originations as well as their expertise and assistance in loan
securitization. In 1994, 1995 and the three months ended March 31, 1996, the
securitizations were structured so that ContiFinancial received, in exchange for
cash of $2,109,011, $18,424,827 and $6,157,647, respectively, excess servicing
receivables with estimated values of $3,035,000, $25,054,000 and $9,454,000,
respectively. In addition, ContiFinancial paid $365,852, $1,082,136 and $467,762
in expenses related to securitizations in 1994, 1995, and the three months ended
March 31, 1996. The difference between the estimated value of the excess
servicing receivables provided to ContiFinancial and the total amount of cash
received and expenses paid by ContiFinancial amounts to $560,137, $5,547,037 and
$2,828,591 in 1994, 1995 and the three months ended March 31, 1996,
respectively, and has been recorded as additional securitization transaction
expense.
F-13
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In August 1993, the Company entered into a five-year agreement ('1993
Agreement') with ContiFinancial which provided the Company with a warehouse line
of credit, a standby credit facility, and certain investment banking services.
In compensation for these services, the Company agreed to pay a commitment fee
to ContiFinancial equal to 0.50% of the agreement limit ($10 million) in the
first year and 0.75% of the agreement limit minus the weighted average advance
balance for the prior year, payable on each anniversary of the first purchase
date. Total commitment fees paid to ContiFinancial pursuant to this aspect of
the 1993 agreement were $50,000 in 1994.
Pursuant to the 1993 Agreement, the Company agreed to share the value of
the partnership through a contingent fee based on a percentage of Residual
Company Equity (as defined in the 1993 Agreement) to be paid in cash at the
termination of the agreement. At December 31, 1993, there was no Residual
Company Equity and accordingly no liability was recorded. At December 31, 1994,
the Company had Residual Company Equity and accordingly the Company accrued a
liability to reflect the contingent fee payable at December 31, 1994. This
accrual has been recorded as sharing of proportionate value of equity of
$1,689,000 in the accompanying balance sheet with a corresponding charge in the
statement of operations.
The Company has previously issued financial statements for the year ended
December 31, 1994 which did not include the accrual or corresponding charge for
the sharing of proportionate value of equity. Accordingly, the Company's 1994
financial statements presented herein have been restated for the effect of
sharing of residual partnership value. The restatement reduced both net income
and partnership equity as previously reported by $1,689,000.
On January 12, 1995, the Company and ContiFinancial entered into a revised
ten-year agreement (the '1995 Agreement') which replaced the 1993 Agreement and
provided for contingent fees based on the fair market value of the Company (as
defined). The amount of the contingent fee ranged from 15% to 25% of the fair
market value of the Company if ContiFinancial or the Company, respectively,
elected to terminate these arrangements. In the event that the agreement expired
with neither ContiFinancial nor the Company electing to terminate the
arrangements, the fee would have been 20% of the fair market value of the
Company. If the Company made any distributions to the partners other than those
made as tax distributions and returns of partnership equity, the Company would
have been required to distribute an amount to ContiFinancial equal to 25% of
these other distributions. At December 31, 1995, the Company accrued $5,893,000
(based on an appraisal of the fair market value of the Company) representing the
estimated amount that would have been payable to ContiFinancial had
ContiFinancial elected to terminate the 1995 Agreement as of December 31, 1995.
The increase in the amount of the accrual at December 31, 1995 related to the
1995 Agreement over the amount accrued at December 31, 1994 related to the 1993
Agreement has been recorded as a charge to earnings for 1995.
In March 1996, the Company and ContiFinancial replaced the 1995 Agreement
with an agreement (the '1996 Agreement') which eliminated the ability of
ContiFinancial to obtain or require a cash payment as provided for in the 1993
and 1995 Agreements and provided ContiFinancial options to acquire an interest
in the Company for a nominal amount. The interest is subject to dilution for
options granted to key employees and non-employee advisors as described in Note
13. The option automatically converts into warrants for a proportionate number
of shares in any corporation into which the Company may be converted. The option
also contains normal anti-dilution provisions. In the event of a public offering
of interest in the Company or its successors, ContiFinancial has certain rights
to join in registration of additional shares of the Company's stock and under
certain conditions after the expiration of a four-year time period, to require
that shares subject to ContiFinancial's warrants be registered by the Company or
its successor. The liability that had been established under the 1995 Agreement
was reclassed to paid in capital in March 1996 in conjunction with the issuance
of the ContiFinancial option. The fair value of the option at the date of grant
(March 26, 1996) was estimated to be $8,448,000 based on an independent
appraisal of the option. The Company recorded expense of $2,555,000 for the
three months ended March 31, 1996 representing the excess of the estimated fair
F-14
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
value of the option at the date of grant over the amount accrued at December 31,
1995 pursuant to the 1995 Agreement.
5. ACQUISITION OF ASSETS OF MORTGAGE CENTRAL CORPORATION:
On January 1, 1996, the Company acquired certain assets of Mortgage Central
Corp., a Rhode Island corporation ('MCC'), a mortgage banking company which did
business under the name 'Equitystars', primarily in Rhode Island, New York,
Connecticut and Massachusetts. The Partnership acquired MCC through a wholly
owned subsidiary, IMC Acquisitions, Inc., a Florida corporation
('Acquisitions'), which was formed for that purpose and which was subsequently
renamed IMC Mortgage Company. The purchase price ($2,006,000) for certain assets
of MCC was paid by delivery to MCC of Series A voting, convertible preferred
stock of Acquisitions, with contingency payments (capped at $2,550,000) over two
years based on performance. The preferred stock has a liquidation preference of
$100 per share plus preferred dividends accruing at 8% per annum from the date
of issuance until redemption or liquidation. The preferred stock is mandatorily
convertible into common shares of the Company upon closing of a public offering.
If no public offering occurs prior to June 30, 1996, the preferred stockholders
have the right to require the Company to purchase their shares at the
liquidation preference. If the Company fails to complete a public offering prior
to January 2, 2001, the Company may redeem the outstanding shares of the
convertible preferred stock at the liquidation preference.
The acquisition has been accounted for using the purchase method of
accounting, and, accordingly, the purchase price of $2,006,000 has been
allocated to the assets purchased and the liabilities assumed based upon the
fair values at the date of acquisition. The excess of the purchase price of
$2,006,000 over the fair values of the net assets was approximately $1,730,000
and was recorded as goodwill.
The operating results of these acquired businesses have been included in
the consolidated statement of income from the date of acquisition on January 1,
1996. On the basis of a pro forma consolidation of the results of operations as
if the acquisition had taken place at the beginning of 1995, consolidated total
revenues would have been $4,560,000 for the three months ended March 31, 1995.
Consolidated income would not have been materially different from the reported
amount for the three months ended March 31, 1995. Such amounts are not
necessarily indicative of what the actual consolidated results of operations
might have been if the acquisition had been effective at the beginning of 1995.
6. JOINT VENTURE:
In March 1996, the Company entered into an agreement to form a joint
venture (Preferred Mortgages Limited) in the United Kingdom to originate and
purchase mortgages made to borrowers who may not otherwise qualify for
conventional loans for the purpose of securitization and sale. The Company and a
second party each own 45% of the joint venture, and a third party owns the
remaining 10%. The investment in the joint venture represents the acquisition of
675,000 shares of the joint venture stock and a $1,031,737 note from the joint
venture bearing interest at 3% per annum above LIBOR. Principal repayment on the
note is to begin when the joint venture's Board of Directors determine the joint
venture has sufficient available profits. To the extent not previously repaid,
all principal is due December 31, 2040.
The investment in the joint venture accounted for under the equity method,
through March 31, 1996, was not material in relation to the financial position
or results of operations of the Company.
In addition, the Company issued a $1,800,000 convertible debenture due
September 1996, bearing interest at one percent per annum in excess of LIBOR, to
Rotch Property Group Limited, an affiliate of the other 45% joint venture
partner. The convertible debenture is convertible into common stock of the
Company during or after the initial public offering at 93% of the public
offering price per share.
F-15
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. COLLATERALIZED OBLIGATIONS:
<TABLE>
<CAPTION>
BALANCE OUTSTANDING
---------------------------------------------
DECEMBER 31,
TOTAL AVAILABLE ---------------------------
AT MARCH 31, 1996 1994 1995 MARCH 31, 1996
----------------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
Warehouse finance facilities........ $ 592,256,873 $27,731,859 $114,820,450 $208,674,066
Warehouse finance facilities --
under Repurchase Agreement........ 52,743,127 0 74,998,596 52,743,127
----------------- ----------- ------------ --------------
645,000,000 27,731,859 189,819,046 261,417,193
Term debt........................... 34,879,297 0 11,120,642 21,879,297
----------------- ----------- ------------ --------------
$ 679,879,297 $27,731,859 $200,939,688 $283,296,490
----------------- ----------- ------------ --------------
----------------- ----------- ------------ --------------
</TABLE>
WAREHOUSE FINANCE FACILITIES
The Company has available numerous lines of credit totaling $645,000,000 of
which $125,000,000 was through ContiFinancial, at March 31, 1996, for financing
the acquisition of mortgage loans held for sale. Of the total available,
$645,000,000 matures within 1 year. Interest rates ranged from 6.3% to 6.9% as
of March 31, 1996. Outstanding borrowing under these lines of credit are
collateralized by mortgage loans held for sale and warehouse financing due from
stockholders at March 31, 1996. Upon the sale of these loans and repayment of
warehouse financing due from stockholders, the lines will be repaid.
REPURCHASE AGREEMENT
At March 31, 1996, the Company had sold mortgage loans with a principle
balance of $49,993,485 to Conti under a repurchase agreement in exchange for a
premium of $2,749,642, which is included in warehouse notes.
TERM DEBT
The Company has available an additional line of credit under a Standby
Agreement with ContiFinancial for $15,000,000, the entire amount of which was
outstanding at March 31, 1996. Outstanding borrowings under this line are
accruing interest, based on LIBOR plus 1.70%, which was 7.1% at March 31, 1996
and collateralized by the Company's interest in the excess servicing
receivables. This agreement terminates in January, 2000. On March 26, 1996,
ContiFinancial agreed to lend the Company an additional $10,000,000 under the
Standby Agreement, bearing interest at LIBOR plus 8% per annum, which amounts
would be repaid with a portion of the net proceeds from the proposed public
offering. At March 31, 1996, no amounts were outstanding under this additional
Standby Agreement.
The Company also has available a $7,000,000 credit facility which matures
January 1, 1998 and bears interest at 12% per annum from an affiliate of a
stockholder. The outstanding balance of this line of credit is to be repaid from
the proceeds of the proposed initial public offering. In the event the line is
still outstanding at September 30, 1996, the lender has the right to require
that the Company grant a second lien on the Company's excess servicing
receivables. At March 31, 1996, $4,000,000 was outstanding under this credit
Facility.
The Company borrowed $2,879,297 under a one-year agreement bearing interest
at 1.25% per annum in excess of LIBOR to finance certain excess servicing
receivables which was collateralized by those excess servicing receivables.
The warehouse notes and term debt have requirements that the Company
maintain certain debt to equity ratios. Additionally, distributions (other than
tax distributions) cannot exceed the total equity.
F-16
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Capital expenditures are limited by certain agreements. Management believes they
are in compliance with all such covenants of these agreements.
8. OTHER ASSETS:
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995 MARCH 31, 1996
-------- -------- --------------
<S> <C> <C> <C>
Prepaid expenses........................... $ 21,742 $214,206 $320,824
Real estate owned.......................... 0 141,840 402,889
Organization costs, net.................... 74,880 54,014 48,797
Other assets............................... 52,239 88,602 78,582
-------- -------- --------------
$148,861 $498,662 $851,092
-------- -------- --------------
-------- -------- --------------
</TABLE>
9. SERVICING PORTFOLIO:
The total servicing portfolio of loans was approximately $92,003,000,
$535,798,000 and $783,367,000 at December 31, 1994 and 1995 and March 31, 1996,
respectively. The Company did not service any loans at December 31, 1993.
10. FINANCIAL INSTRUMENTS AND OFF BALANCE SHEET ACTIVITIES:
FINANCIAL INSTRUMENTS
SFAS 105 'Disclosure of Information about Financial Instruments with
Concentrations of Credit Risk' and SFAS 119, 'Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments' requires the
disclosure of the notional amount or contractual amounts of financial
instruments.
The Company regularly securitizes and sells fixed and variable rate
mortgage loan receivables. As part of its interest rate risk management
strategy, the Company may choose to hedge its interest rate risk related to its
mortgage loans held for sale by utilizing treasury securities. The Company
classifies these transactions as hedges. The gains and losses derived from these
financial securities are deferred and included in the carrying amounts of the
mortgage loans held for sale and ultimately recognized in income when the
related mortgage loans are sold. Deferred losses on the treasuries used to hedge
the anticipated transactions amounted to approximately $1,140,000 at December
31, 1995, and deferred gains on the treasuries used to hedge the anticipated
transactions amounted to approximately $2,355,000 at March 31, 1996. There was
no unrecognized hedge position at December 31, 1994.
MARKET RISK
The Company is subject to market risk from financial instruments including
short sales in that changes in market conditions can unfavorably affect the
market value of such contracts.
FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, 'Disclosures about Fair Values of Financial Instruments,'
requires disclosure of fair value information about financial instruments,
whether or not recognized in the financial statements, for which it is
practicable to estimate that value. In cases where quoted market prices are not
available, fair values are based upon estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and the estimated future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to
F-17
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS No. 107 excludes certain financial
instruments and all non-financial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts do not represent the underlying
value of the Company.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
the value:
Cash and cash equivalents: The carrying amount of cash on hand and on
deposit at financial institutions is considered to be a reasonable estimate
of fair market value.
Accrued interest receivable and accounts receivable: The carrying
amounts are considered to approximate fair value. All amounts that are
assumed to be uncollectible within a reasonable time are written off.
Mortgage loans held for sale: The estimate of fair values was based on
current pricing of whole loan transactions that a purchaser unrelated to
the seller would demand for a similar loan. The fair value of the mortgage
loans held for sale approximated $29,831,000, $196,577,000 and $266,444,000
at December 31, 1994, 1995, and March 31, 1996, respectively.
Excess servicing receivables: The fair value was determined by
discounting the estimated cash flow over the life of the receivable using
prepayment, default, and interest rate assumptions that market participants
would use for similar financial instruments subject to prepayment, credit
and interest rate risk. The carrying amount is considered to be a
reasonable estimate of fair market value.
Collateralized borrowings: Collateralized borrowings consist of
warehouse finance facilities and term debt. The warehouse finance
facilities have maturities of less than one year and bear interest at
market interest rates and therefore, the carrying value is a reasonable
estimate of fair value. The carrying amount of outstanding term debt, which
bear market rates of interest, approximates its fair value.
Convertible debenture: The convertible debenture has a maturity of
less than one year and bears a market rate of interest. Therefore, the
carrying value is a reasonable estimate of fair value.
Capitalized mortgage servicing rights: The fair value was determined
by estimating the present value of future cash flows related to servicing
income. In using this valuation method, the Company incorporated
assumptions that market participants would use in estimating future net
servicing income which included estimates of the cost of servicing per
loan, the discount rate, an inflation rate, ancillary income per loan,
prepayment speeds and default rates. The carrying amount is deemed to be a
reasonable estimate of fair value.
CREDIT RISK
The Company uses securities purchased under agreements to resell as part of
its interest rate management strategy. These instruments expose the Company to
credit risk which is measured as the loss the Company would record if
counterparties failed to perform pursuant to terms of their contractual
obligations and the value of the collateral held, if any, was not adequate to
cover such losses. The Company's policy is to keep the securities at the
financial institution which instituted the trade on behalf of the Company. The
Company monitors the market value of the assets acquired to ensure their
adequacy as compared to the amount at which the securities will be resold. The
interest rate of these instruments depends upon, among other things, the
underlying collateral, the term of the agreement and the credit quality of the
counterparty. The Company transacts these resale agreements with institutional
broker/dealers.
The Company is a party to financial instruments with off-balance sheet
credit risk in the normal course of business. These financial instruments
include commitments to extend credit to borrowers, and
F-18
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
commitments to purchase loans from correspondents. The Company has a first or
second lien position on all of its loans, and the maximum combined loan-to-value
ratio ('CLTV') permitted by the Company's underwriting guidelines is 100%. The
CLTV represents the combined first and second mortgage balances as a percentage
of the lesser of appraised value or the selling price of the mortgaged property,
with the appraised value determined by an appraiser with appropriate
professional designations. A title insurance policy is required for all loans.
As of December 31, 1994, 1995 and March 31, 1996, the Company had
outstanding commitments to extend credit at fixed rates or purchase loans in the
amount of $100,512,000, $92,397,000 and $114,800,000, respectively.
Commitments to extend credit or to purchase a loan are granted for a period
of thirty days and are contingent upon the borrower and the borrower's
collateral satisfying the Company's underwriting guidelines. Since many of the
commitments are expected to expire without being exercised, the total commitment
amount does not necessarily represent future cash requirements or future credit
risk.
The Company is exposed to on-balance sheet credit risk related to its
mortgage loans held for sale and excess servicing receivables. The Company is
also exposed to off-balance sheet credit risk related to loans which the Company
has committed to originate or buy.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents
and mortgages held for sale, securities purchased under agreements to resell,
and securities sold but not yet purchased. The Company places its cash and cash
equivalents with what management believes to be high-quality financial
institutions and thereby limits its exposure to credit risk. As of December 31,
1994, 1995 and March 31, 1996, the majority of mortgage loans with on balance
sheet and off balance sheet risks were collateralized by properties located in
the Eastern United States.
WAREHOUSE EXPOSURE
The Company makes available to two stockholders warehouse financing which
bear interest at LIBOR and LIBOR plus 1.75%, respectively. As of March 31, 1996
the Company had $10,000,000 and $8,000,000, respectively, of committed
warehousing available to these stockholders, of which $2,749,862 and $3,927,182,
respectively, was drawn down. Interest income on these warehouse financing
facilities approximated $54,000 for the three months ended March 31, 1996. The
warehouse commitments are for terms of less than one year. Assets from the
stockholders remain in the warehouse for a period of 30 days at which point they
are purchased by the Company or sold by the stockholders to another investor.
There were $57,000 and $53,200 outstanding as of December 31, 1994 and 1995,
respectively, under warehouse facilities, due from stockholders.
F-19
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. FURNITURE, FIXTURES AND EQUIPMENT:
Furniture, fixtures and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
Computer systems............................. $304,827 $523,150 $ 620,512
Office equipment............................. 104,059 174,107 193,894
Furniture.................................... 96,037 196,283 355,484
Leasehold improvements....................... 8,553 11,068 21,447
Other........................................ 3,487 3,487 3,487
-------- -------- ----------
Total................................... 516,963 908,095 1,194,824
-------- -------- ----------
Less accumulated depreciation................ (85,213) (228,145) (280,099)
-------- -------- ----------
Furniture, fixtures and equipment, net....... $431,750 $679,950 $ 914,725
-------- -------- ----------
-------- -------- ----------
</TABLE>
Depreciation expense was $9,033, $76,662, $142,932 and $51,954 for 1993,
1994, 1995 and the three months ended March 31, 1996, respectively.
13. EMPLOYEE BENEFIT PLANS:
DEFINED CONTRIBUTION PLAN
The partnership adopted a defined contribution plan (401(k)) for all
eligible employees during August 1995. Contributions to the plan are in the form
of employee salary deferrals which may be subject to an employer matching
contribution up to a specified limit at the discretion of the Company. The
Company's contribution to the plan amounted to $107,031 and $65,000 for the year
ended 1995 and the three months ended March 31, 1996, respectively.
KEY EMPLOYEE AND ADVISOR OPTIONS
On December 11, 1995, the Company adopted the Industry Mortgage Company
1995 Incentive Plan (the 'Partnership Option Plan') pursuant to which the
Company was authorized to grant certain key employees, directors of the General
Partner and certain non-employee advisors (collectively, 'Eligible Persons')
options to acquire an equity interest in the Company. The aggregate equity
interest in the Company available under the Partnership Option Plan is not to
exceed 12% of all equity interests in the Company. At March 31, 1996, the
Company had granted options to employees and advisors which, if exercised, would
aggregate a 7% interest in the Company. All of those options were granted on
December 11, 1995 at an exercise price of $3,802 representing the estimated fair
market value at the date of grant for each .01% interest in the Company based on
an independent appraisal of the Company. The options vest 60% on the date of
their grant, with an additional 20% to vest on each of the first and second
anniversary dates of each grant. The options are exercisable for a ten-year
period and all unexercised options become void in the event the holder of any
such option's relationship with the Company is terminated for cause. The options
are not transferable except as a result of death.
14. COMMITMENTS:
OPERATING LEASES
The Company leases office space in various cities under operating lease
agreements. The lease agreements require monthly rent of approximately $43,000
including sales taxes, and are subject to certain annual increases. The lease
agreements have lease terms ranging from 6 to 48 months.
Rent expense under operating leases was $57,297, $210,063, $362,946 and
$159,683 in 1993, 1994, 1995 and the three months ended March 31, 1996.
F-20
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under noncancelable lease agreements are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING OPERATING
DECEMBER 31, LEASES
- ------------------------------------------------------------ ----------
<S> <C>
1996..................................................... $ 590,914
1997..................................................... 495,181
1998..................................................... 377,109
1999..................................................... 297,698
----------
$1,760,902
----------
----------
</TABLE>
EMPLOYMENT AGREEMENTS
Certain members of management entered into employment agreements expiring
2001, which among other things, provide for aggregate annual compensation of
approximately $850,000 plus bonuses equal to 15% of base salary in the relevant
year for each one percent by which the increase in net income on an earnings per
share basis of the Company over the prior year exceeds 10%, up to a maximum of
300% of annual compensation. Each employment agreement contains a restrictive
covenant which prohibits the executive from competing with the Company for a
period of 18 months after termination.
F-21
<PAGE>
<PAGE>
________________________________________________________________________________
NO DEALER, SALES REPRESENTATIVE, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 8
Recent Events.................................. 16
The Company.................................... 17
The Reorganization Plan........................ 17
Use of Proceeds................................ 18
Dilution....................................... 19
Dividend Policy................................ 19
Capitalization................................. 20
Selected Consolidated Financial Data........... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 24
Business....................................... 38
Management..................................... 55
Principal Stockholders......................... 63
Certain Relationships and Related
Transactions................................. 65
Certain Accounting Considerations Relating to
the Conti VSA................................ 69
Description of Capital Stock................... 71
Shares Eligible For Future Sale................ 74
Underwriting................................... 75
Legal Matters.................................. 76
Experts........................................ 76
Additional Information......................... 76
Index to Consolidated Financial Statements..... F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
________________________________________________________________________________
3,100,000 SHARES
IMC MORTGAGE COMPANY
[LOGO]
COMMON STOCK
--------------------
PROSPECTUS
--------------------
BEAR, STEARNS & CO. INC.
OPPENHEIMER & CO., INC.
JUNE , 1996
________________________________________________________________________________
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of the estimated amounts of all
expenses payable by the Registrant in connection with the registration of the
Common Stock offered hereby, other than underwriting discounts and commissions:
<TABLE>
<S> <C>
Registration Fee -- Securities and Exchange Commission.................................... $ 23,357
Nasdaq National Market Listing Fee........................................................ 47,500
NASD Filing Fee........................................................................... 7,274
Blue Sky fees and expenses................................................................ 35,000
Accountants' fees and expenses............................................................ 300,000
Legal fees and expenses................................................................... 350,000
Printing and engraving expenses........................................................... 130,000
Transfer agent and registrar fees......................................................... 10,000
Miscellaneous............................................................................. 96,869
----------
Total................................................................................ $1,000,000
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Florida Act authorizes Florida corporations to indemnify any person who
was or is a party to any proceeding (other than an action by, or in the right
of, the corporation), by reason of the fact that he or she is or was a director,
officer, employee, or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation or other entity, against liability incurred in connection with such
proceeding, including any appeal thereof, if he or she acted in good faith and
in a manner he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
In the case of an action by or on behalf of a corporation, indemnification may
not be made if the person seeking indemnification is adjudged liable, unless the
court in which such action was brought determines such person is fairly and
reasonably entitled to indemnification. The indemnification provisions of the
Florida Act require indemnification if a director or officer has been successful
on the merits or otherwise in defense of any action, suit or proceeding to which
he or she was a party by reason of the fact that he or she is or was a director
or officer of the corporation. The indemnification authorized under Florida law
is not exclusive and is in addition to any other rights granted to officers and
directors under the Articles of Incorporation or Bylaws of the corporation or
any agreement between officers and directors and the corporation.
Under the Florida Act, a director is not personally liable for monetary
damages to the Company or any other person for acts or omissions in his or her
capacity as a director except in certain limited circumstances such as certain
violations of criminal law and transactions in which the director derived an
improper person benefit. As a result, shareholders may be unable to recover
monetary damages against directors for actions taken by them which constitute
negligence or gross negligence or which are in violation of their fiduciary
duties, although injunctive or other equitable relief may be available. These
provisions will not limit the liability of the Company's directors under the
Federal securities laws.
The Company's Certificate of Incorporation provides that the Company shall
indemnify officers and directors, and to the extent authorized by the Board of
Directors, employees and agents of the Company, to the full extent permitted by
and in the manner permissible by law in existence either now or hereafter. In
addition, the Certificate of Incorporation also permits the Board of Directors
to authorize the Company to purchase and maintain insurance against any
liability asserted against any director, officer, employee or agent of the
Company arising out of his capacity as such. The Company presently maintains
policies of directors' and officers' liability insurance in the amount of $2.0
million.
The Underwriting Agreement filed as Exhibit 1 hereto contains reciprocal
agreements of indemnity between the Company and the Underwriters as to certain
liabilities, including liabilities under the
II-1
<PAGE>
<PAGE>
Securities Act, and in certain circumstances provides for the indemnification of
the Company's directors, officers, and controlling persons.
Certain registration rights agreements between the Company and certain of
its shareholders contain reciprocal agreements between the Company and such
shareholders as to certain liabilities, including liabilities under the
Securities Act, and in certain circumstances provide for indemnification of the
Company's directors, officers and controlling persons.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In March, 1996, the Partnership issued a debenture due September 18, 1996
to Rotch Property Group Limited for $1.8 million. Pursuant to the debenture,
Rotch Property Group Limited has the right to convert the debenture into shares
of Common Stock of the Registrant and receive shares of Common Stock, $.01 par
value per share, at a price equal to 93% of the public offering price. The
Company will pay all amounts due under the Rotch Debenture from the proceeds of
the Public Offering. The issuance of the Rotch Debenture was exempt from
registration under the Securities Act by virtue of Section 4(2) thereof.
As of December 31, 1995, the Partnership entered into an agreement with
ContiTrade Services Corporation in which the Partnership issued an option to
purchase limited partnership interests which, in connection with the
Reorganization Plan, will become a warrant for 1.5 million shares of the
Registrant's Common Stock, $.01 par value per share. Both the issuance of the
Conti Option and its exchange for the Conti Warrant were transactions exempt
from registration under the Securities Act by virtue of Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1 -- Form of Underwriting Agreement.*
2.1 -- Pre IPO Agreement between the Partnership, the General Partners and each Limited Partner.'ch'
3.1 -- Articles of Incorporation of the Registrant, as amended.'ch'
3.2 -- Bylaws of the Registrant, as amended.'ch'
4.1 -- Specimen of Certificate for Common Stock.*
4.2 -- Indenture Agreement between the Partnership and Rotch Property Group Limited.'ch'
4.3 -- Substitution Agreement between the Partnership and ContiTrade Services Corporation.'ch'
4.4 -- Incentive Plan of the the Company and related assumption agreements.'ch'
4.5 -- Outside Directors' Option Plan of the the Company and related assumption agreements.'ch'
5.1 -- Opinion of Dewey Ballantine.
10.1 -- Employment Agreement dated January 1, 1996 between the Partnership and George Nicholas, as amended.'ch'
10.2 -- Employment Agreement dated January 1, 1996 between the Partnership and Thomas G. Middleton, as
amended.'ch'
10.3 -- Employment Agreement dated January 1, 1996 between the Partnership and David MacDonald.'ch'
10.4 -- Lease Agreements between the Partnership and CLW Realty Asset Group Inc.'ch'
10.5 -- Share Subscription and Shareholders' Agreement between the Partnership and Foxgard Limited, Financial
Security Assurance Holdings, Inc. and Preferred Mortgages Limited.'ch'
10.6 -- Transfer Agreement between the Partnership and Curzon Equity Finance Corporation Limited, Preferred
Mortgages Limited, Rotch Property Group Limited, Foxgard Limited and Financial Security Assurance Holdings,
Inc.'ch'
10.7 -- Side letter relating to the Share Subscription and Shareholders' Agreement between the Partnership and
Foxgard Limited, Financial Security Assurance Holdings, Inc. and Preferred Mortgage Limited.'ch'
10.8 -- Asset Purchase Agreement and Plan of Reorganization between the Partnership, IMC Acquisition, Inc.,
Mortgage Central Corp. and the shareholders of Mortgage Central Corp.'ch'
10.9 -- Registration Rights Agreement between the Partnership and the shareholders of Mortgage Central Corp.'ch'
10.10 -- Investment Banking Services Agreement between the Partnership and ContiTrade Services Corporation.'ch'
10.11 -- Standby Facility Agreement between the Partnership and ContiTrade Services Corporation and Supplement
thereto.'ch'
</TABLE>
II-2
<PAGE>
<PAGE>
<TABLE>
<C> <S>
10.12 -- Amended and Restated Loan and Security Agreement between the Partnership and ContiTrade Services
Corporation.'ch'
10.13 -- Secured Note from the Partnership to ContiTrade Services Corporation.'ch'
10.14 -- Amended and Restated Custodial Agreement among the Partnership, ContiTrade Services Corporation and Bank
of Boston.'ch'
10.15 -- 1995 Agreement between the Partnership and ContiTrade Services Corporation.'ch'
10.16 -- Assignment, Assumption and Consent Agreement among the Partnership, ContiTrade, ContiTrade Services LLC
and First National Bank of Boston.'ch'
10.17 -- Master Repurchase Agreement Governing Purchase and Sales of Mortgage Loans between the Partnership and
Nomura Asset Capital Corporation and related Power of Attorney.*`D'
10.18 -- Master Repurchase Agreement between the Partnership and Nomura Securities International, Inc.
10.19 -- Global Master Repurchase Agreement between the Partnership and Nomura Grand Cayman, Ltd.*`D'
10.20 -- Custodial Agreement among the Partnership, The First National Bank of Boston and Nomura Asset Capital
Corporation.'ch'
10.21 -- Loan and Security Agreement between the Partnership and First National Bank of Boston and amendments
thereto.*`D'
10.22 -- Interim Loan and Security Agreement between the Partnership and National Westminster Bank PLC, New York
Branch.*`D'
10.23 -- Custodial Agreement among the Partnership, National Westminster Bank PLC and First National Bank of
Boston.'ch'
10.24 -- Promissory Note between the Partnership and Lakeview Savings Bank.'ch'
10.25 -- Security Agreement Collateralizing Promissory Note between the Partnership and Lakeview Savings Bank.'ch'
10.26 -- Master Repurchase Agreement among the Partnership and Bear Stearns Home Equity Trust 1996-1.*`D'
10.27 -- Custody Agreement among the Partnership, IMC Corporation of America, Bear Stearns Home Equity Trust 1996-1
and Bank of Boston.'ch'
10.28 -- Warehousing Credit and Security Agreement among the Partnership, IMC Corporation of America and
Residential Funding Corporation, as amended.*`D'
10.29 -- Custodial Agreement among the First National Bank of Boston, the Partnership, IMC Corporation of America
and Residential Funding Corporation.'ch'
10.30 -- Loan and Security Agreement between the Partnership and American Industrial Loan Association, Approved
Residential Mortgage, Inc. and Armada Residential Mortgage, LLC.
10.31 -- Loan and Security Agreement between the Partnership and Mortgage Central Corp.
10.32 -- Custodial Agreement among the Partnership, Mortgage Central Corp. and the First National Bank of Boston.
10.33 -- Custodial Agreement among the Partnership, American Industrial Loan Association, Approved Residential
Mortgage, Inc., Armada Residential Mortgage, LLC and the First National Bank of Boston.
11.1 -- Statement re computation of earnings per share (See Note 1 to the Consolidated Financial Statements).'ch'
16.1 -- Letter dated April, 1996 from Deloitte & Touche, LLP to the Registrant.'ch'
21.1 -- Subsidiaries of the Registrant.'ch'
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Dewey Ballantine (contained in Exhibit 5.1).
24.1 -- Power of Attorney (included on page II-4).'ch'
27.1 -- Financial Data Schedule'ch'
99.1 -- Third Amended and Restated Agreement of Limited Partnership.'ch'
</TABLE>
- ------------
* To be filed by amendment.
`D' Confidential treatment requested.
'ch' Previously filed.
(b) Financial Statement Schedules
None
II-3
<PAGE>
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Tampa, state of Florida,
on June 10, 1996.
IMC MORTGAGE COMPANY
By /S/ THOMAS MIDDLETON
..................................
THOMAS MIDDLETON,
PRESIDENT, CHIEF OPERATING OFFICER,
ASSISTANT SECRETARY AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
* Chairman of the Board, Chief June 10, 1996
......................................... Executive Officer and Assistant
(GEORGE NICHOLAS) Secretary (Principal Executive Officer)
* Director June 10, 1996
.........................................
(JOSEPH P. GORYEB)
* Director June 10, 1996
.........................................
(ALLEN D. WYKLE)
* Director June 10, 1996
.........................................
(MITCHELL W. LEGLER)
/S/ THOMAS G. MIDDLETON President, Chief Operating Officer, June 10, 1996
......................................... Assistant Secretary and Director
(THOMAS G. MIDDLETON)
* Chief Financial Officer (Principal June 10, 1996
......................................... Accounting Officer and Principal
(GEORGE FREEMAN) Financial Officer
*By: /S/ THOMAS G. MIDDLETON
.........................................
(THOMAS G. MIDDLETON
AS ATTORNEY-IN-FACT)
</TABLE>
II-5
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
LOCATION OF EXHIBIT
EXHIBIT IN SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
- ------- --------------------------------------------------------------------------------------- -------------------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement.*....................................................
2.1 -- Pre IPO Agreement between the Partnership, the General Partners and each Limited
Partner.'ch'.........................................................................
3.1 -- Articles of Incorporation of the Registrant, as amended.'ch'........................
3.2 -- Bylaws of the Registrant, as amended.'ch'...........................................
4.1 -- Specimen of Certificate for Common Stock.*..........................................
4.2 -- Indenture Agreement between the Partnership and Rotch Property Group Limited.'ch'...
4.3 -- Substitution Agreement between the Partnership and ContiTrade Services
Corporation.'ch'.....................................................................
4.4 -- Incentive Plan of the Company and related assumption agreements.'ch'................
4.5 -- Outside Directors Option Plan of the Company and related assumption
agreements.'ch'......................................................................
5.1 -- Opinion of Dewey Ballantine.........................................................
10.1 -- Employment Agreement dated January 1, 1996 between the Partnership and George
Nicholas, as amended.'ch'............................................................
10.2 -- Employment Agreement dated January 1, 1996 between the Partnership and Thomas G.
Middleton, as amended.'ch'...........................................................
10.3 -- Employment Agreement dated January 1, 1996 between the Partnership and David
MacDonald.'ch'.......................................................................
10.4 -- Lease Agreements between the Partnership and CLW Realty Asset Group, Inc.'ch'.......
10.5 -- Share Subscription and Shareholders' Agreement between the Partnership and Foxgard
Limited, Financial Security Assurance Holdings, Inc. and Preferred Mortgages
Limited.'ch'.........................................................................
10.6 -- Transfer Agreement between the Partnership and Curzon Equity Finance Corporation
Limited, Preferred Mortgages Limited, Rotch Property Group Limited, Foxgard Limited
and Financial Security Assurance Holdings, Inc.'ch'..................................
10.7 -- Side Letter relating to the Share Subscription and Shareholders Agreement between
the Partnership and Foxgard Limited, Financial Security Assurance Holdings, Inc. and
Preferred Mortgage Limited.'ch'......................................................
10.8 -- Asset Purchase Agreement and Plan of Reorganization between the Partnership, IMC
Acquisition, Inc., Mortgage Central Corp. and the shareholders of Mortgage Central
Corp.'ch'............................................................................
10.9 -- Registration Rights Agreement between the Partnership and the shareholders of
Mortgage Central Corp.'ch'...........................................................
10.10 -- Investment Banking Services Agreement between the Partnership and ContiTrade
Services Corporation.'ch'............................................................
10.11 -- Standby Facility Agreement between the Partnership and ContiTrade Services
Corporation and Supplement thereto.'ch'..............................................
10.12 -- Amended and Restated Loan and Security Agreement between the Partnership and
ContiTrade Services Corporation.'ch'.................................................
10.13 -- Secured Note from the Partnership to ContiTrade Services Corporation.'ch'...........
10.14 -- Amended and Restated Custodial Agreement among the Partnership, ContiTrade Services
Corporation and Bank of Boston.'ch'..................................................
10.15 -- 1995 Agreement between the Partnership and ContiTrade Services Corporation.'ch'.....
10.16 -- Assignment, Assumption and Consent Agreement among the Partnership, ContiTrade,
ContiTrade Services LLC and First National Bank of Boston.'ch'.......................
10.17 -- Master Repurchase Agreement Governing Purchase and Sales of Mortgage Loans between
the Partnership and Nomura Asset Capital Corporation and related Power of
Attorney.*`D'........................................................................
10.18 -- Master Repurchase Agreement between the Partnership and Nomura Securities
International, Inc...................................................................
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<C> <S> <C>
10.19 -- Global Master Repurchase Agreement between the Partnership and Nomura Grand Cayman,
Ltd.*`D'.............................................................................
10.20 -- Custodial Agreement between the Partnership, The First National Bank of Boston and
Nomura Asset Capital Corporation.'ch'................................................
10.21 -- Loan and Security Agreement between the Partnership and First National Bank of
Boston and amendments thereto.*`D'...................................................
10.22 -- Interim Loan and Security Agreement between the Partnership and National Westminster
Bank PLC, New York Branch.*`D'.......................................................
10.23 -- Custodial Agreement among the Partnership, National Westminster Bank PLC and First
National Bank of Boston.'ch'.........................................................
10.24 -- Promissory Note between the Partnership and Lakeview Savings Bank.'ch'..............
10.25 -- Security Agreement Collateralizing Promissory Note between the Partnership and
Lakeview Savings Bank.'ch'...........................................................
10.26 -- Master Repurchase Agreement among the Partnership and Bear Stearns Home Equity Trust
1996-1.*`D'..........................................................................
10.27 -- Custody Agreement among the Partnership, IMC Corporation of America, Bear Stearns
Home Equity Trust 1996-1 and Bank of Boston.'ch'.....................................
10.28 -- Warehousing Credit and Security Agreement between the Partnership, IMC Corporation
of America and Residential Funding Corporation, as amended.*`D'......................
10.29 -- Custodial Agreement among the First National Bank of Boston, the Partnership, IMC
Corporation of America and Residential Funding Corporation.'ch'......................
10.30 -- Loan and Security Agreement between the Partnership and American Industrial Loan
Association, Approved Residential Mortgage, Inc. and Armada Residential Mortgage,
LLC..................................................................................
10.31 -- Loan and Security Agreement between the Partnership and Mortgage Central Corp.......
10.32 -- Custodial Agreement among the Partnership, Mortgage Central Corp. and the First
National Bank of Boston..............................................................
10.33 -- Custodial Agreement among the Partnership, American Industrial Loan Association,
Approved Residential Mortgage, Inc., Armada Residential Mortgage, LLC and the First
National Bank of Boston..............................................................
11.1 -- Statement re computation of earnings per share (See Note 1 to the Consolidated
Financial Statements).'ch'...........................................................
16.1 -- Letter dated April, 1996 from Deloitte & Touche, LLP to the Registrant.'ch'.........
21.1 -- Subsidiaries of the Registrant.'ch'.................................................
23.1 -- Consent of Coopers & Lybrand L.L.P..................................................
23.2 -- Consent of Dewey Ballantine (contained in Exhibit 5.1)..............................
24.1 -- Power of Attorney (included on page II-4).'ch'......................................
27.1 -- Financial Data Schedule.'ch'........................................................
99.1 -- Third Amended and Restated Agreement of Limited Partnership.'ch'....................
</TABLE>
- ------------
* To be filed by amendment.
`D' Confidential treatment has been requested.
'ch' Previously filed.
<PAGE>
<PAGE>
STATEMENT OF DIFFERENCES
------------------------
The dingbat checkmark symbol shall be expressed as 'ch'
The British pound sign shall be expressed as 'L'
The dagger symbol shall be expressed as `D'
The section symbol shall be expressed as ss.
<PAGE>
<PAGE>
DEWEY BALLANTINE
1301 Avenue of the Americas
New York 10019-6092
Telephone 212-259-8000 Facsimile 212 259-6333
Exhibit 5.1
June 10, 1996
IMC Mortgage Company
3450 Buschwood Park Drive
Tampa, Florida 33618
Ladies and Gentlemen:
We have acted as counsel to IMC Mortgage Company, a Florida
corporation (the "Company"), in connection with the filing by the Company of
Amendment No. 2 to the Registration Statement on Form S-1 (Reg. No. 333-3954)
to be filed on June 10, 1996 (the "Registration Statement") relating to the
public offering of up to 3,100,000 shares (the "Stock") of the Company's Common
Stock, $0.01 par value per share.
We are not admitted to practice under the laws of the state of
Florida. With respect to the opinions expressed herein, as to all matters
governed by Florida law, we have relied upon the opinion of Mitchell W. Legler,
P.A., a copy of which is attached hereto. Based on the foregoing, it is our
opinion that:
1. The issuance of the Stock has been lawfully and duly
authorized; and
2. When the Stock has been issued, delivered and sold upon the
terms stated in the Registration Statement, the Stock will be legally issued,
fully paid and nonassessable.
We consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the references to this firm on the cover of the
Registration Statement and under the heading "Legal Matters" in the Prospectus
included in such Registration Statement.
Very truly yours,
/s/ Dewey Ballantine
<PAGE>
<PAGE>
MITCHELL W. LEGLER, P.A.
1 Independent Drive, Suite 3104
Jacksonville, Florida 32202
Telephone 904-791-9111 Facsimile 904-791-9333
June 10, 1996
IMC Mortgage Company
3450 Buschwood Park Drive
Tampa, Florida 33618
Ladies and Gentlemen:
We have acted as special counsel to IMC Mortgage Company, a
Florida corporation (the "Company"), in connection with the filing by the
Company of Amendment No. 2 to the Registration Statement on Form S-1 (Reg.
No. 333-3954) on the date hereof (the "Registration Statement") relating to
the public offering of up to 3,100,000 shares (the "Stock") of the Company's
Common Stock, $.01 par value per share.
We are admitted to practice under the laws of the state of
Florida. Based on the foregoing, it is our opinion that:
1. The issuance of the Stock has been lawfully and duly
authorized; and
2. When the Stock has been issued, delivered and sold upon the
terms stated in the Registration Statement, the Stock will be legally issued,
fully paid and nonassessable.
We consent to the filing of this opinion as an attachment to
the opinion of Dewey Ballantine filed as Exhibit 5.1 to the Registration
Statement. We hereby consent to the reliance of Dewey Ballantine on this
opinion with respect to any matters addressed herein which are governed by
Florida law.
Very truly yours,
/s/ Mitchell W. Legler, P.A.
<PAGE>
<PAGE>
Public Securities Association [LOGO]
40 Broad Street, New York, NY 10004-2373
Telephone (212) 809-7000
MASTER REPURCHASE AGREEMENT
Between: Dated as of December 27, 1995
NOMURA SECURITIES INT'L, INC.
- -------------------------------
and
INDUSTRY MORTGAGE COMPANY, L.P.
- -------------------------------
1. Applicability
From time to time the parties hereto may enter into transactions into which
one party ("Seller") agrees to transfer to the other ("Buyer") securities or
financial instruments ("Securities") against the transfer of funds by Buyer,
with a simultaneous agreement by Buyer to transfer to Seller such Securities at
a date certain or on demand, against the transfer of funds by Seller. Each such
transaction shall be referred to herein as a "Transaction" and shall be governed
by this Agreement, including any supplemental terms or conditions contained in
Annex I hereto, unless otherwise agreed in writing.
2. Definitions
(a) "Act of Insolvency", with respect to any party, (i) the commencement by
such party as debtor of any case or proceeding under any bankruptcy, insolvency,
reorganization, liquidation, dissolution or similar law, or such party seeking
the appointment of a receiver, trustee, custodian or similar official for such
party or any substantial part of its property, or (ii) the commencement of any
such case or proceeding against such party, or another seeking such an
appointment, or the filing against a party of an application for a protective
decree under the provisions of the Securities Investor Protection Act of 1970,
which (A) is consented to or not timely contested by such party, (B) results in
the entry of an order for relief, such as appointment, the issuance of such a
protective decree or the entry of an order having a similar effect, or (C) is
not dismissed within 15 days, (iii) the making by a party of a general
assignment for the benefit of creditors, or (iv) the admission in writing by a
party of such party's inability to pay such party's debts as they become due;
(b) "Additional Purchased Securities", Securities provided by Seller to
Buyer pursuant to Paragraph 4(a) hereof;
(c) "Buyer's Margin Amount", with respect to any Transaction as of any
date, the amount obtained by application of a percentage (which may be equal to
the percentage that is agreed to as the Seller's Margin Amount under
subparagraph (q) of this Paragraph), agreed to by Buyer and Seller prior to
entering into the Transaction, to the Repurchase Price for such Transaction as
of such date;
(d) "Confirmation", the meaning specified in Paragraph 3(b) hereof;
(e) "Income", with respect to any Security at any time, any principal
thereof then payable and all interest, dividends or other distributions thereon;
(f) "Margin Deficit", the meaning specified in Paragraph 4(a) hereof;
(g) "Margin Excess", the meaning specified in Paragraph 4(b) hereof;
(h) "Market Value", with respect to any Securities as of any date, the
price for such Securities on such date obtained from a generally recognized
source agreed to by the parties or the most recent closing bid quotation from
such a source, plus accrued income to the extent not included therein (other
than any income credited or transferred to, or applied to the obligations of,
Seller pursuant to Paragraph 5 hereof) as of such date (unless contrary to
market practice for such Securities);
(i) "Price Differential", with respect to any Transaction hereunder as of
any date, the aggregate amount obtained by daily application of the Pricing Rate
for such Transaction to the Purchase Price for such Transaction on a 360 day per
year basis for the actual number of days during the period commencing on (and
including) the Purchase Date for such Transaction and ending on (but excluding)
the date of determination (reduced by any amount of such Price Differential
previously paid by Seller to Buyer with respect to such Transaction);
<PAGE>
<PAGE>
(j) "Pricing Rate", the per annum percentage rate for determination of the
Price Differential;
(k) "Prime Rate", the prime rate of U.S. money center commercial banks as
published in The Wall Street Journal;
(l) "Purchase Date", the date on which Purchased Securities are transferred
by Seller to Buyer;
(m) "Purchase Price", (i) on the Purchase Date, the price at which
Purchased Securities are transferred by Seller to Buyer, and (ii) thereafter,
such price increased by the amount of any cash transferred by Buyer to Seller
pursuant to Paragraph 4(b) hereof and decreased by the amount of any cash
transferred by Seller to Buyer pursuant to Paragraph 4(a) hereof or applied to
reduce Seller's obligations under clause (ii) of Paragraph 5 hereof;
(n) "Purchased Securities", the Securities transferred by Seller to Buyer
in a Transaction hereunder, and any Securities substituted therefor in
accordance with Paragraph 9 hereof. The term "Purchased Securities" with respect
to any Transaction at any time also shall include Additional Purchased
Securities delivered pursuant to Paragraph 4(a) and shall exclude Securities
returned pursuant to Paragraph 4(b);
(o) "Repurchase Date", the date on which Seller is to repurchase the
Purchased Securities from Buyer, including any date determined by application of
the provisions of Paragraphs 3(c) or 11 hereof;
(p) "Repurchase Price", the price at which Purchased Securities are to be
transferred from Buyer to Seller upon termination of a Transaction, which will
be determined in each case (including Transactions terminable upon demand) as
the sum of the Purchase Price and the Price Differential as of the date of such
determination, increased by any amount determined by the application of the
provisions of Paragraph 11 hereof;
(q) "Seller's Margin Amount", with respect to any Transaction as of any
date, the amount obtained by application of a percentage (which may be equal to
the percentage that is agreed to as the Buyer's Margin Amount under subparagraph
(c) of this Paragraph), agreed to by Buyer and Seller prior to entering into the
Transaction, to the Repurchase Price for such Transaction as of such date.
3. Initiation; Confirmation; Termination
(a) An agreement to enter into a Transaction may be made orally or in
writing at the initiation of either Buyer or Seller. On the Purchase Date for
the Transaction, the Purchased Securities shall be transferred to Buyer or its
agent against the transfer of the Purchase Price to an account of Seller.
(b) Upon agreeing to enter into a Transaction hereunder, Buyer or Seller
(or both), as shall be agreed, shall promptly deliver to the other party a
written confirmation of each Transaction (a "Confirmation"). The Confirmation
shall describe the Purchased Securities (including CUSIP number, if any),
identify Buyer and Seller and set forth (i) the Purchase Date, (ii) the Purchase
Price, (iii) the Repurchase Date, unless the Transaction is to be terminable on
demand, (iv) the Pricing Rate or Repurchase Price applicable to the Transaction,
and (v) any additional terms or conditions of the Transaction not inconsistent
with this Agreement. The Confirmation, together with this Agreement, shall
constitute conclusive evidence of the terms agreed between Buyer and Seller with
respect to the Transaction to which the Confirmation relates, unless with
respect to the Confirmation specific objection is made promptly after receipt
thereof. In the event of any conflict between the terms of such Confirmation and
this Agreement, this Agreement shall prevail.
(c) In the case of Transactions terminable upon demand, such demand shall
be made by Buyer or Seller, no later than such time as is customary in
accordance with market practice, by telephone or otherwise on or prior to the
business day on which such termination will be effective. On the date specified
in such demand, or on the date fixed for termination in the case of Transactions
having a fixed term, termination of the Transaction will be effected by transfer
to Seller or its agent of the Purchased Securities and any income in respect
thereof received by Buyer (and not previously credited or transferred to, or
applied to the obligations of, Seller pursuant to Paragraph 5 hereof) against
the transfer of the Repurchase Price to an account of Buyer.
4. Margin Maintenance
(a) If at any time the aggregate Market Value of all Purchased Securities
subject to all Transactions in which a particular party hereto is acting as
Buyer is less than the aggregate Buyer's Margin Amount for all such Transactions
(a "Margin Deficit"), then Buyer may by notice to Seller require Seller in such
Transactions, at Seller's option, to transfer to Buyer cash or additional
Securities reasonably acceptable to Buyer ("Additional Purchased Securities"),
so that the cash and aggregate Market Value of the Purchased Securities,
including any such Additional Purchased Securities, will thereupon equal or
exceed such aggregate Buyer's Margin Amount (decreased by the amount of any
Margin Deficit as of such date arising from any Transactions in which such Buyer
is acting as Seller).
(b) If at any time the aggregate Market Value of all Purchased Securities
subject to all Transactions in which a particular party hereto is acting as
Seller exceeds the aggregate Seller's Margin Amount for all such Transactions at
such time (a "Margin Excess"), then Seller may by notice to Buyer require Buyer
in such Transactions, at Buyer's option, to transfer cash or Purchased
Securities to Seller, so that the aggregate Market Value of the Purchased
Securities, after deduction of any such cash or any Purchased Securities so
transferred, will thereupon not exceed such aggregate Seller's Margin Amount
(increased by the amount of any Margin Excess as of such date arising from any
Transactions in which such Seller is acting as Buyer).
(c) Any cash transferred pursuant to this Paragraph shall be attributed to
such Transactions as shall be agreed upon by Buyer and Seller,
2
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(d) Seller and Buyer may agree, with respect to any or all Transactions
hereunder, that the respective rights of Buyer or Seller (or both) under
subparagraphs (a) and (b) of this Paragraph may be exercised only where a Margin
Deficit or Margin Excess exceeds a specified dollar amount or a specified
percentage of the Repurchase Prices for such Transactions (which amount or
percentage shall be agreed to by Buyer and Seller prior to entering into any
such Transactions).
(e) Seller and Buyer may agree, with respect to any or all Transactions
hereunder, that the respective rights of Buyer and Seller under subparagraphs
(a) and (b) of this Paragraph to require the elimination of a Margin Deficit or
a Margin Excess, as the case may be, may be exercised whenever such a Margin
Deficit or Margin Excess exists with respect to any single Transaction hereunder
(calculated without regard to any other Transaction outstanding under this
Agreement).
5. Income Payments
Where a particular Transaction's term extends over an income payment date
on the Securities subject to that Transaction, Buyer shall, as the parties may
agree with respect to such Transaction (or, in the absence of any agreement, as
Buyer shall reasonably determine in its discretion), on the date such income is
payable either (i) transfer to or credit to the account of Seller an amount
equal to such income payment or payments with respect to any Purchased
Securities subject to such Transaction or (ii) apply the income payment or
payments to reduce the amount to be transferred to Buyer by Seller upon
termination of the Transaction. Buyer shall not be obligated to take any action
pursuant to the preceding sentence to the extent that such action would result
in the creation of a Margin Deficit, unless prior thereto or simultaneously
therewith Seller transfers to Buyer cash or Additional Purchased Securities
sufficient to eliminate such Margin Deficit.
6. Security Interest
Although the parties intend that all Transactions hereunder be sales and
purchases and not loans, in the event any such Transactions are deemed to be
loans. Seller shall be deemed to have pledged to Buyer as security for the
performance by Seller of its obligations under each such Transaction, and shall
be deemed to have granted to Buyer a security interest in, all of the Purchased
Securities with respect to all Transactions hereunder and all proceeds thereof.
7. Payment and Transfer
Unless otherwise mutually agreed, all transfers of funds hereunder shall be
in immediately available funds. All Securities transferred by one party hereto
to the other party (i) shall be in suitable form for transfer or shall be
accompanied by duly executed instruments of transfer or assignment in blank and
such other documentation as the party receiving possession may reasonably
request, (ii) shall be transferred on the book-entry system of a Federal Reserve
Bank, or (iii) shall be transferred by any other method mutually acceptable to
Seller and Buyer. As used herein with respect to Securities, "transfer" is
intended to have the same meaning as when used in Section 8-313 of the New York
Uniform Commercial Code or, where applicable, in any federal regulation
governing transfers of the Securities.
8. Segregation of Purchased Securities
To the extent required by applicable law, all Purchased Securities in the
possession of Seller shall be segregated from other securities in its possession
and shall be identified as subject to this Agreement. Segregation may be
accomplished by appropriate identification on the books and records of the
holder, including a financial intermediary or a cleaning corporation. Title to
all Purchased Securities shall pass to Buyer and, unless otherwise agreed by
Buyer and Seller, nothing in this Agreement shall preclude Buyer from engaging
in repurchase transactions with the Purchased Securities or otherwise pledging
or hypothecating the Purchased Securities, but no such transaction shall relieve
Buyer of its obligations to transfer Purchased Securities to Seller pursuant to
Paragraphs 3, 4 or 11 hereof, or of Buyer's obligation to credit or pay income
to, or apply income to the obligations of, Seller pursuant to Paragraph 5
hereof.
- --------------------------------------------------------------------------------
Required Disclosure for Transactions in Which the Seller Retains Custody
of the Purchased Securities
Seller is not permitted to substitute other securities for those subject to
this Agreement and therefore must keep Buyer's securities segregated at all
times, unless in this Agreement Buyer grants Seller the right to substitute
other securities. If Buyer grants the right to substitute, this means that
Buyer's securities will likely be commingled with Seller's own securities during
the trading day. Buyer is advised that, during any trading day that Buyer's
securities are commingled with Seller's securities, they [will]* [may]** be
subject to liens granted by Seller to [its clearing bank]* [third parties]** and
may be used by Seller for deliveries on other securities transactions. Whenever
the securities are commingled, Seller's ability to resegregate substitute
securities for Buyer will be subject to Seller's ability to satisfy [the
clearing]* [any]** lien or to obtain substitute securities.
- --------------------------------------------------------------------------------
*Language to be used under 17 C.F.R. ss. 403.4(e) if Seller is a government
securities broker or dealer other than a financial institution.
**Language to be used under 17 C.F.R. ss. 403.5(d) if Seller is a financial
institution.
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9. Substitution
(a) Seller may, subject to agreement with and acceptance by Buyer,
substitute other Securities for any Purchased Securities. Such substitution
shall be made by transfer to Buyer of such other Securities and transfer to
Seller of such Purchased Securities. After substitution, the substituted
Securities shall be deemed to be Purchased Securities.
(b) In Transactions in which the Seller retains custody of Purchased
Securities, the parties expressly agree that Buyer shall be deemed, for purposes
of subparagraph (a) of this Paragraph, to have agreed to and accepted in this
Agreement substitution by Seller of other Securities for Purchased Securities;
provided, however, that such other Securities shall have a Market Value at least
equal to the Market Value of the Purchased Securities for which they are
substituted.
10. Representations
Each Buyer and Seller represents and warrants to the other that (i) it is
duly authorized to execute and deliver this Agreement, to enter into the
Transactions contemplated hereunder and to perform its obligations hereunder and
has taken all necessary action to authorize such execution, delivery and
performance, (ii) it will engage in such Transactions as principal (or, if
agreed in writing in advance of any Transaction by the other party hereto, as
agent for a disclosed principal), (iii) the person signing this Agreement on its
behalf is duly authorized to do so on its behalf (or on behalf of any such
disclosed principal), (iv) it has obtained all authorizations of any
governmental body required in connection with this Agreement and the
Transactions hereunder and such authorizations are in full force and effect and
(v) the execution, delivery and performance of this Agreement and the
Transactions hereunder will not violate any law, ordinance, charter, by-law or
rule applicable to it or any agreement by which it is bound or by which any of
its assets are affected. On the Purchase Date for any Transaction Buyer and
Seller shall each be deemed to repeal all the foregoing representations made by
it.
11. Events of Default
In the event that (i) Seller fails to repurchase or Buyer fails to transfer
Purchased Securities upon the applicable Repurchase Date, (ii) Seller or Buyer
fails, after one business day's notice, to comply with Paragraph 4 hereof, (iii)
Buyer fails to comply with Paragraph 5 hereof, (iv) an Act of Insolvency occurs
with respect to Seller or Buyer, (v) any representation made by Seller or Buyer
shall have been incorrect or untrue in any material respect when made or
repeated or deemed to have been made or repeated, or (vi) Seller or Buyer shall
admit to the other its inability to, or its intention not to, perform any of its
obligations hereunder (each an "Event of Default"):
(a) At the option of the nondefaulting party, exercised by written notice
to the defaulting party (which option shall be deemed to have been exercised,
even if no notice is given, immediately upon the occurrence of an Act of
Insolvency), the Repurchase Date for each Transaction hereunder shall be deemed
immediately to occur.
(b) In all Transactions in which the defaulting party is acting as Seller,
if the nondefaulting party exercises or is deemed to have exercised the option
referred to in subparagraph (a) of this Paragraph, (i) the defaulting party's
obligations hereunder to repurchase all Purchased Securities in such
Transactions shall thereupon become immediately due and payable, (ii) to the
extent permitted by applicable law, the Repurchase Price with respect to each
such Transaction shall be increased by the aggregate amount obtained by daily
application of (x) the greater of the Pricing Rate for such Transaction or the
Prime Rate to (y) the Repurchase Price for such Transaction as of the Repurchase
Date as determined pursuant to subparagraph (a) of this Paragraph (decreased as
of any day by (A) any amounts retained by the nondefaulting party with respect
to such Repurchase Price pursuant to clause (iii) of this subparagraph, (B) any
proceeds from the sale of Purchased Securities pursuant to subparagraph (d)(i)
of this Paragraph, and (C) any amounts credited to the account of the defaulting
party pursuant to subparagraph (e) of this Paragraph) on a 360 day per year
basis for the actual number of days during the period from and including the
date of the Event of Default giving rise to such option to but excluding the
date of payment of the Repurchase Price as so increased, (iii) all income paid
after such exercise or deemed exercise shall be retained by the nondefaulting
party and applied to the aggregate unpaid Repurchase Prices owed by the
defaulting party, and (iv) the defaulting party shall immediately deliver to the
nondefaulting party any Purchased Securities subject to such Transactions then
in the defaulting party's possession.
(c) In all Transactions in which the defaulting party is acting as Buyer,
upon tender by the nondefaulting party of payment of the aggregate Repurchase
Prices for all such Transactions, the defaulting party's right, title and
interest in all Purchased Securities subject to such Transactions shall be
deemed transferred to the nondefaulting party, and the defaulting party shall
deliver all such Purchased Securities to the nondefaulting party.
(d) After one business day's notice to the defaulting party (which notice
need not be given if an Act of Insolvency shall have occurred, and which may be
the notice given under subparagraph (a) of this Paragraph or the notice referred
to in clause (ii) of the first sentence of this Paragraph), the nondefaulting
party may:
(i) as to Transactions in which the defaulting party is acting as
Seller, (A) immediately sell, in a recognized market at such price or
prices as the nondefaulting party may reasonably deem satisfactory, any or
all Purchased Securities subject to such Transactions and apply the
proceeds thereof to the aggregate unpaid Repurchase Prices and any other
amounts owing by the defaulting party hereunder
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or (B) in its sole discretion elect, in lieu of selling all or a portion
of such Purchased Securities, to give the defaulting party credit for
such Purchased Securities in an amount equal to the price therefor on
such date, obtained from a generally recognized source or the most recent
closing bid quotation from such a source, against the aggregate unpaid
Repurchase Prices and any other amounts owing by the defaulting party
hereunder; and
(ii) as to Transactions in which the defaulting party is acting as
Buyer, (A) purchase securities ("Replacement Securities") of the same class
and amount as any Purchased Securities that are not delivered by the
defaulting party to the nondefaulting party as required hereunder or (B) in
its sole discretion elect, in lieu of purchasing Replacement Securities, to
be deemed to have purchased Replacement Securities at the price therefor on
such date, obtained from a generally recognized source or the most recent
closing bid quotation from such a source.
(e) As to Transactions in which the defaulting party is acting as Buyer,
the defaulting party shall be liable to the nondefaulting party (i) with respect
to Purchased Securities (other than Additional Purchased Securities), for any
excess of the price paid (or deemed paid) by the nondefaulting party for
Replacement Securities therefor over the Repurchase Price for such Purchased
Securities and (ii) with respect to Additional Purchased Securities, for the
price paid (or deemed paid) by the nondefaulting party for the Replacement
Securities therefor. In addition, the defaulting party shall be liable to the
nondefaulting party for interest on such remaining liability with respect to
each such purchase (or deemed purchase) of Replacement Securities from the date
of such purchase (or deemed purchase) until paid in full by Buyer. Such interest
shall be at a rate equal to the greater of the Pricing Rate for such Transaction
or the Prime Rate.
(f) For purposes of this Paragraph 11, the Repurchase Price for each
Transaction hereunder in respect of which the defaulting party is acting as
Buyer shall not increase above the amount of such Repurchase Price for such
Transaction determined as of the date of the exercise or deemed exercise by the
nondefaulting party of its option under subparagraph (a) of this Paragraph.
(g) The defaulting party shall be liable to the nondefaulting party for the
amount of all reasonable legal or other expenses incurred by the nondefaulting
party in connection with or as a consequence of an Event of Default, together
with interest thereon at a rate equal to the greater of the Pricing Rate for the
relevant Transaction or the Prime Rate.
(h) The nondefaulting party shall have, in addition to its rights
hereunder, any rights otherwise available to it under any other agreement or
applicable law.
12. Single Agreement
Buyer and Seller acknowledge that, and have entered hereinto and will enter
into each Transaction hereunder in consideration of and in reliance upon the
fact that, all Transactions hereunder constitute a single business and
contractual relationship and have been made in consideration of each other.
Accordingly, each of Buyer and Seller agrees (i) to perform all of its
obligations in respect of each Transaction hereunder, and that a default in the
performance of any such obligations shall constitute a default by it in respect
of all Transactions hereunder, (ii) that each of them shall be entitled to set
off claims and apply property held by them in respect of any Transaction against
obligations owing to them in respect of any other Transactions hereunder and
(iii) that payments, deliveries and other transfers made by either of them in
respect of any Transaction shall be deemed to have been made in consideration of
payments, deliveries and other transfers in respect of any other Transactions
hereunder, and the obligations to make any such payments, deliveries and other
transfers may be applied against each other and netted.
13. Notices and Other Communications
Unless another address is specified in writing by the respective party to
whom any notice or other communication is to be given hereunder, all such
notices or communications shall be in writing or confirmed in writing and
delivered at the respective addresses set forth in Annex II attached hereto.
14. Entire Agreement; Severability
This Agreement shall supersede any existing agreements between the parties
containing general terms and conditions for repurchase transactions. Each
provision and agreement herein shall be treated as separate and independent from
any other provision or agreement herein and shall be enforceable notwithstanding
the unenforceability of such other provision or agreement.
15. Non-assignability; Termination
The rights and obligations of the parties under this Agreement and under
any Transaction shall not be assigned by either party without the prior written
consent of the other party. Subject to the foregoing, this Agreement and any
Transactions shall be binding upon and shall inure to the benefit of the parties
and their respective successors and assigns. This Agreement may be cancelled by
either party upon giving written notice to the other, except that this Agreement
shall, notwithstanding such notice, remain applicable to any Transactions then
outstanding.
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16. Governing Law
This Agreement shall be governed by the laws of the State of New York
without giving effect to the conflict of law principles thereof.
17. No Waivers, Etc.
No express or implied waiver of any Event of Default by either party shall
constitute a waiver of any other Event of Default and no exercise of any remedy
hereunder by any party shall constitute a waiver of its right to exercise any
other remedy hereunder. No modification or waiver of any provision of this
Agreement and no consent by any party to a departure herefrom shall be effective
unless and until such shall be in writing and duly executed by both of the
parties hereto. Without limitation on any of the foregoing, the failure to give
a notice pursuant to subparagraphs 4(a) or 4(b) hereof will not constitute a
waiver of any right to do so at a later date.
18. Use of Employee Plan Assets
(a) If assets of an employee benefit plan subject to any provision of the
Employee Retirement Income Security Act of 1974 ("ERISA") are intended to be
used by either party hereto (the "Plan Party") in a Transaction, the Plan Party
shall so notify the other party prior to the Transaction. The Plan Party shall
represent in writing to the other party that the Transaction does not constitute
a prohibited transaction under ERISA or is otherwise exempt therefrom, and the
other party may proceed in reliance thereon but shall not be required so to
proceed.
(b) Subject to the last sentence of subparagraph (a) of this Paragraph, any
such Transaction shall proceed only if Seller furnishes or has furnished to
Buyer its most recent available audited statement of its financial condition and
its most recent subsequent unaudited statement of its financial condition.
(c) By entering into a Transaction pursuant to this Paragraph, Seller shall
be deemed (i) to represent to Buyer that since the date of Seller's latest such
financial statements, there has been no material adverse change in Seller's
financial condition which Seller has not disclosed to Buyer, and (ii) to agree
to provide Buyer with future audited and unaudited statements of its financial
condition as they are issued, so long as it is a Seller in any outstanding
Transaction involving a Plan Party.
19. Intent
(a) The parties recognize that each Transaction is a "repurchase agreement"
as that term is defined in Section 101 of Title 11 of the United States Code, as
amended (except insofar as the type of Securities subject to such Transaction or
the term of such Transaction would render such definition inapplicable), and a
"securities contract" as that term is defined in Section 741 of Title 11 of the
United States Code, as amended.
(b) It is understood that either party's right to liquidate Securities
delivered to it in connection with Transactions hereunder or to exercise any
other remedies pursuant to Paragraph 11 hereof, is a contractual right to
liquidate such Transaction as described in Sections 555 and 559 of Title 11 of
the United States Code, as amended.
20. Disclosure Relating to Certain Federal Protections
The parties acknowledge that they have been advised that:
(a) in the case of Transactions in which one of the parties is a
broker or dealer registered with a Securities and Exchange Commission
("SEC") under Section 15 of the Securities Exchange Act of 1934 ("1934
Act"), the Securities Investor Protection Corporation has taken the
position that the provisions of the Securities Investor Protection Act of
1970 ("SIPA") do not protect the other party with respect to any
Transaction hereunder;
(b) in the case of Transactions in which one of the parties is a
government securities broker or a government securities dealer registered
with the SEC under Section 15C of the 1934 Act, SIPA will not provide
protection to the other party with respect to any Transaction hereunder;
and
(c) in the case of Transactions in which one of the parties is a
financial institution, funds held by the financial institution pursuant to
a Transaction hereunder are not a deposit and therefore are not insured by
the Federal Deposit Insurance Corporation, the Federal Savings and Loan
Insurance Corporation or the National Credit Union Share Insurance Fund, as
applicable.
[Name of Party] [Name of Party]
INDUSTRY MORTGAGE COMPANY, L.P. NOMURA SECURITIES INT'L, INC.
By /s/ Thomas G. Middleton By /s/ Raymond J. Knox
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Title President & C.O.O. Title RAYMOND J. KNOX
- ------------------------------- -----------------------------
Date December 27, 1995 Date MANAGING DIRECTOR
- ------------------------------- -----------------------------
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ANNEX I
Supplemental Terms and Conditions
7
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Annex II
Names and Addresses for Communications Between Parties
NOMURA SECURITIES INTERNATIONAL, INC.
2 World Financial Center
Building B, 21st Floor
New York, New York 10281
Attention: Raymond J. Knox
Telephone: (212) 667-2145
Facsimile: (212) 667-1044
<PAGE>
<PAGE>
LOAN AND SECURITY AGREEMENT
(Wholesale Warehouse Mortgage Agreement)
Dated as of January 29, 1996
between
AMERICAN INDUSTRIAL LOAN ASSOCIATION,
APPROVED RESIDENTIAL MORTGAGE, INC.,
ARMADA RESIDENTIAL MORTGAGE, LLC
and
INDUSTRY MORTGAGE COMPANY, L.P.
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
RECITALS ................................................................ 1
PROVISIONS .............................................................. 1
1. DEFINITIONS ................................................... 1
2. ADVANCES ...................................................... 7
2.1 Lender Agrees to Make Advances ................................ 7
2.2 Lender Shall Make Advances on the Closing Date................. 7
2.3 Amount of Advance ............................................. 8
3. PURCHASE OF MORTGAGE LOANS ADVANCED UNDER
THE AGREEMENT ................................................. 8
4. CONDITIONS TO ADVANCES ........................................ 8
4.1 Conditions Precedent .......................................... 9
4.2 Conditions Subsequent ......................................... 10
5. REPRESENTATIONS AND WARRANTIES ................................ 12
5.1 Representations and Warranties of the Borrower ................ 12
5.2 Representations and Warranties of the Borrower as to
Each Mortgage Loan ............................................ 13
5.3 Survival ...................................................... 21
6. COVENANTS ..................................................... 21
6.1 Affirmative Covenants ......................................... 22
6.2 Negative Covenants ............................................ 24
7. REPAYMENT OF ADVANCES ......................................... 26
7.1 Repayment ..................................................... 26
7.2 Interest on Advances .......................................... 27
7.3 Computation of Interest ....................................... 27
7.4 Mandatory Prepayments and Rights .............................. 27
7.5 Default Rate .................................................. 29
8. SECURITY ...................................................... 29
8.1 Grant of Security Interest .................................... 29
8.2 Authority to Collect .......................................... 30
8.3 Lender Appointed Attorney-in-Fact ............................. 31
8.4 Security for Obligations ...................................... 31
9. EVENTS OF DEFAULT ............................................. 31
9.1 Event of Default .............................................. 31
9.2 Remedies ...................................................... 33
9.3 Application of Proceeds ....................................... 36
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10. INDEMNIFICATION ............................................... 36
11. NOTICES ....................................................... 37
12. APPOINTMENT OF ATTORNEY ....................................... 38
13. ACCESS TO BORROWER DOCUMENTS AND INFORMATION .................. 38
14. TERMINATION ................................................... 38
15. MISCELLANEOUS PROVISIONS ...................................... 39
15.1 Custodial Agreement ........................................... 39
15.2 Representation of Servicer and Lender ......................... 39
15.3 Costs and Expenses ............................................ 39
15.4 Agency; Joint Venture ......................................... 39
15.5 Complete Agreement; Modification; Sale
or Assignment ................................................. 39
15.6 No Waiver ..................................................... 39
15.7 Parties ....................................................... 40
15.8 Severability; Section Headings ................................ 40
15.9 Construction .................................................. 40
15.10 Interpretation ................................................ 40
15.11 GOVERNING LAW; CONSENT TO FORUM ............................... 40
15.12 WAIVER OF TRIAL BY JURY AND OTHER WAIVERS
BY BORROWER ................................................... 41
15.13 Headings ...................................................... 41
15.14 Counterparts .................................................. 41
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LOAN AND SECURITY AGREEMENT
(Wholesale Warehouse Mortgage Agreement)
THIS LOAN AND SECURITY AGREEMENT made this 29th day of January 1996 between
Industry Mortgage Company, L.P., a Delaware limited partnership with its
principal address at 3450 Buschwood Park Drive, Suite 250, Tampa, Florida 33618
("Lender") and American Industrial Loan Association, and its subsidiaries,
Approved Residential Mortgage, Inc., and Armada Residential Mortgage, LLC,
jointly and severally, located at 3420 Holland Road, Suite 107, Virginia Beach,
VA 23452, each organized and existing under the laws of the State of Virginia
("Borrower") ("the Agreement").
RECITALS
WHEREAS, Lender wishes to lend, and Borrower wishes to borrow, subject to
certain terms and conditions, monies in connection with an interim funding
facility for certain home mortgage loans to be funded hereunder (the "Mortgage
Loans") owned by Borrower.
WHEREAS, Borrower expects to use this warehouse facility to fund the
acquisition or origination of Mortgage Loans and Lender expects to fund such
activities of Borrower through Advances of monies to be secured by a direct or
indirect pledge of the related Mortgage Loans.
WHEREAS, Lender expects repayment of such Advances made under this
warehouse facility and Borrower expects the subsequent sale of certain Mortgage
Loans to permit such repayment of Advances.
PROVISIONS
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. DEFINITIONS.
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
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Advance: An advance by Lender to Borrower in an amount equal to the
principal amount of a related Mortgage Loan or Mortgage Loans which amount may
not be less than $250,000.
Advance Libor Rate: For any Advance, the London Interbank Offering Rate for
U.S. dollar deposits of a term equal to the term of the related Advance, or if
no such term exists, a rate interpolated from the two closest terms, as
indicated on the Bloomberg screen and on the London Business Day prior to the
related Closing Date. If such rate cannot be determined by reference to said
Bloomberg screen, then such rate shall be an average of two quotations from
major London banks selected by Lender.
Agreement: This Loan and Security Agreement (Wholesale Warehouse Mortgage
Agreement), including all exhibits and schedules attached or delivered pursuant
hereto, and as the same may be amended and supplemented from time to time.
Appraised Value: With respect to any Mortgage Property, the lesser of (i)
the value thereof as determined by an appraisal made for the originator of the
Mortgage Loan at the time of origination of the Mortgage Loan by an appraiser
who met the minimum requirements of FNMA and FHLMC, and (ii) the purchase price
paid for the related Mortgage Property by the Mortgagor with the proceeds of the
Mortgage Loan, provided, however, in the case of a Refinanced Mortgage Loan,
such value of the Mortgage Property is based solely upon the value determined by
an appraisal made for the originator of such Refinanced Mortgage Loan at the
time of origination of such Refinanced Mortgage Loan by an appraiser who met the
minimum requirements of FNMA and FHLMC.
ARM: A Mortgage Loan that accrues interest at an adjustable interest rate.
Business Day: Any day that is not a Saturday, Sunday or other day on which
commercial banking institutions in the City of New York are authorized or
obligated by law to be closed.
Certified Schedule of Mortgage Loans: A schedule of the pledged Mortgage
Loans with respect to which an Advance will be made on any Closing Date, which
specifies the characteristics of such Mortgage Loans (including whether each
Mortgage Loan is an "A", "B", "C" or "D" Mortgage Loan pursuant to the Lender
Approved Guidelines) and setting forth as to each Mortgage Loan the information
called for by Exhibit F attached hereto, states that such Mortgage Loans have
been pledged to the Lender pursuant to this Agreement and which is certified by
an authorized officer of the Borrower.
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Change of Control: The occurrence of one of the following events:
(i) the dissolution of Borrower;
(ii) Allen D. Wykle ceases, for any reason, to exercise the
responsibilities of President of American Industrial Loan Association;
(iii) any change of Control (as defined by reference to the Securities
Exchange Act, of 1934, as amended) of the Borrower;
Closing Date: Any Business Day on which Lender makes an Advance.
Collateral: The property securing Advances set forth in Section 8.1 hereof.
Commitment: a valid, irrevocable, binding and enforceable written agreement
of a Purchaser acceptable to Lender to purchase, within a period of not more
than sixty (60) days from the Borrower.
Curtailment: Means any payment made by an obligor under a Mortgage Loan in
an amount at least six times the amount of such obligor's regular monthly
payment and intended by such obligor as a partial prepayment of such Mortgage
Loan.
Custodial Agreement: The Custodial Agreement among Lender, Borrower and
Custodian, dated as of January 29, 1996.
Custodian: The Bank of Boston.
Default Rate: The Advance Libor Rate plus 6.75%.
Equity: The aggregate assets of Borrower less the aggregate liabilities of
Borrower, with the terms "assets" and "liabilities" having the meanings ascribed
to such terms by GAAP.
Essential Mortgage File Documents: The documents described in Section 3(b)
of the Custodial Agreement.
Event of Default: Any event of default set forth in Section 9.1 hereof.
GAAP: Means generally accepted accounting principles, consistently applied,
and with respect to Borrower.
Gross Margin: As to any Mortgage Loan which is an ARM, the fixed percentage
set forth in the related Note and
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indicated on the related Certified Schedule of Mortgage Loans as "Gross Margin,"
which percentage is added to the Index on each rate adjustment date to determine
the interest rate on the Mortgage Loan.
Index: As to any Mortgage Loan which is an ARM, the rate as determined by
reference to either the interbank offered rates in the London market or U.S.
Treasury securities.
Lender Approved Guidelines: Underwriting guidelines attached hereto as
Exhibit D which relates to residential Mortgage Property and made a part hereof
as may from time to time be amended by the Borrower with the consent of the
Lender, which consent shall not be unreasonably withheld.
Loan-to-Value Ratio or LTV: With respect to any Mortgage Loan as of any
date of determination, the ratio on such date of (i) the outstanding
principal amount of the Mortgage Loan plus, in the case of any second
Mortgage Loan, the outstanding principal balance of the related first
mortgage loan, to (ii) the Appraised Value of the Mortgage Property.
London Business Day: Any day that is not a Saturday, Sunday or other day in
which commercial banking institutions in the City of London are authorized or
obligated by law to be closed.
Mortgage: The Note, bond, deed of trust, Mortgage, mortgage warranty,
extension agreement, assumption of indebtedness, assignment and any other
documents constituting the basic instruments creating a first or second lien on
the real property owned by the Mortgagor in the state in which the Mortgage
Property is located and securing the Note.
Mortgage Loans: The Note, the related Mortgage and the Related Assets which
are collectively identified as the Mortgage Loans and are set forth on Schedule
1 of each Request for Borrowing.
Mortgage Note Rate: The interest rate applicable to a Mortgage Loan as
provided in the related Note.
Mortgage Property: The residential real property subject to the Mortgage
which secures the Mortgage Loan.
Mortgagor: The obligor under a Mortgage Loan.
Note: The original Note or bond or other evidence of the indebtedness of
the Mortgagor under the Mortgage Loan.
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Purchaser: any entity acceptable to Lender which purchases or agrees to
purchase a Mortgage Loan and has issued a Commitment therefor.
Qualifying ARM: A Mortgage Loan which is:
(i) an "A" Mortgage Loan with a Starter Rate which is a rate equal to at least
200 basis points over the related Index and a Gross Margin of at least 400 basis
points; or
(ii) a "B" Mortgage Loan with a Starter Rate which is a rate equal to at least
250 basis points over the related Index and a Gross Margin of at least 450 basis
points; or
(iii) a "C" Mortgage Loan with a Starter Rate which is a rate equal to at least
350 basis points over the related Index and a Gross Margin of at least 500 basis
points; or
(iv) a "D" Mortgage Loan with a Starter Rate which is a rate equal to at least
500 basis points over the related Index and a Gross Margin of at least 550 basis
points.
Refinanced Mortgage Loan: A Mortgage Loan the proceeds of which were not
used to purchase the related Mortgage Property.
Related Assets: Any and all documents, instruments, collateral agreements
and assignments and endorsements for all documents, instruments and collateral
agreements, referred to in the Notes and/or Mortgages or related thereto,
including, without limitation, current insurance policies (flood insurance if
the related Mortgage Property is located in an area identified by the Flood
Emergency Management Agency as having special flood hazards; hazard insurance;
title insurance and other applicable insurance policies) covering the Mortgage
Property or relating to the Notes and all files, books, papers, ledger cards,
reports and records including, without limitation, loan applications, mortgagor
financial statements, separate assignment of rents, if any, credit reports and
appraisals, relating to the Mortgage Loans, including all of the documents
specified on Exhibit B hereto. In all cases, the Related Assets shall mean the
originals thereof.
Request for Borrowing: A written request substantially in the form of
Exhibit C hereto, executed by Borrower and delivered to Lender in accordance
with Section 4.1(A) hereto.
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Repayment Date: With respect to any Mortgage Loan, shall be the date as
specified in the related Request for Borrowing (which date shall be in no event
more than 30 days following the related Closing Date).
Secured Note: The promissory note of Borrower in the form set forth in
Exhibit A hereto.
Settlement Date: With respect to any Mortgage Loan, the date of repayment
of the related Advance to Lender by Borrower pursuant to this Agreement.
Spread Deficiency: A Spread Deficiency exists whenever the Spread
Deficiency Amount is greater than zero.
Spread Deficiency Amount: The amount by which the weighted Average Spread
Minimum Percentage of the Mortgage Loans pledged under this Agreement, or to be
pledged on the Certified Schedule of Mortgage Loans, as the context requires,
exceeds the difference between (x) the weighted average interest rate as of any
date of determination expressed in basis points, of the Mortgage Loans either
pledged under this Agreement, or to be pledged on the related Certified Schedule
of Mortgage Loans, as the context requires, and (y) the yield expressed in basis
points, on Four Year Treasury Securities (or their interpolated equivalent);
provided, however, if the differences between (x) and (y) is greater than the
weighted average Spread Minimum Percentage of the Mortgage Loans pledged under
this Agreement, or to be pledged on the Certified Schedule of Mortgage Loans, as
the context requires, then the Spread Deficiency shall be zero; provided
further, however, if (i) the weighted average of the Spread Minimum Percentage
of all the Mortgage Loans previously pledged and to be pledged, if any, on any
date of determination exceeds (ii) the sum of 400 basis points and the yield
expressed in basis points, on Four Year Treasury Securities (or their
interpolated equivalent), then the Spread Deficiency Amount shall be zero. For
the purpose of determining the weighted average interest rate of the Mortgage
Loans, the interest rate for any ARM included in the pool which is subject to a
Starter Rate shall be equal to the Index then in effect plus the Gross Margin.
Spread Deficiency Notice: A written notice from Lender to Borrower that a
Spread Deficiency exists and specifying the Spread Deficiency Amount.
Spread Minimum Percentage: With respect to (i) "A" Mortgage Loans, 200
basis points; (ii) "B" Mortgage Loans, 300 basis points; (iii) "C" Mortgage
Loans, 400 basis points; and (iv) "D" Mortgage Loans, 500 basis points.
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Starter Rate: As to any Mortgage Loan which is an ARM, the interest rate at
origination as set forth on the related Certified Schedule of Mortgage Loans.
Unsecured Debt: As of the date of determination, the dollar amount
outstanding of all obligations and liabilities of the Borrower which (i) are not
secured by the grant of a lien upon or security interest in any collateral, and
(ii) in accordance with GAAP, would be included in determining total liabilites
as shown on the liability side of the balance sheet of Borrower, provided,
however, that any liability attributable to fees due to a Lender under the
Standby Agreement will not constitute a liability for purposes of this
Agreement.
2. ADVANCES.
2.1 Lender Agrees to Make Advances. Subject to the Borrower's repayment
obligations set forth in Section 7 hereof, Lender hereby agrees to make Advances
from time to time to Borrower, and Borrower hereby agrees to borrow Advances
from Lender, in accordance with the terms of the Note and this Agreement;
provided, however, that: (i) the outstanding amount of Advances provided to
Borrower hereunder shall not exceed $8,000,000; and (ii) Borrower must notify
the Lender of any investor to whom Borrower seeks to sell Mortgage Loans funded
under this Agreement as soon as possible, but in no event fewer than three
Business Days prior to such sale.
2.2 Lender Shall Make Advances on the Closing Date. Lender shall make
Advances to Borrower on each Closing Date upon receipt from Borrower of a duly
executed Request for Borrowing and a certificate of the Custodian pursuant to
Section 4.1(B) hereof with respect to the Mortgage Loans specified in such
Request for Borrowing; provided that the Mortgage Loans, in the reasonable
discretion of the Lender, satisfy the terms of this Agreement, and provided
further that each Request for Borrowing shall pertain only to (i) ARMs, or (ii)
Mortgage Loans secured by residential Mortgage Property which are not ARMs. If
Custodian receives the foregoing documents by 9:30 a.m. (New York time) on any
Business Day, Lender shall make funds available for such Advance on the same
day. In the event that such receipt occurs after 9:30 a.m. (New York time), on
any given Business Day, the funds for such Advance shall be made available no
later than the next succeeding Business Day. All payments of Advances shall be
made pursuant to the terms of the Custodial Agreement, or in such manner as to
which Lender and Borrower shall otherwise agree.
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2.3 Amount of Advance. The amount of each Advance shall be equal to:
(A) With respect to a Request for Borrowing which pertains only to Mortgage
Loans which are not ARMs, the lesser of (i) 95% of the aggregate principal
balance of the Mortgage Loans at the time of the Request for Borrowing or
(ii) the difference between:
(x) with respect to Mortgage Loans to be pledged as Collateral for such
Advance, (i) if no Spread Deficiency exists with respect to such Mortgage Loans,
then the amount of such Advance shall be the aggregate outstanding principal
balance, as of the last day of the calendar month preceding the date of such
Advance, of the Mortgage Loans identified on the related Certified Schedule of
Mortgage Loans; and (ii) if a Spread Deficiency exists with respect to such
Mortgage Loans, then the amount of the Advance shall be the product of (a) the
aggregate outstanding principal balance, as of the last day of the calendar
month preceding the date of such Advance, of the Mortgage Loans identified on
the related Certified Schedule of Mortgage Loans and (b) (1.0 - (.00025
multiplied by the Spread Deficiency Amount));
and
(y) in the event a Spread Deficiency exists with respect to Advances
outstanding on the related Closing Date, an amount calculated in accordance with
Section 7.4(D)(i), below.
(B) With respect to a Request for Borrowing which pertains to ARMs, 95% of the
aggregate principal balance of the ARMs at the time of the Request for
Borrowing, listed on the related Certified Schedule of Mortgage Loans;
provided, however, that for each ARM which is not a Qualifying ARM, only
92% of such outstanding principal balance shall be included in the
calculation of the amount of the Advance.
3. PURCHASE OF MORTGAGE LOANS ADVANCED UNDER THE AGREEMENT.
Borrower hereby covenants and agrees that each Mortgage Loan for which
funds were advanced pursuant to this Agreement shall be sold to an investor on
or before the related Repayment Date, and whether or not such Mortgage Loan is
sold by such Repayment Date, the Borrower shall repay the Lender the amount of
the related Advance no later than such Repayment Date.
4. CONDITIONS TO ADVANCES.
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4.1 Conditions Precedent. The Lender's obligation to make Advances
hereunder shall be subject to the fulfillment of the following conditions
precedent:
(A) Delivery of Note and Request for Borrowing to Lender. Borrower
shall have delivered to Lender: (i) the Secured Note duly executed by an
authorized officer of the Borrower on the date of this Agreement; and (ii)
a Request for Borrowing, a Certified Schedule of Mortgage Loans and the
Commitment(s) prior to each Closing Date.
(B) Custodian's Certification. The Lender shall have received either
(i) a certificate from the Custodian to the effect that it has received and
reviewed the Mortgage Notes relating to the Mortgage Loans being pledged in
connection with such Advance and has found no discrepancies between the
information listed on the related Certified Schedule of Mortgage Loans and
the information set forth in such Mortgage Notes, or (ii) a certificate
from the Custodian to the effect that it has received and reviewed the
mortgage files containing all of the Essential Mortgage File Documents as
well as any other documentation it is to receive pursuant to the Custodial
Agreement with respect to the Mortgage Loans being pledged in connection
with such Advances and has found no discrepancies between the information
listed on the related Certified Schedule of Mortgage Loans and the
information set forth in such Mortgage Notes.
(C) No Event of Default. No Event of Default (as defined in Section 9,
below) shall have occurred and be continuing or would exist after giving
affect to the Advances requested to be made;
(D) Corporate Proceedings. Borrower shall have furnished to Lender a
copy, certified by an appropriate officer of Borrower on the date of this
Agreement, of the authorization of the Borrower and the resolution of the
Board of Directors of the Borrower authorizing the execution and delivery
of Secured Note to Lender, the borrowing of Advances as herein provided for
and the execution, delivery and performance of this Agreement by the
Borrower. Borrower shall have furnished to Lender a good standing
certificate for the state of its organization and existence and, as
requested by Lender, for each state in which Borrower is registered to do
business. It is within Lender's discretion to periodically request good
standing
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certificates for all states in which Borrower is registered to do business;
(E) Representations and Warranties. (i) The representations and
warranties contained in Section 5 hereof shall be true and correct in all
material respects as of the date of this Agreement and on each Closing
Date; (ii) there shall have occurred no breach of any covenant set forth in
Section 6 hereof, except those set forth in subsections 6.1(G) and 6.1(H);
and (iii) there shall have occurred no material breach of the covenants set
forth in subsections 6.1(G) and 6.1(H);
(F) Designation of Authorized Officers. The Borrower shall have
delivered to Lender an officer's certificate in the form attached hereto as
Exhibit E, attested to by the Secretary of the Borrower stating the names
and showing the facsimile signatures of the officers of the Borrower
authorized to execute and deliver this Agreement, Secured Note and any
Request for Borrowing;
(G) Legal Matters. All other instruments and legal and corporate
proceedings in connection with the transactions contemplated by this
Agreement shall be reasonably satisfactory in form and substance to Lender
and counsel to Lender and Borrower, and Lender shall have received copies
of all documents which it may have reasonably requested in connection
herewith, including an opinion of counsel and officer's certificate each in
a form reasonably requested by the Lender; and
4.2 Conditions Subsequent. The Lender's obligation to make Advances
hereunder shall be subject to the fulfillment of the following conditions
subsequent:
(A) With respect to all of the Mortgage Loans for which an Advance is
made, the Borrower shall use its best efforts to deliver to the Lender or
its designee the Essential Mortgage File Documents one Business Day after
the related Closing Date and such documents shall in any event be delivered
to the Lender or its designee not more than three Business Days following
the related Closing Date;
(B) The Borrower shall furnish to the Lender, periodically upon
reasonable request, good standing certificates and officer's certificates
to assure Lender of its continued authority to perform under this
Agreement; and
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(C) Lender shall have filed with the appropriate state and local
governmental authorities Uniform Commercial Code financing statements,
including any continuation statements, as are necessary and appropriate,
identifying and setting forth the Collateral as security for Advances, in
order to create a first priority security interest in favor of Lender in
such Collateral.
Any consent by Lender to make Advances pursuant to this Agreement shall
automatically terminate if: (i) a decree or order of a court or agency
supervisory authority having jurisdiction for the appointment of a conservator
or receiver or liquidator in any insolvency, readjustment of debt, marshalling
of assets and liabilities, bankruptcy proceeding or any similar proceedings, or
for the winding up or liquidation of its affairs, shall have been entered
against Borrower; or (ii) Borrower shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities, bankruptcy or similar proceedings
relating to Borrower or substantially all of its property; or (iii) Borrower
shall admit in writing its inability to pay its debts as they become due, file a
petition to take advantage of any applicable insolvency, reorganization or
bankruptcy statute, make an assignment for the benefit of its creditors, or
voluntarily suspend payment of its obligations.
Lender's consent to make Advances pursuant to this Agreement shall
automatically be suspended upon the filing by a party other than Borrower of a
petition seeking appointment of a receiver, liquidator, trustee, custodian or
other officer having similar powers over Borrower or over all or a substantial
part of its property, or the appointment of an interim receiver, trustee or
other custodian of Borrower for all or a substantial part of its property, or
the issuance of a warrant of attachment, execution or similar process against
any substantial part of the property of Borrower, and such suspension shall
continue until the later of (i) until such petition is dismissed, bonded or
discharged and (ii) the 45th day after such filing (at which time the provisions
of Section 9.1(E) shall govern)).
5. REPRESENTATIONS AND WARRANTIES.
5.1 Representations and Warranties of the Borrower. It is understood and
agreed by Borrower and Lender that, as a material inducement to Lender to enter
into this Agreement and make Advances, Borrower hereby makes the following
representations and warranties, each of which representations and warranties (i)
is material and being relied upon by the Lender, (ii) is true in all respects as
of the date of this
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Agreement, and (iii) shall survive the execution of this Agreement.
(A) Borrower has been duly organized and is validly existing under the
laws of the State of Virginia.
(B) Borrower is duly licensed where required as a "Licensee" or is
otherwise qualified in each state in which it transacts business and
neither is in default of such state's applicable laws, rules and
regulations, except where the failure to so qualify or such defualt would
not have a material adverse effect on the ability of Borrower to conduct
its business or to perform its obligations under this Agreement and the
Secured Note.
(C) Borrower has the requisite power and authority and legal right to
own and grant a lien on all of its right, title and interest in and to the
Collateral and Borrower has the requisite power and authority and legal
right to execute and deliver, engage in the transactions contemplated by,
and perform and observe the terms and conditions of, this Agrement and the
Secured Note.
(D) Borrower is able to meet its obligations when they become due and
is not in default (beyond any applicable cure period) under any mortgage,
borrowing agreement or other instrument or agreement pertaining to
indebtedness for borrowed money in excess of $10,000 and the execution and
delivery by Borrower of this Agreement and the Secured Note will not result
in any violation of any such mortgage, instrument or agreement to which
Borrower is a party or by which its property is bound.
(E) Borrower is not in default under any term or provision of any
agreement between Borrower and any third parties, which agreement involves
the receipt or potential receipt or the payment or potential payment by
Borrower of more than $10,000.
(F) All financial statements including all notes thereto or
certificates of Borrower or any of its officers furnished to Lender are
true and complete. All such financial statement have been prepared in
accordance with GAAP.
(G) This Agreement and the Secured Note have each been duly authorized
and executed by Borrower and each is valid, binding and enforceable against
Borrower in accordance with its terms, except that such enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws (whether statutory, regulatory or decisional) now or hereafter
in effect relating to creditors' rights generally, and the
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execution, delivery and performance by Borrower of this Agreement and the
Secured Note do not conflict with any law, rule, regulation, order,
judgment, writ, injunction or decree applicable to Borrower of any court,
regulatory body, administrative agency or governmental body having
jurisdiction over Borrower.
(H) No consent, approval, authorization or order of, registraton or
filing with, or notice to any governmental authority or court is required
under applicable law in connection with the execution, delivery and
performance by Borrower of this Agreement and the Secured Note.
(I) There is no action, proceeding or investigation pending or, to the
best knowledge of Borrower, threatened against it before any court,
administrative agency or other tribunal (i) asserting the invalidity of
this Agreement or the Secured Note, (ii) seeking to prevent the
consummation of any of the transactions contemplated by this Agreement or
the Secured Note, or (iii) which could reasonably be expected to materially
and adversely affect the performance by Borrower of its obligations under,
or the validity or enforceability of, this Agreement or the Secured Note.
(J) Since the date of this Agreement, there has been no material
adverse change in the business, operations, financial condition, properties
or prospects of Borrower.
(K) The person or persons signatory to this Agreement and any document
executed pursuant to it on behalf of Borrower have full power and authority
to bind Borrower. The execution, delivery and performance of this
Agreement, and the Exhibits attached hereto and the other documents
contemplated herein, and the performance by Borrower of all transactions
contemplated herein and therein, have been duly authorized by all necessary
and appropriate corporate action on the part of the Borrower.
5.2 Representations and Warranties of the Borrower as to Each Mortgage
Loan.
(I) It is understood and agreed by Borrower and Lender that as a material
inducement to Lender to enter into this Agreement and make Advances, the
Borrower hereby represents and warrants to the Lender as of each Closing Date
with respect to each Mortgage Loan delivered to Lender:
(A) The Borrower is the payee and holder of each Note within the
meaning of the Uniform Commercial Code and is the sole owner of the
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Mortgage Loan and has the right to pledge, assign and transfer the Mortgage
Loan to the Lender. The Borrower has not sold, assigned or otherwise
transferred any right or interest in or to the Mortgage Loan and has not
pledged the Mortgage Loan as collateral for any Loan or obligation of
Borrower or other purpose, except pursuant to this Agreement. The pledge of
the Mortgage Loan by the Borrower to the Lender validly pledges such
Mortgage Loan or Borrower's interest therein to Lender free and clear of
any pledges, liens, claims, encumbrances, mortgages, charges, exceptions,
participation interests or other interests and/or security interests of any
third parties;
(B) Except as expressly disclosed to and agreed by the Lender in
writing, each Mortgage Loan conforms to the Lender Approved Guidelines;
(C) All information set forth in any Certified Schedule of Mortgage
Loans delivered to Lender is true and correct in all material respects, and
all other information furnished to Lender by Borrower with respect to the
Mortgage Loan(s) is true and correct in all material respects as of the
Closing Date;
(D) Each Note and Mortgage and the Essential Mortgage File Documents
and Related Assets are in every respect genuine, are the valid instruments
they purport on their face to be, are the legal, valid, binding, and
enforceable obligation of the Mortgagor thereunder and not subject to any
discount, allowance, setoff, counterclaim, presently pending bankruptcy or
other defense; none of the Notes, Mortgages or Essential Mortgage File
Documents or Related Assets are forged or have been entered into by any
persons without the required legal capacity; only one original Note has
been executed by the Mortgagor; and no foreclosure (including any
non-judicial foreclosure) or any other legal action has been brought by the
Borrower or any senior lienholder in connection therewith;
(E) No instruments other than those delivered to the Custodian with
each group of Essential Mortgage File Documents are required under
applicable law to evidence the indebtedness represented by such Mortgage
Loan(s) or to perfect the lien of the Mortgage(s);
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(F) Except as has been disclosed to an agreed to by the Lender in
writing, there is no agreement with the Mortgagor regarding any variation
of the interest rate and schedules of payment (except as described in the
Note and Mortgage) or other terms and conditions of the Mortgage Loan, no
Mortgagor has been released from liability on the Note, and no Mortgage
Property has been released;
(G) The Mortgage Loan is secured by a valid Mortgage, of first or
second priority, on real property, and such Mortgage has been properly
delivered to the appropriate public recording official to be filed,
recorded or otherwise perfected in due course in accordance with applicable
law in the appropriate jurisdiction;
(H) The applicable Related Assets do not result in a violation of any
applicable federal or state law or regulation, including, without
limitation, Fair Credit Reporting Act and Regulations, the Federal
Truth-in-Lending Act and Regulation Z, the Federal Equal Credit Opportunity
Act and Regulation B, the Federal Real Estate Settlement Procedures Act and
Regulation X, the Federal Debt Collection Practices Act and any federal or
state usury laws and regulations. All disclosures required by law, federal,
state or local, were properly made prior to the closing of the Mortgage
Loan;
(I) The Borrower has in its possession or has delivered to the Lender
or its designee a title policy or a written commitment or interim binder
which is in full force and effect issued by the title insurance company,
dated and certified as of the date the Mortgage Loan was funded, with a
statement by the title insurer or closing agent or attorney on such binder
or commitment that the priority of the lien of the related Mortgage
on and after the date of closing of the related Mortgage Loan is
insured; which is in an amount at least as great as the outstanding
principal balance of the Mortgage Loan; which names the Borrower or its
predecessors its successors and assigns as the insured party and which is
issued by a title insurer that is qualified to do business in the
jurisdiction where the Mortgage Property is located. Such policy shall, as
to the date of such policy: (i) Insure the absence of any lien of taxes or
other assessments that are due and payable as to the Mortgage Property;
(ii) Disclose whether
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all taxes and other assessments due as of the date of the policy have been
paid-in-full as to the Mortgage Property; and (iii) Disclose all other
matters to which like properties are commonly subject;
(J) The Note and Mortgage contain customary, valid, legal and
enforceable provisions such as to render the rights and remedies of the
holder thereof adequate for the realization against the Mortgage Property
of the benefits of the security created thereby subject to applicable
bankruptcy and other creditors' rights laws;
(K) The proceeds of the Mortgage Loan have been fully disbursed and
any and all requirements as to completion of on-site and off-site
improvements and disbursements of any escrow funds therefore have been
complied with;
(L) There are no mechanic's liens or similar liens or claims which
have been filed for work, labor or material affecting the Mortgage Property
which are or may be liens prior to or equal with the lien of the Mortgage
and senior mortgage(s);
(M) The Mortgage Property is free of material damage and waste and is
in average repair and there is no proceeding pending or threatened for the
total or partial condemnation of the Mortgage Property, and the Mortgage
Property is free and clear of all hazardous material to the best of
Borrower's knowledge;
(N) All matured obligations pursuant to the Note and Mortgage have
been paid or performed (excluding payments less than 29 days delinquent on
a contractual basis) and the Borrower has waived any defaults, breach,
violation or event of acceleration;
(O) The Borrower has no knowledge of any fact as to such Mortgage Loan
which it has failed to disclose which would materially and adversely affect
the value or marketability of such Mortgage Loans;
(P) The Borrower has no knowledge of any impediments to title that
adversely affect the value (from the appraised value used to arrive at the
loan-to-value ratio), enjoyment or marketability of the Mortgage Property;
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(Q) Where required by law, the Borrower has filed for record a request
for notice of action by a senior lienholder under a senior lien, and the
Borrower has notified any superior lienholder in writing of the existence
of the Mortgage Loan and requested notification of any action to be taken
against the Borrower by the superior lienholder. The Borrower shall, upon
request of the Lender, cooperate in recording a new request for action in
favor of the Lender and in providing superior lienholders with written
requests for notification to the Lender of action against the Mortgagor;
(R) There is no default, breach, violation or event of acceleration
existing under any senior Mortgage which, with or without (i) notice, and
(ii) the expiration of any grace or cure period, would constitute a
default, breach, violation or event of acceleration;
(S) Each Note and Mortgage contains a provision for the acceleration
of the payment of the unpaid principal balance of the Mortgage Loan in the
event the related Mortgage Property is sold without the prior consent of
the mortgagee thereunder to the extent permitted by applicable law;
(T) All real estate appraisals made in connection with each Mortgage
Loan have been performed in accordance with industry standards in the
appraising industry in the area where the appraised property is located and
have been performed by an appraiser who satisfies the requirements of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989;
(U) To the best of Borrower's knowledge, no hazardous or toxic
materials or wastes or products regulated by law or ordinance or asbestos
or asbestos products or materials or polychlorinated biphenyls or urea
formaldehyde insulation have ever been used or employed in the
construction, use or maintenance of the Mortgage Property or have ever been
stored, treated at or disposed of on the Mortgage Property. However, in the
event it has been determined that asbestos or asbestos products or asbestos
materials have been used or employed in the construction, use, or
maintenance of the Mortgage Property, a duly qualified appraiser or
engineer has certified that the material is in good repair or has been
removed;
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(V) To the best of Borrower's knowledge, there has not occurred nor
has any person or entity alleged that there has occurred, upon the Mortgage
Property any spillage, leakage, discharge or release into the air, soil or
groundwater of any hazardous materials or regulated wastes;
(W) There are no delinquent taxes, ground rents, water charges, sewer
rents, assessments, insurance premiums, leasehold payments, including
assessments payable in future installments (one or more installments of
which are delinquent) or other outstanding charges affecting the related
Mortgage Property which constitute a lien on the Mortgage Property prior to
the Mortgage;
(X) All buildings upon the Mortgage Property are insured by a
generally acceptable insurer against loss by fire, hazards of extended
coverage and such other hazards as are customary in the area where the
Mortgage Property is located, pursuant to insurance policies conforming to
the requirements of FNMA and FHLMC. All such insurance policies contain a
standard mortgagee clause naming the Borrower, successors and assigns as
mortgagee and all premiums thereon have been paid. If upon origination of
the Mortgage Loan, the Mortgage Property was in an area identified on a
Flood Hazard Map or Flood Insurance Rate Map issued by the Federal
Emergency Management Agency as having special flood hazards (and such flood
insurance has been made available) a flood insurance
policy meeting the requirements of the current guidelines of the
Federal Insurance Administration is in effect which policy conforms to the
requirements of FNMA and FHLMC. The Mortgage obligates the Mortgagor
thereunder to maintain all such insurance at the Mortgagor's cost and
expense, and on the Mortgagor's failure to do so, authorizes the holder of
the Mortgage to maintain such insurance at Mortgagor's cost and expense and
to seek reimbursement therefor from the Mortgagor;
(Y) Except for the obligor under the Mortgage Loan all parties which
have had any interest in the Mortgage Loan, whether as mortgagee, assignee,
pledgee or otherwise, are (or, during the period in which they held and
disposed of such interest, were) in compliance with any and all applicable
"doing business" and licensing requirements of the laws of the state
wherein the Mortgage Property is located;
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(Z) All improvements which were considered in determining the
Appraised Value of the related Mortgage Property lay wholly within the
boundaries and building restriction lines of the Mortgage Property, and no
improvements on adjoining properties encroach upon the Mortgage Property;
(AA) In the event the Mortgage constitutes a deed of trust, a trustee,
duly qualified under applicable law to serve as such, has been properly
designated and currently so serves and is named in the Mortgage, and no
fees or expenses are or will become payable by the mortgagee to the trustee
under the deed of trust, except in connection with a trustee's sale after
default by the Mortgagor;
(BB) No Mortgagor Loan contains provisions pursuant to which monthly
payments are (i) paid or partially paid with funds deposited in any
separate account established by the Borrower, the Mortgagor, or anyone on
behalf of the Mortgagor, (ii) paid by any source other than the Mortgagor
or (iii) contains any other similar provisions which may constitute a
"buydown" provision. The Mortgage Loan is not a graduated payment mortgage
loan and the Mortgage Loan does not have a shared appreciation or other
contingent interest feature;
(CC) The Mortgagor has executed a statement to the effect that the
Mortgagor has received all disclosure materials required by applicable law
with respect to the making of adjustable rate mortgage loans and rescission
materials with respect to Refinanced Mortgage Loans, and such statements is
and will remain part of the Related Assets;
(DD) No Mortgage Loan was made in connection with (i) the construction
or rehabilitation of a Mortgage Property or (ii) facilitating the trade-in
or exchange of a Mortgage Property;
(EE) The Mortgage Property is lawfully occupied under applicable law;
all inspections, licenses and certificates required to be made or issued
with respect to all occupied portions of the Mortgage Property and, with
respect to the use and occupancy of the same, including but not limited to
certificates of occupancy, have been made or obtained from the appropriate
authorities;
(FF) The Assignment of Mortgage is in recordable form and is
acceptable for recording
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under the laws of the jurisdiction in which the Mortgage Property is
located; and
(GG) Any principal advances made to the Mortgagor prior to the Closing
Date have been consolidated with the outstanding principal amount secured
by the Mortgage, and the secured principal amount, as consolidated, bears a
single interest rate and single repayment term. The lien of the Mortgage
securing the consolidated principal amount is expressly insured as having
first or second lien priority by a title insurance policy, an endorsement
to the policy insuring the mortgagee's consolidated interest or by other
title evidence acceptable to FNMA and FHLMC. The consolidated principal
amount does not exceed the original principal amount of the Mortgage Loan.
(HH) As of each Closing Date, with respect to the aggregate of (i) all
Mortgage Loans then included as Collateral hereunder and (ii) those
Mortgage Loans intended to be so included on such Closing Date;
(a) No Mortgage Loan is secured by a third lien;
(b) Each balloon loan provides for scheduled monthly payments
based on a 30-year amortization schedule with a balloon payment of the
balance due under such loan no earlier than the end of the 5th year
from the date of its origination; provided, however, there may be up
to 5% of the aggregate outstanding principal balance of the balloon
loans with the balance due earlier than at the end of the 5th year;
(c) No Mortgage Loan is contractually delinquent for more than 29
days;
(d) No more than 5% of the aggregate outstanding principal
balance of the Mortgage Loans is secured by Mortgaged Properties that
are condominiums;
(e) No more than 20% of the aggregate outstanding principal
balance of the Mortgage Loans is secured by
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Mortgaged Properties that are investor owned;
(f) The weighted average Loan-to-Value Ratio of the Mortgage
Loans is not greater than 75%;
(g) No Mortgage Loan has a Loan-to-Value Ratio greater than 80%
(other than 1% of the principal balance of the Mortgage Loans, which
may have a Loan-to-Value Ratio of 100% provided that such loan has
been preapproved by Lender for sale to a third party);
(h) No more than 20% of the aggregate outstanding principal
balance of the Mortgage Loans is represented by loans made on a no
income verification basis; and
(i) The aggregate outstanding principal balance of the Mortgage
Loans which are ARMs is no more than $1,500,000.
(II) The Mortgage Loans consisting of ARMs (i) were not selected by Borrower for
inclusion on a Borrowing Request on any basis which would adversely affect
Lender, (ii) are of no less than the average credit quality of the ARMs in the
pool of mortgage loans owned by the Borrower, (iii) have not had the right to
future changes in the interest rate and payment schedules waived by Borrower or
any previous holder of such ARM, (iv) are secured by a first lien, and (v) have
as an applicable Index a reference to the London interbank offering rate or U.S.
Treasury Securities.
5.3 Survival. To induce Lender to provide Advances, Borrower makes the
representations and warranties set forth herein, each and all of which shall:
(i) survive the execution and delivery of this Agreement and the making of any
Advance by Lender; (ii) inure to the benefit of Lender and (iii) be deemed to
have been relied upon in making Advances hereunder by Lender regardless in each
case of any investigation or review Lender may have or shall hereafter make;
provided, however, that any such representations and warranties shall not be
deemed to survive with respect to any Collateral which secures any Advances
which are repaid in full.
6. COVENANTS.
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During the term of this Agreement, and thereafter for so long as there is
any outstanding amounts owed to the Lender pursuant to this Agreement, Borrower
hereby makes to the Lender each of the following covenants (both affirmative and
negative):
6.1 Affirmative Covenants.
(A) Borrower shall timely make any payment of interest or principal or
any other sum, which has become due whether by acceleration or otherwise
(including the failure to make a mandatory prepayment), under the terms of
the Secured Note, this Agreement or any other document evidencing or
securing indebtedness of Borrower to Lender or any of its affiliates.
(B) In the event of a filing against Borrower of a petition for
liquidation, reorganization, arrangement or adjudication as a bankrupt or
similar relief under the bankruptcy, insolvency or similar laws of the
United States or any state or territory thereof or of any foreign
jurisdiction or there shall be appointed a receiver, conservator,
liquidator, assignee, custodian, trustee, sequestrator or other similar
official of Borrower or any substantial part of its property or the
ordering of the winding-up or liquidation of its affairs, dismissal of such
filing, appointment or Order shall be secured within 90 days of such
filing.
(C) Borrower shall maintain Equity of at least $5,000,000.
(D) Borrower shall, promptly upon preparation, but in no event later
than 45 days (unless otherwise agreed, in which event no later than 60
days) following the end of its first three fiscal quarters, deliver to
Lender its unaudited financial statements as of the end of such fiscal
quarter, together with a certificate of the chief executive officer or
the chief accounting officer of the Borrower to the effect that (i) to
the best knowledge of such officer, such financial statements are true,
complete and correct and (ii) nothing has come to the attention of such
officer which has caused such officer to believe that such financial
statements were not prepared in accordance with GAAP. Borrower shall,
promptly upon preparation, but in no event later than 75 days (unless
otherwise agreed, in which event no later than 90 days) following the
end of such
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party's fourth fiscal quarter, deliver to Lender its audited and certified
financial statements, prepared in accordance with GAAP, as of the end of
the most recently ended fiscal year, which audits and certifications shall
each be prepared by an independent public accounting firm. In all cases,
financial statements shall include, without limitation, a balance sheet, a
profit and loss statement and a statement of cash flows.
(E) Borrower shall notify Lender in writing, promptly upon learning of
(I) any breach of any representation, warranty, covenant or agreement (i)
under this Agreement, (ii) any borrowing agreement or other instrument or
agreement pertaining to indebtedness for borrowed money in excess of
$250,000; or (II) the existence of any default of which Borrower has
knowledge under any agreement involving the receipt or potential receipt or
the payment or potential payment by Borrower of more than $250,000.
(F) Borrower shall, promptly upon filing, deliver to Lender copies of
all public filings made by it with any governmental or quasi-governmental
body.
(G) Borrower shall pay and discharge all taxes, assessments and
governmental charges upon it, its income and properties as and when such
taxes, assessments and charges are due and payable, except and to the
extent only that such taxes, assessments and charges are being actively
contested in good faith and by appropriate proceedings, Borrower shall
maintain adequate reserves on its books therefor.
(H) Borrower shall file all federal, state and local tax returns and
other reports the Borrower is required by law to file and maintain adequate
reserves for the payment of all taxes, assessments, governmental charges,
and levies imposed upon it, its income, or its profits, or upon any
property belonging to it.
(I) The Borrower shall preserve and maintain the Borrower's separate
existence as a corporation and all rights, privileges, and franchises in
connection therewith, and maintain its qualification and good standing in
all states in which the failure to be so qualified might have a material
adverse effect on the financial condition, business or properties of the
Borrower.
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(J) Borrower shall comply with all laws, ordinances, governmental
rules and regulations to which the Borrower is subject, and obtain and keep
in force any and all licenses, permits, franchises, or other governmental
authorizations from, give all such notices promptly to, register, enroll or
file promptly all such agreements, instruments or documents required by
applicable laws with, and promptly take all such other legally required
action with respect to, any governmental or regulatory authority, agency or
official, as is required under any provision of any applicable law and that
it is necessary (i) for the continued operation of any of the Borrower's
activities or business or the performance by the Borrower of any of its
agreements or obligations under this Agreement, the Secured Note, or
Custodial Agreement, or (ii) to ensure the continuing legality, validity,
binding effect or enforceability of this Agreement, the Secured Note, or
Custodial Agreement or any of the obligations thereunder of the Borrower
necessary to the ownership of its properties or to the conduct of its
businesses.
(K) The Borrower shall provide the Lender with such other
documentation and information pertaining to any Mortgage Loans, at any time
and from time to time, as Lender may reasonably request.
(L) If any Advance is made pursuant to a Custodian's certification set
forth in clause (i) of Section 4.1(B) hereof, the Borrower shall, within
three Business Days deliver to the Lender a certificate of the Custodian to
the effect set forth in Section 4.1(B)(ii).
6.2 Negative Covenants.
(A) Borrower shall not (i) assign or attempt to assign this Agreement
or any rights hereunder, without first obtaining the specific written
consent of Lender, which consent can be withheld for any reason or for no
reason, or (ii) grant any security interest, lien or other encumbrance on
any Collateral to other than Lender or any of its affiliates.
(B) Borrower shall not commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consent to the entry of an order for relief in an
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involuntary case under any such law or to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of Borrower, or of any substantial
part of its property, and Borrower shall not make any general assignment
for the benefit of creditors, or fail generally to pay debts as such debts
become due, and shall not take corporate action in furtherance of any of
the foregoing.
(C) Borrower shall not suffer any material adverse change in its
business, operations, financial condition, properties or prospects.
(D) Borrower shall not default under any term or provision of any
agreement between (x) Borrower and (y) Lender or any of its affiliates or
any third parties, which default shall not have been cured within an
applicable cure period, if any.
(E) There shall be no Change of Control, and Borrower shall not merge
or consolidate with or into, any other entity without the prior written
consent of Lender, which consent shall not be unreasonably withheld.
(F) During the term of this Agreement, Borrower shall not engage in
any business other than as a mortgage loan broker or mortgage banking firm,
except with the prior written consent of Lender, which consent shall not be
unreasonably withheld.
(G) Borrower shall not (i) dissolve or terminate its existence, (ii)
enter into any joint venture or become a partner in any partnership, (iii)
transfer any assets to any affiliate except as otherwise expressly
permitted or contemplated hereby, or (iv) issue or distribute any
securities or create any subsidiary without the prior written consent of
Lender, which consent shall not be unreasonably withheld; provided,
however, that any Change of Control which is caused by any of the actions
described in this subsection 6.2(G) shall not have the effect of validating
a Change of Control which is otherwise prohibited under the provisions of
subsection 6.2(E).
(H) Except for the making and purchase of mortgage loans in the
ordinary course of business, Borrower shall not make or permit to exist
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investments in or loans to any other person, entity or affiliate.
(I) Borrower shall not guarantee, endorse or otherwise in any way
become or be responsible for any obligations of any other person, entity or
affiliate; provided, however, that nothing contained herein shall prevent
Borrower from (i) indemnifying its officers and directors pursuant to the
bylaws of Borrower, (ii) endorsing checks and other instruments of or for
deposit, (iii) the sale of mortgage loans with recourse in the ordinary
course of business of Borrower, (iv) reimbursing amounts due under tax,
assessment and other customary provisions in real estate leases governing
Borrower's leases and (v) agreeing to customary indemnities of the type and
kind normally included in agreements to borrow money or underwriting or
placement agreements of the Borrower;
provided, further, however, that no transaction that occurs in the course of
buying and selling mortgages will constitute a violation of this section it made
in the ordinary course of business of Borrower.
(J) Borrower shall not, in the aggregate, make or commit to make
capital expenditures in excess of $1,000,000 during the period commencing
on the date of this Agreement terminating on the first anniversary date
hereof, and thereafter, borrower shall not, in the aggregate, make or
commit to make capital expenditures in excess of $1,000,000 during any
single year measured from the first anniversary date hereof, without the
written consent of Lender, which consent shall not be unreasonably
withheld.
(K) Borrower will not commit any act in violation of applicable laws,
or regulations promulgated pursuant thereto that relate to the Mortgage
Loans or that materially and adversely affect the operations or financial
condition of Borrower.
7. REPAYMENT OF ADVANCES.
7.1 Repayment. No Advance is pre-payable, except as required by Section
7.4. Borrower agrees to pay Lender any of its direct costs incurred in prepaying
any Mortgage Loan earlier than the Repayment Date. Any such repayment shall be
paid to Lender by wire transfer to an account designated by
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the Lender in immediately available funds in any event on the earlier to occur
of any sale thereof and the Repayment Date. The Lender shall deliver to Borrower
or its designee the Essential Mortgage File Documents and any other Related
Assets in its possession with respect to such Mortgage Loan after such
repayment.
7.2 Interest on Advances. Borrower shall pay to Lender on the fifteenth
Business Day of each month interest on all Advances that were outstanding at any
time during the prior month at an annual rate equal to the Advance Libor Rate
plus 175 basis points.
7.3 Computation of Interest. Interest on Advances shall be computed on the
basis of a 360-day year and 12 30-day months. In computing the interest on any
Advances, the date of making the Advance shall be included and the date of
repayment shall be excluded; provided, that if an Advance is repaid on the same
day on which it is made, one day's interest shall be paid on that Advance.
7.4 Mandatory Prepayments and Rights.
(A) The Lender has the right to require, in its unreviewable
discretion, the Borrower to prepay any Advance in part and to the extent of
the outstanding principal balance of each Related Mortgage Loan which
breaches one or more of the representations and warranties listed above;
provided, however, that if no Event of Default has occurred and is
continuing, then in lieu of any prepayment required by this Section 7.4(A),
the Borrower may pledge additional Mortgage Loans complying with the terms
of this Agreement with an aggregate outstanding principal balance equal to
the amount of such required prepayment.
(B) The Borrower shall prepay an Advance in part (i) in the event of a
payoff of a Related Mortgage Loan, in an amount equal to the portion of the
Advance that relates to such Mortgage Loan; (ii) in the event of a
Curtailment, in an amount equal to such Curtailment; (iii) if a Mortgage
Loan is delivered in substitution of a Mortgage Loan previously listed on a
Certified Schedule of Mortgage Loans and the then-outstanding principal
balance of the substitute Mortgage Loan is less than the portion of the
Advance that relates to the replaced Mortgage Loan, in an amount equal to
such difference; and (iv) on the last day of any month, in an amount equal
to the aggregate of all principal payments received by the Borrower during
such month in respect of the Mortgage Loans and not
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previously remitted to the Lender; provided, however, that if no Event of
Default has occurred, then in lieu of any prepayment required by this
clause (iv), the Borrower may pledge additional Mortgage Loans complying
with the terms of this Agreement with an aggregate outstanding principal
balance equal to the amount of such required prepayment.
(C) If at any time more than 5% of the aggregate principal balance of
the Mortgage Loans is more than 60 days delinquent (determined as to each
Mortgage Loan on a contractual basis), the Lender may require the Borrower
to prepay the Advances in part with respect to such Mortgage Loans so that
not more than 5% of the aggregate principal balance of the Mortgage Loan is
contractually delinquent[, and in the event that any Mortgage Loan is
contractually delinquent] for 90 or more days, the Borrower shall prepay
the Advances in part with respect to such Mortgage Loan.
(D) Within 15 Business Days of receipt of a Spread Deficiency Notice,
if a Spread Deficiency shall then still exist Borrower shall either:
(i) pay to the Lender an amount equal to the product of (a) the aggregate
principal balance of the Mortgage Loans pledged to the Lender and (b) the
product of (x) .00025 by (y) the Spread Deficiency; or
(ii) substitute one or more Mortgage Loans previously included on one or
more Certified Schedules of Mortgage Loans with substitute Mortgage Loans
complying with the provisions of this Agreement so that the result of such
substitution is to eliminate the Spread Deficiency;
provided, however, that if any payment is made by the Borrower to Lender
pursuant to this subsection, (a) such payment shall be applied to deduct
the outstanding principal balance of the Advances and (b) the Spread
Deficiency relating to such payment shall be deemed "cured" (the amount of
such Spread Deficiency, the "Cured Spread Deficiency Account") and no
further payment shall be required in respect of the Spread Deficiency
unless the amount of the Spread Deficiency exceeds the Cured Spread
Deficiency Amount.
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In the event that the yield on four Year Treasury Securities is rising, the
Borrower may, but is not required to, cure the Spread Deficiency by more
than the minimum required amount for the purpose of delaying or reducing
expected future Spread Deficiencies.
(E) Any prepayment required by clauses (i), (ii) or (iii) of Section
7.4(B) of this Agreement shall be no later than five Business Days after
the date on which the event giving rise to such required prepayment occurs.
Unless otherwise specified in this Agreement, any other prepayment required
of this Section 7 shall be made within three Business Days of the event
giving rise to such required prepayment.
(F) In the event a prepayment is required under this Agreement as a
result of a Curtailment or full repayment by the Mortgagor of the Mortgage
Loan, then the amount of such repayment shall be applied first to reduce
the outstanding principal balance of the related Advance, then to reduce
the accrued and unpaid interest of the related Advance. In all other cases,
the amount of such prepayment shall be applied first to reduce the accrued
and unpaid interest of the Advances and then to reduce the outstanding
principal balance of the Advances.
(G) The Borrower shall comply with the document delivery requirements
set forth in the Custodial Agreement including, without limitation, the
delivery of all documents necessary to complete each mortgage file relating
to the Mortgage Loans within three Business Days following the Closing Date
for the Advance relating to such Mortgage Loans.
7.5 Default Rate. Any amount owing to Lender by Borrower under this
Agreement which is not paid on the related Repayment Date, shall bear interest
at the Default Rate until paid.
8. SECURITY.
8.1 Grant of Security Interest. To secure the payment of Advances and the
performance of Borrower's other obligations hereunder, Borrower pledges and
hypothecates to Lender, and grants a continuing lien and first priority security
interest in favor of Lender in, all of Borrower's
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right, title and interest in and to the following (the "Collateral"):
(A) All Mortgage Loans, Mortgages, Mortgage Notes and Essential
Mortgage File Documents, Related Assets and other documents and property as
shall be deposited with, or held by or at the direction of Lender pursuant
to this Agreement and the Custodial Agreement;
(B) All payments and prepayments of principal, interest, penalties and
other income due or to become due on all Mortgages Loans, Mortgages and
Mortgage Notes referred to in Paragraph (a) above, and all proceeds
thereof, all the right, title and interest of every nature whatsoever of
Borrower in and to the same and all property used in connection therewith
(subject to Borrower's right under this Agreement to collect certain
payments so long as no Event of Default shall have occurred and be
continuing) including, without limitation the following: (i) all rights,
liens and security interests existing with respect to, or as security for,
all such Mortgage Loans; (ii) all hazard insurance policies, flood
insurance policies (if applicable), title insurance policies or
condemnation proceeds with respect to each such Mortgage Loan (and amounts
received by Borrower for the purpose of payment of real property taxes,
assessments and insurance premiums pursuant to the terms of Mortgage
Notes); (iii) the servicing rights attributable to the Mortgage Loans; and
(iv) all private mortgage insurance policies, if any, with respect to each
such Mortgage Loan.
(C) All files, surveys, certificates, correspondence, appraisals,
computer programs, tapes, discs, cards, accounting records and other
records, and data of Borrower related to the Mortgage Loans referred to in
Paragraph (a) above (but not including the general accounting materials of
Borrower); and
(D) All products, profits and proceeds of any of the property
described in the foregoing Paragraphs (A) and (B) and any other property or
documents relating to any of the foregoing that may, from time to time
hereafter, come into Borrower's possession and/or be delivered by Borrower
to Lender or its designee under this Agreement.
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8.2 Authority to Collect. So long as no Event of Default shall have
occurred and be continuing, Borrower shall have the right to collect for its own
account all payments (but not proceeds of the sale of Mortgage Loans) of
principal, interest, penalties and other amounts due or to become due on
Mortgage Loans and pledged and hypothecated under this Agreement.
8.3 Lender Appointed Attorney-in-Fact. Upon the occurrence of an Event of
Default, Borrower hereby appoints Lender as Borrower's attorney-in-fact, with
full power of substitution, for the purpose of taking such action and executing
such documents, in the name of Borrower or otherwise, as Lender may deem
necessary or advisable to further perfect its interest in, or realize upon, or
execute its interest in the Collateral, which appointment is coupled with an
interest and is irrevocable. Lender agrees promptly to notify Borrower after any
such action or execution of instruments, provided that the failure to give such
notice shall not affect the validity of such action or execution of instruments.
8.4 Security for Obligations. This Agreement shall constitute a security
agreement and create a continuing first perfected security interest in the
Collateral and shall: (i) remain in full force and effect until payment in full
of Secured Note; (ii) be binding upon Borrower, its respective successors and
assigns and (iii) inure to the benefit of Lender and its successors, transferees
and assigns.
9. EVENTS OF DEFAULT.
9.1 Event of Default. The occurrence of any of the following conditions or
events shall constitute an "Event of Default" hereunder:
(A) Failure to Make Payments When Due. (i) Failure to pay the
principal of any Advance by the Repayment Date, whether at maturity, by
acceleration, by notice of prepayment or otherwise; or (ii) Failure to pay
any interest on Advances with respect to any month by the fifteenth
Business Day of the following month; or
(B) Default in Other Agreements. Failure of Borrower to pay or any
default in the payment of any principal of or interest on any other
indebtedness or in the payment of any contingent obligation beyond any
period of grace provided or breach or default with respect to any other
material term of any evidence of any other indebtedness or of any loan
agreement, security agreement, mortgage, indenture or other agreement
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relating thereto, if the effect of such failure, default or breach is to
cause, or to permit the holder or holders of that indebtedness (or a
trustee on behalf of such holder or holders) to cause, indebtedness of
Borrower in the aggregate amount of $10,000 or more to become or be
declared due prior to its stated maturity; or
(C) Breach of Representations, Warranties, etc. Breach by Borrower
of any representation, warranty, covenant or agreement set forth in this
Agreement; provided, however, that no breach of the representations and
warranties set forth in Section 5.2 shall be deemed to have occurred if
(i) such breach involves less than 5% of the Mortgage Loans securing any
Advances, and (ii) such Mortgage Loans are repayed or substituted pursuant
to Section 7.4(A) within five (5) Business Days after Borrower learns of
such breach, whether by written notice from Lender of such Breach or
otherwise; or
(D) Other Defaults. Borrower shall default in the performance of or
compliance with any term contained in this Agreement, other than those
contained in this Agreement, other than those referred to in Paragraph (A)
or (C) above and such default shall not have been remedied or waived within
10 days after Borrower learns of such breach, whether by written notice
from Lender of such breach or otherwise; or
(E) Involuntary Bankruptcy; Appointment of Receiver, etc. Either: (i)
a court having jurisdiction in the premises shall enter a decree or order
for relief in respect of Borrower in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, which decree or order is not stayed; or (ii) any other similar
relief shall be granted under any applicable federal or state law, or a
decree or order of a court having jurisdiction in the premises for the
appointment of a receiver, liquidator, trustee, custodian or other officer
having similar powers over Borrower or over all or a substantial part of
its property, shall have been entered, or the involuntary appointment of an
interim receiver, trustee or other custodian of Borrower for all or a
substantial part of its property, or the issuance of a warrant of
attachment, execution or similar process against any substantial part of
the property of Borrower, and the continuance of any such events in clauses
(i) and (ii) for 45 days unless dismissed, bonded or discharged; or
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(F) Voluntary Bankruptcy; Appointment of Receiver, etc. Borrower shall
have an order for relief entered with respect to either party or commence a
voluntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or shall consent to the entry of an order
for relief in an involuntary case, or to the conversion to an involuntary
case, under any such law, or shall consent to the appointment of or taking
possession by a receiver, trustee or other custodian for all or a
substantial part of its property; the making by Borrower of any assignment
for the benefit of creditors; or the inability or failure of Borrower, or
the admission of Borrower in writing of its inability to pay its debts as
such debts become due or the Board of Directors of Borrower (or any
committee thereof) adopts any resolution or otherwise authorizes action to
approve any of the foreoging; or
(G) Judgments and Attachments. Any money judgment, writ or warrant of
attachment, or similar process involving in any case an amount in excess of
$10,000 shall be entered or filed against Borrower or its assets and shall
remain undischarged, unvacated, unbonded or unstayed for a period of 30
days or in any event later than five days prior to the date of any proposed
sale thereunder; or
(H) Dissolution; Liquidation. Any order, judgment or decree shall be
entered against Borrower decreeing its dissolution or liquidation and such
order shall remain undischarged or unstayed for a period in excess of 20
days.
9.2 Remedies.
(A) Upon the occurrence of any Event of Default, the unpaid principal
amount of and accrued interest on the Secured Note and any interest on
Advances due under Section 7 shall automatically become due and payable,
without presentment, demand or other requirements of any kind, all of which
are hereby expressly waived by Borrower, and the obligation of Lender to
make Advances shall thereupon terminate.
(B) Upon the occurrence of any Event of Default, Lender may do any or
all of the following:
(i) Foreclose upon or otherwise enforce its security interest and
lien on the
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Collateral to secure all payments and performance of obligations owed
by Borrower under Secured Note and this Agreement.
(ii) Notify all obligors of Collateral that the Collateral has
been assigned to Lender and that all payments thereon are to be made
directly to Lender or such other party as may be designated by Lender;
settle, compromise or release, in whole or in part, any amounts owing
on the Collaterral, any portion of the Collateral, by any such obligor
on terms acceptable to Lender in a commercially reasonable manner;
enforce payment and prosecute any action or proceeding with respect to
any and all Collateral; and where any such Collateral is in default,
foreclosure on, and enforce security interests in, such Collateral by
any available judicial procedure or without judicial process and sell
property acquired as a result of any such foreclosure in a
commercailly reasonable manner.
(iii) Cause any disposition of all or any portion of the
Collateral to be conducted immediately upon the occurrence of an Event
of Default (or immediately upon the expiration of any period of delay
or notice required by law) or Lender may delay any such sale or other
disposition for such period of time as Lender deems to be in its best
interest. Should Lender decide to conduct more than one such sale or
disposition, the Lender may at its option cause the same to be
conducted simultaneously or successively on the same day or upon such
different days or at such different times and in such order as Lender
may deem to be in its best interests. Borrower waives, to the fullest
extent permitted by law, any prejudice resulting to it from any such
decision.
(iv) Sell the Collateral in one or more lots, at one or more
times, at public or private sales, in an established market therefor
or otherwise, and with or without notice of any kind, as Lender may
elect, at such prices and on such terms, as to cash or credit, as a
Lender may deem proper, and in the case of pledged Mortgages, with or
without servicing rights. Any sale may be made at any place designated
by Lender, and Lender shall
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have the right to become the Lender at any such sale which is open to
the public. Lender shall have the right in connection with the
Collateral either to sell the same as above provided, or to foreclose,
sue upon, or otherwise seek to enforce the same in its own name or in
the name of Borrower as provided herein. Subject to the foregoing
provisions of this paragraph, after the Event of Default shall occur
and be continuing, Lender shall have the right to renew, extend the
time of payment of, or otherwise modify, amend, supplement, settle or
compromise, in any manner, any obligations for the payment of money
included in the Collateral, any security therefor and any other
agreements, instruments, claims or chooses in action of any kind,
which may be included in the Collateral.
(v) Take possession of all or any portion of the Collateral that
is not already in the possession of Lender and Borrower agrees
immediately to assemble and make available the Collateral to Lender at
a location convenient to the Lender. Lender may manage and protect the
Collateral, do any acts which Lender deems proper to protect the
Collateral as security hereunder, and sue upon any contract or claim
relating to the Collateral and receive any payments due thereon or any
damages thereunder, and apply all sums received to the payment of the
indebtedness secured hereby in accordance with Section 9.3 in such
order as Lender shall determine. Any such actions of Lender shall not,
absent written ratification by Lender, be deemed to impose upon Lender
any of Borrower's obligations under any contracts.
(vi) Be entitled, without regard to the adequacy of the security
for the indebtedness secured hereby, to the appointment of a receiver
by any court having jurisdiction without notice, to take possession of
and protect, collect, manage, liquidate, and sell the Collateral or
any portion thereof, collect the payments due with respect to the
Collateral or any portion thereof, and do anything that a Lender or
owner of the Collateral is authorized with respect thereto to do.
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(vii) Act, or contract with a third party to act, as servicer of
each item of Collateral requiring, servicing with any such third
party's fees to be paid by Borrower.
(viii) Exercise all rights and remedies of a secured creditor
under the Uniform Commercial Code, including, but not limited to,
selling the Collateral at public or private sale.
(ix) Exercise any and all other rights and remedies of Lender as
it shall deem appropriate at law, in equity, or otherwise.
(C) All remedies are cumulative. Any failure on the part of Lender to
exercise or any delay in exercising any right hereunder shall not operate
as a waiver thereof, nor shall any single or partial exercise by Lender of
any right hereunder preclude any other exercise thereof or the exercise of
any other right.
9.3 Application of Proceeds. Any money collected by Lender pursuant to this
Section 9 (whether upon voluntary payment, foreclosure or otherwise) shall be
promptly applied as follows unless otherwise required by provisions of
applicable law:
(A) First, to the payment of all expenses incurred by Lender
under this Agreement in enforcing its rights hereunder including all
costs and expenses of collection, reasonable attorneys fees, court
costs and foreclosure expenses.
(B) Second, to the payment of all interest on Advances to the extent
amounts are then due thereon.
(C) Third, to the payment of all principal of Advances to the extent
amounts are then due thereon.
(D) Fourth, to Borrower.
10. INDEMNIFICATION.
Without limiting any other rights which Lender or Borrower may have
hereunder or under applicable law, and in addition to any other indemnity
provided hereunder, Borrower hereby agrees to indemnify Lender and its
respective officers, directors, agents and employees (each, an "Indemnified
Party")
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<PAGE>
from and against any and all Losses incurred by any of them relating to or
resulting from:
(i) any representation or warranty made by Borrower (or any officers,
employees or agents of Borrower) under or in connection with this
Agreement, any periodic report required to be furnished hereunder or any
other information or document delivered by Borrower pursuant hereto, which
shall have been false or incorrect in any material respect when made or
deemed made;
(ii) the failure by Borrower to comply with any applicable law, rule
or regulation with respect to any Advance or any other transaction
contemplated hereunder; or
(iii) the failure by Borrower (if so requested by Lender) to execute
and properly file, or any delay in executing and properly filing, financing
statements or other similar instruments or documents under the Uniform
Commercial Code of any applicable jurisdiction or other applicable laws
with respect to the Collateral.
The agreements of Borrower in this Section 10 shall be in addition to any
liabilities that Borrower may otherwise have and shall apply whether or not
Lender or any other Indemnified Party is a formal party to any lawsuit, claim or
other proceeding. For purposes of enforcing such agreements, Borrower hereby
consents to personal jurisdiction, service and venue in any court in which any
claim or proceeding which relates to the services or matters that are the
subject of this Agreement is brought against Lender or other Indemnified Party.
11. NOTICES.
All notices or other communications provided for herein shall be in writing
and shall be deemed to have been given or made when sent Certified Mail, Return
Receipt Requested, postage prepaid, or, in the case of telegraphic notice, when
delivered to the telegraph company, addressed as set forth below or to such
other address as may be hereafter designated in writing by the respective
parties hereto:
Lender: Industry Mortgage Company, L.P.
3450 Buschwood Park Drive, Suite 250
Tampa, Florida 33168
Attn: Mr. George Nicholas
Fax: (810 932-8257
Tel: (813)932-2211
Borrower: American Industrial Loan Association
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<PAGE>
3420 Holland Rd., Suite 107
Virginia Beach, VA 23452
Attn: Mr. Allen D. Wykle
Fax: (804) 403-1978
Tel: (804) 403-1400
12. APPOINTMENT OF ATTORNEY.
Borrower hereby appoints any officer or employee of Lender its true and
lawful attorney to sign and deliver to Lender on behalf of Borrower any
instrument or document and also any other writing which may be used in
connection therewith to evidence any security interest in any Collateral. This
power of attorney shall not be used to create any new obligation of Borrowers to
Lender not provided for herein or for the institution of suit in Borrower's
name, except as may be set forth in Section 9.2 hereof.
13. ACCESS TO BORROWER DOCUMENT AND INFORMATION.
Borrower shall provide to Lender and its appointed agents access to
documentation and information regarding the Collateral and the Borrower as
Lender may reasonably request, including, but not limited to, the Mortgage Loans
and any and all accounting records and financial statements of Borrower, such
access being afforded without charge upon reasonable request and during normal
business hours at the offices of the Borrower designated by it within the
continental United States.
14. TERMINATION.
Lender's obligation to make Advances pursuant to this Agreement shall
terminate upon the earliest of the following to occur: (i) the first quarterly
renewal date, commencing on April 1, 1996 and continuing on each July 1,
December 1, January 1, and April 1 thereafter; provided, however, that unless
Lender has sent written notice of its intention to terminate this Agreement to
Borrower 30 days prior to any such quarterly renewal date, this Agreement,
including Lender's obligation to make Advances hereunder shall continue to the
next quarterly renewal date; (ii) any Event of Default; (iii) the first
anniversary date of the commencement of this Agreement; provided, however, that
Lender may renew the Agreement to the next succeeding anniversary date by
sending written notice of its intention to renew this Agreement to Borrower.
In the event of termination, all outstanding Advances under the Note and
this Agreement shall become immediately due and payable without further notice
or demand.
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15. MISCELLANEOUS PROVISIONS.
15.1 Custodial Agreement. Notwithstanding anything stated herein to
the contrary, the Lender and the Borrower agree to enter into a custodial
agreement with a mutually acceptable bank or other such custodian for the
purposes of retaining custody of the Essential Mortgage File Documents,
which custodial agreement shall have terms and provisions which are
reasonably agreed upon by the parties thereto.
15.2 Representation of Servicer and Lender. If any of the Mortgage
Loans are presently serviced by any third party, Borrower shall obtain and
deliver on the Closing Date a representation and warranty to Lender from
each such servicer that, as of the Closing Date, there are not taxes,
ground, rents, water charges, sewer rents, assessments payable in future
installments, or other outstanding charges adversely affecting the lien of
any Mortgage or Mortgaged Property; which amounts are being escrowed and
which are due and payable. If requested by the Lender, each such servicer
shall submit proof of the foregoing representation and warranty.
15.3 Costs and Expenses. Except as explicitly provided herein,
Borrower and Lender shall each fulfill its obligations pursuant hereto at
its own cost and expense.
15.4 Agency; Joint Venture. Neither this Agreement nor any action
taken pursuant hereto shall make either party an agent or representative of
the other or be deemed to create a joint venture among the parties hereto.
15.5 Complete Agreement; Modification; Sale or Assignment. This
Agreement constitutes the complete agreement between Borrower and Lender
with respect to the subject matter hereof and may not be modified, altered,
or amended except by a writing signed by Borrower and Lender. Neither party
hereto may sell, assign, or transfer any of its rights or obligations
pursuant hereto except with the written consent of the other party, which
consent shall not be unreasonably withheld. Nothing herein shall in any way
limit Lender's right to assign the Secured Note to any other person or
entity.
15.6 No Waiver. No undertaking, agreement, covenant, representation or
warranty of Borrower contained herein shall be deemed to have been waived
by Lender, unless such waiver is by an instrument in writing signed by
Lender. Any such waiver by Lender shall not be deemed to be waiver of any
other undertaking, agreement, covenant, representation or warranty.
Lender's failure, at any time, to require strict performance of any
provision hereof shall not waive, affect or diminish any right of Lender
thereafter to demand strict compliance therewith or performance thereof.
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15.7 Parties. This Agreement, shall be binding upon, and inure to the
benefit of, the successor and permitted assigns of the parties hereto.
15.8 Severability; Section Headings. Any invalidity of any provisions
of Secured Note or this Agreement shall not affect the validity of any
other provision hereof. The section headings contained herein shall be
without substantive meaning and shall not be deemed to be a part of this
Agreement
15.9 Construction. Wherever from the context it appears appropriate,
each term stated in either the singular or plural shall include the
singular and plural, and pronouns stated in the masculine, feminine, and
neuter gender shall include the masculine, feminine, and the neuter. The
words "herein," "hereof," "hereto," "hereby," and other words of similar
import shall be deemed to refer to this Agreement as a whole and not to any
particular section, subsection, or clause of this Agreement.
15.10 Interpretation. No provision of this Agreement, the Secured Note
or the Custodial Agreement shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or
judicial authority by reason of such party having or being deemed to have
structured, drafted or dictated such provisions.
15.11 GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE
IN NEW YORK, NEW YORK. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO
THE CONFLICT OF LAWS RULES THEREIN. BORROWER HEREBY CONSENTS AND AGREES
THAT THE SUPREME COURT OF NEW YORK COUNTY, NEW YORK OR, AT LENDER'S OPTION,
THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK,
SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT OR TO ANY
MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT. BORROWER EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH
BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE
OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING FOR SUCH LEGAL
OR EQUITABLE RELIED AS IS DEEMED APPROPRIATE BY SUCH COURT. NOTHING IN THIS
AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF LENDER TO SERVE
LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE
ENFORCEMENT BY LENDER OR ANY JUDGMENT OR ORDER OBTAINING IN SUCH FORUM OR
THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER
APPROPRIATE FORUM OR JURISDICTION.
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15.12 WAIVER OF TRIAL BY JURY AND OTHER WAIVER BY BORROWER. BORROWER
WAIVES (i) THE RIGHT TO TRIAL BY JURY (WHICH LENDER HEREBY ALSO WAIVES) IN
ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR
RELATED TO THIS AGREEMENT; (ii) PRESENTMENT, DEMAND AND PROTEST AND NOTICE
OF PRESENTMENT, PROTECT, DEFAULT, NON PAYMENT, MATURITY, RELEASE,
COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL ACCOUNTS,
CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES ANY
TIME HELD BY LENDER ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY
RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO IN THIS REGARD; (iii) NOTICE
PRIOR TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR
SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO
EXERCISE ANY OF LENDER'S REMEDIES; (iv) THE BENEFIT OF ALL VALUATION,
APPRAISEMENT AND EXEMPTION LAWS; AND (v) NOTICE OF ACCEPTANCE HEREOF.
BORROWER EACH ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL
INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS
RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER.
BORROWER WARRANTS AND REPRESENTS THAT IT HAS KNOWINGLY AND VOLUNTARILY
WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN
THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT
TO A TRIAL BY THE COURT.
15.13 Headings. The section headings are not part of this Agreement
and shall not be used in its interpretation.
15.14 Counterparts. For the purpose of facilitating the execution of
this Agreement and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which shall be deemed
to be an original, and together shall constitute and be one and the same
instrument.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties intending to be legally bound hereby, as of the date first written
above.
INDUSTRY MORTGAGE COMPANY, L.P.
By: Industry Mortgage Corporation,
Its: General Partner
By: /s/ George Nicholas
------------------------------------------------
Name: George Nicholas
Title: Chief Executive Officer
AMERICAN INDUSTRIAL LOAN ASSOCIATION,
a Virginia Corporation
By: /s/ Allen D. Wykle
------------------------------------------------
Name: Allen D. Wykle
Title: President/Chairman
APPROVED RESIDENTIAL MORTGAGE, INC.,
a Virginia Corporation
By: /s/ Neil Phelan
------------------------------------------------
Name: Neil Phelan
Title: President
ARMADA RESIDENTIAL MORTGAGE, LLC,
a Virginia Limited Liability Company
By: Approved Residential Mortgage, Inc.
Its: Managing Member
By: /s/ Allen D. Wykle
------------------------------------------------
Name: Allen D. Wykle
Title: Chairman
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LIST OF EXHIBITS
Exhibit A Form of Secured Note
Exhibit B List of Related Assets
Exhibit C Form of Request for Borrowing
Exhibit D Lender Approved Guidelines
Exhibit E Form of Officers' Certificate
Exhibit F Certified Schedule of Mortgage Loans
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PROMISSORY NOTE
Up to $8,000,000 Dated: January 29, 1996
FOR VALUE RECEIVED the undersigned American Industrial Loan Association and its
subsidiaries, Approved Residential Mortgage, Inc., and Armada Residential
Mortgage, LLC, jointly and severally, each organized and existing under the laws
of the State of Virginia, ("Borrower") HEREBY PROMISES TO PAY to the order of
Industry Mortgage Company, L.P., a Delaware limited partnership ("Lender"), for
the benefit of Lender and holders from time to time of interests herein, in
lawful money of the United States of America, (i) the principal amount of each
Advance made by Lender to Borrower pursuant to the Loan and Security Agreement
dated as of January 29, 1996 (as amended from time to time, the "Loan and
Security Agreement") between Lender and Borrower, on the Repayment, and (ii)
interest on each such Advance outstanding from and including the date on which
such Advance is made until the principal amount of such Advance is paid in full,
such interest to be payable on the fifteenth Business Day of the month following
the month with respect to which it accrued (provided that, any overdue principal
and accrued interest thereon shall be payable on demand), at an interest rate
per annum with respect to such Advance equal to the interest rate applicable to
such Advance pursuant to Section 7.2 of the Loan and Security Agreement. Each
Advance shall be made pursuant to an executed Request for Borrowing (each as
defined in the Loan and Security Agreement).
1. Definitions. All capitalized terms not otherwise defined herein shall have
the meanings ascribed to them in the Loan and Security Agreement.
2. Loan and Security Agreement. This promissory note ("Promissory Note") is the
Secured Note referred to in the Loan and Security Agreement and is entitled to
the benefits thereof and shall be subject to the provisions thereof. This
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Promissory Note is secured pursuant to the Loan and Security Agreement.
3. Payments and Computations. Borrower shall make each payment hereunder not
later than 5:00 P.M. (New York time) on the day when due to Lender in same day
funds. All computations of interest shall be made by Lender on the basis of a
year of 360 days of 12 30-day months occurring in the period for which such
interest is payable. Any payment to be made hereunder otherwise due on a
Business Day shall be made on the next succeeding Business Day and such
extension of time shall in such case be included in the computation of payment
of interest.
The term "Affiliates" as used herein means all persons or entities directly or
indirectly controlling, controlled by, or under common control with Borrower.
The term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management polices of any person or entity,
whether through ownership of securities, by contract or otherwise.
4. Amendments, Etc. No amendment or waiver of any provision of this Promissory
Note, nor consent to any departure by Borrower therefrom, shall in any event be
effective unless the same shall be in writing and signed by Lender and then such
amendment, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
5. Notices. All written communications hereunder shall be mailed, telecopied or
delivered at the respective addresses as listed in the Loan and Security
Agreement or at such other address as shall be designated by a party in a
written notice to the other parties. All such notices and communications shall
be effective when delivered to the party to which such notice is to be given.
6. No Waiver; Remedies. No failure on the part of Lender to exercise, and no
delay in exercising, any right hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right hereunder preclude any other
or further exercise thereof or the exercise of any other right.
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The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
7. Binding Effect; Governing Law; Venue. This Promissory Note shall be binding
upon Borrower and their successors and assigns and shall inure to the benefit of
Lender and its successors and assigns. Lender may assign to any entity, by
bookkeeping entry on Lender's records, all or any part of, or any interest in
Lender's rights and benefits hereunder, provided that any such interest shall
not be less than $100,000. To the extent of such assignment, such assignee shall
have the same rights and benefits against Borrower as it would have had if it
were Lender hereunder. This Promissory Note shall be construed in accordance
with, and governed by, the laws of the State of New York, without giving effect
to the conflict of law principles thereof. Borrower waives trial by jury.
Borrower hereby submits to, and waives any objection it may have to personal
jurisdiction and venue in, the courts of the State of New York and the United
States District Court for the Southern District of New York, over any disputes
arising out of or relating to this Promissory Note. Borrower consents to service
of process by mail at the address specified in Section 11 of the Loan and
Security Agreement and waives any objection it may have to the sufficiency or
adequacy of such method of service of process.
THIS NOTE IS GOVERNED BY THE PROVISIONS OF THE LOAN AND SECURITY AGREEMENT WHICH
IS INCORPORATED HEREIN BY REFERENCE, AND IN THE EVENT ANY TERMS OF THIS NOTE ARE
INCONSISTENT WITH THE TERMS OF THE LOAN AND SECURITY AGREEMENT, THE TERMS OF THE
LOAN AND SECURITY AGREEMENT SHALL GOVERN THIS NOTE. NOTWITHSTANDING THE
FOREGOING SENTENCE, NO REFERENCE HEREIN TO THE LOAN AND SECURITY AGREEMENT AND
NO PROVISION OF THIS NOTE OR OF THE LOAN AND SECURITY AGREEMENT SHALL ALTER OR
IMPAIR THE OBLIGATIONS OF THE BORROWER, WHICH ARE ABSOLUTE AND UNCONDITIONAL, TO
PAY THE PRINCIPAL OF AND INTEREST ON THIS NOTE AT THE RESPECTIVE TIMES AND AT
THE RATES HEREIN PRESCRIBED.
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IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be
executed by its respective officer thereunto duly authorized, as of the date
first above written.
AMERICAN INDUSTRIAL LOAN ASSOCIATION,
a Virginia Corporation
By: ALLEN D. WYLKE
-----------------------
Name: Allen D. Wylke
Title: President/Chairman
APPROVED RESIDENTIAL MORTGAGE, INC.,
a Virginia Corporation
By: NEIL PHELAN
-----------------------
Name: Neil Phelan
Title: President
ARMADA RESIDENTIAL MORTGAGE, LLC,
a Virginia Limited Liability Company
By: APPROVED RESIDENTIAL MORTGAGE, INC.
Its: Managing Member
By: ALLEN D. WYLKE
-----------------------
Name: Allen D. Wylke
Title: Chairman
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Schedule of Advances
Applicable
Date Amount Rate
---- ------ ----
_____________________ $______________ ______________
acknowledged by
the Borrower
_____________________ $______________ ______________
acknowledged by
the Borrower
_____________________ $______________ ______________
acknowledged by
the Borrower
_____________________ $______________ ______________
acknowledged by
the Borrower
_____________________ $______________ ______________
acknowledged by
the Borrower
_____________________ $______________ ______________
acknowledged by
the Borrower
5
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_____________________ $______________ ______________
acknowledged by
the Borrower
_____________________ $______________ ______________
acknowledged by
the Borrower
6
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EXHIBIT B
LIST OF RELATED ASSETS
The following documents must be included in the package of Related Assets
to be delivered by the Borrower to the Lender to be included as Collateral:
1. Original Note, endorsed in blank.
2. Loan Application.
3. Verification of Employment and Income as described in the "Product
Descriptions" in the Lender Approved Underwriting Guidelines.
4. Credit Reports as expressed in the "Product Descriptions" in the
Lender Approved Underwriting Guidelines.
5. Appraisal Report.
6. Disclosure Statement, federal and state.
7. Rescission Documents.
8. Fair Lending and Equal Credit Notices, federal and state.
9. Note and Disclosure Riders, when applicable.
10. Certified or True Copy of the Mortgage or Deed of Trust.
11. Original. Recordable Assignment of the Mortgage.
12. Preliminary Title Report and evidence that an ALTA policy has been
ordered.
13. Evidence of Hazard Insurance and documentation showing proper
coverage and loss payable endorsement has been ordered.
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14. Evidence of Flood Insurance with loss payable endorsement in effect
or ordered. (Only if the Mortgage Property is in Flood Zone "A".)
15. Authorization to Release Information.
16. Balloon Rider, if applicable.
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EXHIBIT C
NOTICE OF BORROWING NO.
Pursuant to the Loan and Security Agreement dated January ____, 1996 between you
and the undersigned, the undersigned hereby gives notice of its election to
borrow from you and Advance and, in conjunction therewith, sets forth below the
following information (all capitalized terms used herein shall have the meaning
specified therefore in the Loan and Security Agreement).
1. The outstanding principal balance of the Loan is $_______________.
2. The principal amount of this Advance is $_______________.
3. The Quoted Rate for this advance is _______________% per annum.
4. The beginning Business Day of this Advance is _________________.
5. The maturity Date of this Advance is _________________________.
6. The Collateral Value of the items of Collateral shall be _______________%.
The undersigned hereby certifies that the following statements are true and
correct on the date hereof and shall be true and correct on the date of the
Advance requested herein, before and after giving effect thereto:
A. Each of the representations and warranties contained in the Loan and
Security Agreement are true and correct in all material respects.
B. No Default or Event of Default (as such terms are defined in the Promissory
Note) has occurred and is continuing.
The Advance made pursuant hereto shall be made in connection with the items of
Collateral described in the undersigned's Collateral Submission Summary No.
______________ dated _____________.
By: ________________________________
Title: _____________________________
Date: ______________________________
<PAGE>
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EXHIBIT D
LENDER APPROVED UNDERWRITING GUIDELINES
(ATTACHED)
<PAGE>
<PAGE>
EXHIBIT E
OFFICER'S CERTIFICATE
The undersigned, President of Armada Residential Mortgage, LLC (the
"Company"), pursuant to the Loan and Security Agreement dated this date ("Loan
and Security Agreement") between the Company and INDUSTRY MORTGAGE COMPANY, L.P.
("IMC"), does hereby certify to IMC as follows:
1. The following named persons (i) are officers of the Company, (ii) are
authorized to sign on the Company's behalf, (iii) now hold the title set
forth opposite their respective names, and (iv) the signature set forth
opposite their respective names are the true and genuine signatures of such
officers:
Name Office(s) Signature
- ---- --------- ---------
Approved Residential
Mortgage, Inc. Managing Member By: ALLEN D. WYKLE, Chairman
Barry Diggins, President BARRY DIGGINS
Neil Phelan, Treasurer NEIL PHELAN
Jennifer Lewis, Secretary JENNIFER LEWIS
2. Attached hereto as Annex A are true copies of resolutions duly adopted by
the Company on January 29, 1996. Each such resolution has not been amended,
modified or rescinded and is still in full force and effect.
3. The representatives and warranties contained in Section 5.1 of the Loan and
Security Agreement are true and correct in all material respects on and as
of this day.
4. The Company is in compliance with all the terms and provisions set forth in
the Loan and Security Agreement required to be complied with or performed
by the Company on or before the date hereof.
5. No event of Default, or any default that would become and Event of Default
with the passage of time, as defined in the Loan and Security Agreement,
has occurred.
<PAGE>
<PAGE>
ANNEX A
MINUTES OF A SPECIAL MEETING OF
THE PARTNERS OF
ARMADA RESIDENTIAL MORTGAGE, L.L.C.
A telephonic meeting of the Partners of Armada Residential Mortgage, L.L.C.
was held on January 22, 1996. Allen D. Wykle was present as Managing Member and
Chairman of Partners; Approved Residential Mortgage, Inc. and American
Industrial Loan Association. Barry Diggins was present as partner and President
of Armada Residential Mortgage, L.L.C.
Mr. Wykle called the meeting to order and stated its purpose.
Upon a motion, duly made, seconded and unanimously carried, the Board moved
that:
BE IT RESOLVED, that the Limited Liability Company is hereby authorized to
execute and deliver to Industry Mortgage Company, L.P. ("IMC") the Loan and
Security Agreement and the Custodial Agreement with the Bank of Boston, and all
other instruments necessary or appropriate to effect the transactions thereby
contemplated, all with such modifications as are approved by such officers,
which approval shall be conclusively evidenced by their execution thereof;
BE IT FURTHER RESOLVED, that the Limited Liability Company is hereby
authorized to execute and deliver to IMC the Secured Note for an amount of up to
$8,000,000., as described in the Loan and Security Agreement;
BE IT FURTHER RESOLVED, that the Managing Member of the Limited Liability
Company is hereby authorized to execute and deliver to IMC, any officer's
certificates required in connection with the transactions contemplated by the
Loan and Security Agreement;
BE IT FURTHER RESOLVED, that the officers of the Limited Liability Company
are hereby authorized and directed to take all such other actions as they deem
necessary or appropriate to carry into effect the foregoing resolutions;
RESOLVED, that this Written Consent shall be effective as of January ,
1996.
Upon motion, duly made, seconded, and unanimously carried, the meeting
adjourned.
DATE: 1/22/96 By: ALLEN D. WYKLE
-------------------- -------------------------------
Allen D. Wykle, Managing Member
<PAGE>
<PAGE>
EXHIBIT E
OFFICER'S CERTIFICATE
The undersigned, President of American Industrial Loan Association (the
"Company"), pursuant to the Loan and Security Agreement dated this date ("Loan
and Security Agreement") between the Company and INDUSTRY MORTGAGE COMPANY, L.P.
("IMC"), does hereby certify to IMC as follows:
1. The following named persons (i) are officers of the Company, (ii) are
authorized to sign on the Company's behalf (iii) now hold the title set
forth opposite their respective names, and (iv) the signature set forth
opposite their respective names are the true and genuine signatures of such
officers:
Name Office(s) Signature
- ---- --------- ---------
Allen D. Wykle, President/Chairman ALLEN D. WYKLE
Stanley Broaddus, Secretary/Vice President STANLEY BROADDUS
Eric Yeakel, Treasurer/CFO ERIC YEAKEL
Neil Phelan, Senior Vice President NEIL PHELAN
2. Attached hereto as Annex A are true copies of resolutions duly adopted by
the Company on January 29, 1996. Each such resolution has not been amended,
modified or rescinded and is still in full force and effect.
3. The representatives and warranties contained in Section 5.1 of the Loan and
Security Agreement are true and correct in all material respects on and as
of this day.
4. The Company is in compliance with all the terms and provisions set forth in
the Loan and Security Agreement required to be complied with or performed
by the Company on or before the date hereof.
5. No event of Default, or any default that would become an Event of Default
with the passage of time, as defined in the Loan and Security Agreement,
has occurred.
<PAGE>
<PAGE>
ANNEX A
CERTIFIED COPY OF RESOLUTIONS
The undersigned does hereby certify that he is the duly elected, qualified
and acting Stanley W. Broaddus, Secretary of AMERICAN INDUSTRIAL LOAN
ASSOCIATION, having as its principal place of business at 3420 Holland Road,
Virginia Beach, Virginia 23452; that at a duly and properly called meeting of
the Board of Directors of said corporation held on the 29th day of January,
1996, at which a quorum was present, the following resolution was duly adopted
as shown by the Minute Books of said corporation, to wit:
Upon a motion, duly made, seconded and unanimously carried, the Board moved
that:
BE IT RESOLVED, that the Corporation is hereby authorized to execute and
deliver to Industry Mortgage Company, L.P. ("IMC") the Loan and Security
Agreement and the Custodial Agreement with the Bank of Boston, and all other
instruments necessary or appropriate to effect the transactions thereby
contemplated, all with such modifications as are approved by such officers,
which approval shall be conclusively evidenced by their execution thereof;
BE IT FURTHER RESOLVED, that the Corporation is hereby authorized to
execute and deliver to IMC the Secured Note for an amount of up to $8,000,000.,
as described in the Loan and Security Agreement;
BE IT FURTHER RESOLVED, that the President of the Corporation is hereby
authorized to execute and deliver to IMC, any officer's certificates required in
connection with the transactions contemplated by the Loan and Security
Agreement;
BE IT FURTHER RESOLVED, that the officers of the Corporation are hereby
authorized and directed to take all such other actions as they deem necessary or
appropriate to carry into effect the foregoing resolutions;
RESOLVED, that this Written Consent shall be effective as of January ,
1996.
The undersigned further certifies that the foregoing resolution is in full
force and effect as of the date of this certificate and has not been modified or
rescinded.
The undersigned further certifies that Allen Wykle is President of the
corporation and Stanley W. Broaddus is a Vice President of this corporation.
IN WITNESS WHEREOF, the undersigned has set his hand and seal of said
corporation on this 29th day of January, 1996.
STANLEY W. BROADDUS
----------------------------------
Stanley W. Broaddus, Secretary
(Corporate Seal)
<PAGE>
<PAGE>
EXHIBIT E
OFFICER'S CERTIFICATE
The undersigned, President of Approved Residential Mortgage, Inc. (the
"Company"), pursuant to the Loan and Security Agreement dated this date ("Loan
and Security Agreement") between the Company and INDUSTRY MORTGAGE COMPANY, L.P.
("IMC"), does hereby certify to IMC as follows:
1. The following named persons (i) are officers of the Company, (ii) are
authorized to sign on the Company's behalf, (iii) now hold the title set
forth opposite their respective names, and (iv) the signature set forth
opposite their respective names are the true and genuine signatures of such
officers:
Name Office(s) Signature
- ---- --------- ---------
Allen D. Wykle, Chairman ALLEN D. WYKLE
Neil Phelan, President NEIL PHELAN
Stanley Broaddus, Secretary/Vice President STANLEY BROADDUS
Eric Yeakel, Treasurer/CFO ERIC YEAKEL
2. Attached hereto as Annex A are true copies of resolutions duly adopted by
the Company on January 29, 1996. Each such resolution has not been amended,
modified or rescinded and is still in full force and effect.
3. The representatives and warranties contained in Section 5.1 of the Loan and
Security Agreement are true and correct in all material respects on and as
of this day.
4. The Company is in compliance with all the terms and provisions set forth in
the Loan and Security Agreement required to be complied with or performed
by the Company on or before the date hereof.
5. No event of Default, or any default that would become and Event of Default
with the passage of time, as defined in the Loan and Security Agreement,
has occurred.
<PAGE>
<PAGE>
ANNEX A
CERTIFIED COPY OF RESOLUTIONS
The undersigned does hereby certify that he is the duly elected, qualified
and acting Stanley W. Broaddus, Secretary of APPROVED RESIDENTIAL MORTGAGE,
INC., having as its principal place of business at 3420 Holland Road, Virginia
Beach, Virginia 23452; that at a duly and properly called meeting of the Board
of Directors of said corporation held on the 29th day of January, 1996, at which
a quorum was present, the following resolution was duly adopted as shown by the
Minute Books of said corporation, to wit:
Upon a motion, duly made, seconded and unanimously carried, the Board moved
that:
BE IT RESOLVED, that the Corporation is hereby authorized to execute and
deliver to Industry Mortgage Company, L.P. ("IMC") the Loan and Security
Agreement and the Custodial Agreement with the Bank of Boston, and all other
instruments necessary or appropriate to effect the transactions thereby
contemplated, all with such modifications as are approved by such officers,
which approval shall be conclusively evidenced by their execution thereof;
BE IT FURTHER RESOLVED, that the Corporation is hereby authorized to
execute and deliver to IMC the Secured Note for an amount of up to $8,000,000.,
as described in the Loan and Security Agreement;
BE IT FURTHER RESOLVED, that the President of the Corporation is hereby
authorized to execute and deliver to IMC, any officer's certificates required in
connection with the transactions contemplated by the Loan and Security
Agreement;
BE IT FURTHER RESOLVED, that the officers of the Corporation are hereby
authorized and directed to take all such other actions as they deem necessary or
appropriate to carry into effect the foregoing resolutions;
RESOLVED, that this Written Consent shall be effective as of January ,
1996.
The undersigned further certifies that the foregoing resolution is in full
force and effect as of the date of this certificate and has not been modified or
rescinded.
The undersigned further certifies that Neil Phelan is President of the
corporation and Stanley W. Broaddus is a Vice President of this corporation.
IN WITNESS WHEREOF, the undersigned has set his hand and seal of said
corporation on this 29th day of January, 1996.
STANLEY W. BROADDUS
----------------------------------
Stanley W. Broaddus, Secretary
(Corporate Seal)
<PAGE>
<PAGE>
LOAN AND SECURITY AGREEMENT
(Wholesale Warehouse Mortgage Agreement)
Dated as of January 2, 1996
between
MORTGAGE CENTRAL CORP.
(d/b/a Equitystars)
and
INDUSTRY MORTGAGE COMPANY, L.P.
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
----
RECITALS .................................................................... 1
PROVISIONS .................................................................. 1
1. DEFINITIONS ......................................................... 1
2. ADVANCES ............................................................ 7
2.1 Lender Agrees to Make Advances ............................... 7
2.2 Lender Shall Make Advances on the
Closing Date ................................................. 7
2.3 Amount of Advance ............................................ 8
3. PURCHASE OR MORTGAGE LOANS ADVANCED UNDER THE
AGREEMENT ........................................................... 8
4. CONDITIONS TO ADVANCES .............................................. 9
4.1 Conditions Precedent ......................................... 9
4.2 Conditions Subsequent ........................................ 10
5. REPRESENTATIONS AND WARRANTIES ...................................... 12
5.1 Representations and Warranties of the
Borrower ..................................................... 12
5.2 Representations and Warranties of the
Borrower as to Each Mortgage Loan ............................ 14
5.3 Survival ..................................................... 22
6. COVENANTS ........................................................... 22
6.1 Affirmative Covenants ........................................ 22
6.2 Negative Covenants ........................................... 24
7. REPAYMENT OF ADVANCES ............................................... 26
7.1 Repayment .................................................... 27
7.2 Interest on Advances ......................................... 27
7.3 Computation of Interest ...................................... 27
7.4 Mandatory Prepayments and Rights ............................. 27
7.5 Default Rate ................................................. 29
8. SECURITY ............................................................ 29
8.1 Grant of Security Interest ................................... 29
8.2 Authority to Collect ......................................... 30
8.3 Lender Appointed Attorney-in-Fact ............................ 31
8.4 Security for Obligations ..................................... 31
9. EVENTS OF DEFAULT ................................................... 31
9.1 Event of Default ............................................. 31
9.2 Remedies ..................................................... 33
9.3 Application of Proceeds ...................................... 36
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10. INDEMNIFICATION ..................................................... 36
11. NOTICES ............................................................. 37
12. APPOINTMENT OF ATTORNEY ............................................. 38
13. ACCESS TO BORROWER DOCUMENTS AND INFORMATION ........................ 38
14. TERMINATION ......................................................... 38
15. MISCELLANEOUS PROVISIONS ............................................ 38
15.1 Custodial Agreement .......................................... 39
15.2 Representation of Servicer and Lender ........................ 39
15.3 Costs and Expenses ........................................... 39
15.4 Agency; Joint Venture ........................................ 39
15.5 Complete Agreement; Modification; Sale
or Assignment ................................................ 39
15.6 No Waiver .................................................... 39
15.7 Parties ...................................................... 40
15.8 Severability; Section Headings ............................... 40
15.9 Construction ................................................. 40
15.10 Interpretation ............................................... 40
15.11 GOVERNING LAW; CONSENT TO FORUM .............................. 40
15.12 WAIVER OF TRIAL BY JURY AND OTHER
WAIVERS BY BORROWER .......................................... 41
15.13 Headings ..................................................... 41
15.14 Counterparts ................................................. 41
ii
<PAGE>
<PAGE>
LOAN AND SECURITY AGREEMENT
(Wholesale Warehouse Mortgage Agreement)
THIS LOAN AND SECURITY AGREEMENT made this 2nd day of January 1996 between
Industry Mortgage Company, L.P., a Delaware limited partnership with its
principal address at 3450 Buschwood Park Drive, Suite 250, Tampa, Florida 33618
("Lender") and Mortgage Central Corp. (d/b/a Equitystars), a Rhode Island
corporation, with its principal address at 25 Blackstone Valley Place, Lincoln,
Rhode Island, 02865 ("Borrower") ("the Agreement").
RECITALS
WHEREAS, Lender wishes to lend, and Borrower wishes to borrow, subject to
certain terms and conditions, monies in connection with an interim funding
facility for certain home mortgage loans to be funded hereunder (the "Mortgage
Loans") owned by Borrower.
WHEREAS, Borrower expects to use this warehouse facility to fund the
acquisition or origination of Mortgage Loans and Lender expects to fund such
activities of Borrower through Advances of monies to be secured by a direct or
indirect pledge of the related Mortgage Loans.
WHEREAS, Lender expects repayment of such Advances made under this
warehouse facility and Borrower expects the subsequent sale of certain Mortgage
Loans to permit such repayment of Advances.
PROVISIONS
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. DEFINITIONS.
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
Advance: An advance by Lender to Borrower in an amount equal to the
principal amount of a related Mortgage Loan or Mortgage Loans which amount may
not be less than $250,000.
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Advance Libor Rate: For any Advance, the London Interbank Offering Rate
for U.S. dollar deposits of a term equal to the term of the related Advance, or
if no such term exists, a rate interpolated from the two closest terms, as
indicated on the Bloomberg screen and on the London Business Day prior to the
related Closing Date. If such rate cannot be determined by reference to said
Bloomberg screen, then such rate shall be an average of two quotations from
major London banks selected by Lender.
Agreement: This Loan and Security Agreement (Wholesale Warehouse Mortgage
Agreement), including all exhibits and schedules attached or delivered pursuant
hereto, and as the same may be amended and supplemented from time to time.
Appraised Value: With respect to any Mortgage Property, the lesser of (i)
the value thereof as determined by an appraisal made for the originator of the
Mortgage Loan at the time of origination of the Mortgage Loan by an appraiser
who met the minimum requirements of FNMA and FHLMC, and (ii) the purchase price
paid for the related Mortgage Property by the Mortgagor with the proceeds of the
Mortgage Loan, provided, however, in the case of a Refinanced Mortgage Loan,
such value of the Mortgage Property is based solely upon the value determined by
an appraisal made for the originator of such Refinanced Mortgage Loan at the
time of origination of such Refinanced Mortgage Loan by an appraiser who met the
minimum requirements of FNMA and FHLMC.
ARM: A Mortgage Loan that accrues interest at an adjustable interest rate.
Business Day: Any day that is not a Saturday, Sunday or other day on which
commercial banking institutions in the City of New York are authorized or
obligated by law to be closed.
Certified Schedule of Mortgage Loans: A schedule of the pledged Mortgage
Loans with respect to which an Advance will be made on any Closing Date, which
specifies the characteristics of such Mortgage Loans (including whether each
Mortgage Loan is an "A", "B", "C", or "D" Mortgage Loan pursuant to the Lender
Approved Guidelines) and setting forth as to each Mortgage Loan the information
called for by Exhibit F attached hereto, states that such Mortgage Loans have
been pledged to the Lender pursuant to this Agreement and which is certified by
an authorized officer of the Borrower.
Change of Control: The occurrence of one of the following events:
(i) the dissolution of Borrower;
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(ii) David B. MacDonald ceases, for any reason, to exercise the
responsibilities of President of the Borrower;
(iii) any chance of Control (as defined by reference to the Securities
Exchange Act, of 1934, as amended) of the Borrower;
Closing Date: Any Business Day on which Lender makes an Advance.
Collateral: The property securing Advances set forth in Section 8.1 hereof.
Commitment: a valid, irrevocable, binding and enforceable written agreement
of a Purchaser acceptable to Lender to purchase, within a period of not more
than sixty (60) days from the Borrower.
Curtailment: Means any payment made by an obligor under a Mortgage Loan in
an amount at least six times the amount of such obligor's regular monthly
payment and intended by such obligor as a partial prepayment of such Mortgage
Loan.
Custodial Agreement: The Custodial Agreement among Lender, Borrower and
Custodian, dated as of January 2, 1996.
Custodian: The Bank of Boston.
Default Rate: The Advance Libor Rate plus 5%.
Equity: The aggregate assets of Borrower less the aggregate liabilities of
Borrower, with the terms "assets" and "liabilities" having the meanings ascribed
to such terms by GAAP.
Essential Mortgage File Documents: The documents described in Section 3(b)
of the Custodian Agreement.
Event of Default: Any event of default set forth in Section 9.1 hereof.
GAAP: Means generally accepted accounting principles, consistently applied,
and with respect to Borrower.
Gross Margin: As to any Mortgage Loan which is an ARM, the fixed percentage
set forth in the related Note and indicated on the related Certified Schedule of
Mortgage Loans as "Gross Margin," which percentage is added to the Index on each
rate adjustment date to determine the interest rate on the Mortgage Loan.
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Index: As to any Mortgage Loan which is an ARM, the rate as determined by
reference to either the interbank offered rates in the London market or U.S.
Treasury securities.
Lender Approved Guidelines: Underwriting guidelines attached hereto as
Exhibit D which relates to residential Mortgage Property and made a part hereof
as may from time to time be amended by the Borrower with the consent of the
Lender, which consent shall not be unreasonably withheld.
Loan-to-Value Ratio or LTV: With respect to any Mortgage Loan as of any
date of determination, the ratio on such date of (i) the outstanding principal
amount of the Mortgage Loan plus, in the case of any second Mortgage Loan, the
outstanding principal balance of the related first mortgage loan, to (ii) the
Appraised Value of the Mortgage Property.
London Business Day: Any day that is not a Saturday, Sunday or other day in
which commercial banking institutions in the City of London are authorized or
obligated by law to be closed.
Mortgage: The Note, bond, deed of trust, Mortgage, mortgage warranty,
extension agreement, assumption of indebtedness, assignment and any other
documents constituting the basic instruments creating a first or second lien on
the real property owned by the Mortgagor in the state in which the Mortgage
Property is located and securing the Note.
Mortgage Loans: The Note, the related Mortgage and the Related Assets which
are collectively identified as the Mortgage Loans and are set forth on Schedule
1 of each Request for Borrowing.
Mortgage Note Rate: The interest rate applicable to a Mortgage Loan as
provided in the related Note.
Mortgage Property: The residential real property subject to the Mortgage
which secures the Mortgage Loan.
Mortgagor: The obligor under a Mortgage Loan.
Note: The original Note or bond or other evidence of the indebtedness of
the Mortgagor under the Mortgage Loan.
Purchaser: any entity acceptable to Lender which purchases or agrees to
purchase a Mortgage Loan and has issued a Commitment therefor.
Qualifying ARM: A Mortgage Loan which is:
4
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(i) an "A" Mortgage Loan with a Starter Rate which is a rate equal to at least
200 basis points over the related Index and a Gross Margin of at least 400 basis
points; or
(ii) a "B" Mortgage Loan with a Starter Rate which is a rate equal to at least
250 basis points over the related Index and a Gross Margin of at least 450 basis
points; or
(iii) a "C" Mortgage Loan with a Starter Rate which is a rate equal to at least
350 basis points over the related Index and a Gross Margin of at least 500 basis
points; or
(iv) a "D" Mortgage Loan with a Starter Rate which is a rate equal to at least
500 basis points over the related Index and a Gross Margin of at least 550 basis
points.
Refinanced Mortgage Loan: A Mortgage Loan that proceeds of which were not
used to purchase the related Mortgage Property.
Related Assets: Any and all documents, instruments, collateral agreements
and assignments and endorsements for all documents, instruments and collateral
agreements, referred to in the Notes and/or Mortgages or related thereto,
including, without limitation, current insurance policies (flood insurance if
the related Mortgage Property is located in an area identified by the Flood
Emergency Management Agency as having special flood hazards; hazard insurance;
title insurance and other applicable insurance policies) covering the Mortgage
Property or relating to the Notes and all files, books, papers, ledger cards,
reports and records including, without limitation, loan applications, mortgagor
financial statements, separate assignment of rents, if any, credit reports and
appraisals, relating to the Mortgage Loans, including all of the documents
specified on Exhibit B hereto. In all cases, the Related Assets shall mean the
originals thereof.
Request for Borrowing: A written request substantially in the form of
Exhibit C hereto, executed by Borrower and delivered to Lender in accordance
with Section 4.1(A) hereto.
Repayment Date: With respect to any Mortgage Loan, shall be the date as
specified in the related Request for Borrowing (which date shall be in no event
more than 30 days following the related Closing Date).
Secured Note: The promissory note of Borrower in the form set forth in
Exhibit A hereto.
5
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Settlement Date: With respect to any Mortgage Loan, the date of repayment
of the related Advance to Lender by Borrower pursuant to this Agreement.
Spread Deficiency: A Spread Deficiency exists whenever the Spread
Deficiency Amount is greater than zero.
Spread Deficiency Amount: The amount by which the weighted average Spread
Minimum Percentage of the Mortgage Loans pledged under this Agreement, or to be
pledged on the Certified Schedule of Mortgage Loans, as the context requires,
exceeds the difference between (x) the weighted average interest rate as of any
date of determination expressed in basis points, of the Mortgage Loans either
pledged under this Agreement, or to be pledged on the related Certified Schedule
of Mortgage Loans, as the context requires, and (y) the yield expressed in basis
points, on Four Year Treasury Securities (or their interpolated equivalent);
provided, however, if the difference between (x) and (y) is greater than the
weighted average Spread Minimum Percentage of the Mortgage Loans pledged under
this Agreement, or to be pledged on the Certified Schedule of Mortgage Loans, as
the context requires, then the Spread Deficiency shall be zero; provided
further, however, if (i) the weighted average of the Spread Minimum Percentage
of all the Mortgage Loans previously pledged and to be pledged, if any, on any
date of determination exceeds (ii) the sum of 400 basis points and the yield
expressed in basis points, on Four Year Treasury Securities (or their
interpolated equivalent), then the Spread Deficiency Amount shall be zero. For
the purpose of determining the weighted average interest rate of the Mortgage
Loans, the interest rate for any ARM included in the pool which is subject to a
Starter Rate shall be equal to the Index then in effect plus the Gross Margin.
Spread Deficiency Notice: A written notice from Lender to Borrower that a
Spread Deficiency exists and specifying the Spread Deficiency Amount.
Spread Minimum Percentage: With respect to (i) "A" Mortgage Loans, 200
basis points; (ii) "B" Mortgage Loans, 300 basis points; (iii) "C" Mortgage
Loans, 400 basis points; and (iv) "D" Mortgage Loans, 500 basis points.
Starter Rate: As to any Mortgage Loan which is an ARM, the interest rate at
origination as set forth on the related Certified Schedule of Mortgage Loans.
Unsecured Debt: As of the date of determination, the dollar amount
outstanding of all obligations and liabilities of the Borrower which (i) are not
secured by the grant of a lien upon or security interest in any collateral, and
(ii) in accordance with GAAP, would be included in
6
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<PAGE>
determining total liabilities as shown on the liability side of the balance
sheet of Borrower, provided, however, that any liability attributable to fees
due to a Lender under the Standby Agreement will not constitute a liability
for purposes of this Agreement.
2. ADVANCES.
2.1 Lender Agrees to Make Advances. Subject to the Borrower's repayment
obligations set forth in Section 7 hereof, Lender hereby agrees to make Advances
from time to time to Borrower, and Borrower hereby agrees to borrow Advances
from Lender, in accordance with the terms of the Note and this Agreement;
provided, however, that: (i) the outstanding amount of Advances provided to
Borrower hereunder shall not exceed $10,000,000; and (ii) Borrower must notify
the Lender of any investor to whom Borrower seeks to sell Mortgage Loans funded
under this Agreement as soon as possible, but in no event fewer than three
Business Days prior to such sale.
2.2 Lender Shall Make Advances on the Closing Date. Lender shall make
Advances to Borrower on each Closing Date upon receipt from Borrower of a duly
executed Request for Borrowing and a certificate of the Custodian pursuant to
Section 4.1(B) hereof with respect to the Mortgage Loans specified in such
Request for Borrowing; provided that the Mortgage Loans, in the reasonable
discretion of the Lender, satisfy the terms of this Agreement, and provided
further that each Request for Borrowing shall pertain only to (i) ARMs, or (ii)
Mortgage Loans secured by residential Mortgage Property which are not ARMs. If
Custodian receives the foregoing documents by 9:30 a.m. (New York time) on any
Business Day, Lender shall make funds available for such Advance on the same
day. In the event that such receipt occurs after 9:30 a.m. (New York time), on
any given Business Day, the funds for such Advance shall be made available no
later than the next succeeding Business Day. All payments of Advances shall be
made pursuant to the terms of the Custodial Agreement, or in such manner as to
which Lender and Borrower shall otherwise agree.
2.3 Amount of Advance. The amount of each Advance shall be equal to:
(A) With respect to a Request for Borrowing which pertains only to Mortgage
Loans which are not ARMs, the difference between:
(x) with respect to Mortgage Loans to be pledged as Collateral for such
Advance, (i) if no Spread Deficiency exists with respect to such Mortgage Loans,
then the amount of
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such Advance shall be the aggregate outstanding principal balance, as of the
Closing Date of such Advance, of the Mortgage Loans identified on the related
Certified Schedule of Mortgage Loans; and (ii) if a Spread Deficiency exists
with respect to such Mortgage Loans, then the amount of the Advance shall be the
product of (a) the aggregate outstanding principal balance, as of the Closing
Date of such Advance, of the Mortgage Loans identified on the related Certified
Schedule of Mortgage Loans and (b) (1.0 - (.00025 multiplied by the Spread
Deficiency Amount));
and
(y) in the event a Spread Deficiency exists with respect to Advances
outstanding on the related Closing Date, an amount calculated in accordance with
Section 7.4(D)(i), below.
(B) With respect to a Request for Borrowing which pertains to ARMs, 100% of the
aggregate principal balance of the ARMs at the time of the Request for
Borrowing, listed on the related Certified Schedule of Mortgage Loans; provided,
however, that for each ARM which is not a Qualifying ARM, only 97% of such
outstanding principal balance shall be included in the calculation of the amount
of the Advance.
3. PURCHASE OF MORTGAGE LOANS ADVANCED UNDER THE AGREEMENT.
Borrower hereby covenants and agrees that each Mortgage Loan for which
funds were advanced pursuant to this Agreement shall be sold to an investor on
or before the related Repayment Date, and whether or not such Mortgage Loan is
sold by such Repayment Date, the Borrower shall repay the Lender the amount of
the related Advances no later than such Repayment Date.
4. CONDITIONS TO ADVANCES
4.1 Conditions Precedent. The Lender's obligation to make Advances
hereunder shall be subject to the fulfillment of the following conditions
precedent:
(A) Delivery of Note and Request for Borrowing to Lender. Borrower
shall have delivered to Lender: (i) the Secured Note duly executed by an
authorized officer of the Borrower on the date of this Agreement; and (ii)
a Request for Borrowing, a Certified Schedule of Mortgage Loans and the
Commitment(s) prior to each Closing Date.
(B) Custodian's Certification. The Lender shall have received either
(i) a certificate from
8
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<PAGE>
the Custodian to the effect that it has received and reviewed the Mortgage
Notes relating to the Mortgage Loans being pledged in connection with such
Advance and has found no discrepancies between the information listed on
the related Certified Schedule of Mortgage Loans and the information set
forth in such Mortgage Notes, or (ii) a certificate from the Custodian to
the effect that it has received and reviewed the mortgage files containing
all of the Essential Mortgage File Documents as well as any other
documentation it is to receive pursuant to the Custodial Agreement with
respect to the Mortgage Loans being pledged in connection with such
Advances and has found no discrepancies between the information listed on
the related Certified Schedule of Mortgage Loans and the information set
forth in such Mortgage Notes.
(C) No Event of Default. No Event of Default (as defined in Section 9,
below) shall have occurred and be continuing or would exist after giving
affect to the Advances requested to be made;
(D) Corporate Proceedings. Borrower shall have furnished to Lender a
copy, certified by an appropriate officer of Borrower on the date of this
Agreement, of the authorization of the Borrower and the resolution of the
Board of Directors of the Borrower authorizing the execution and delivery
of Secured Note to Lender, the borrowing of Advances as herein provided for
and the execution, delivery and performance of this Agreement by Borrower.
Borrower shall have furnished to Lender a good standing certificate for the
state of its organization and existence and, as requested by Lender, for
each state in which Borrower is registered to do business. It is within
Lender's discretion to periodically request good standing certificates for
all states in which Borrower is registered to do business;
(E) Representations and Warranties. (i) The representations and
warranties contained in Section 5 hereof shall be true and correct in all
material respects as of the date of this Agreement and on each Closing
Date; (ii) there shall have occurred no breach of any covenant set forth in
Section 6 hereof, except those set forth in subsections 6.1(G) and 6.1(H);
and (iii) there shall have occurred no material breach of the covenants set
forth in subsections 6.1(G) and 6.1(H);
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(F) Designation of Authorized Officers. The Borrower shall have
delivered to Lender an officer's certificate in the form attached hereto as
Exhibit E, attested to by the Secretary of the Borrower stating the names
and showing the facsimile signatures of the officers of the Borrower
authorized to execute and deliver this Agreement, Secured Note and any
Request for Borrowing;
(G) Legal Matters. All other instruments and legal and corporate
proceedings in connection with the transactions contemplated by this
Agreement shall be reasonably satisfactory in form and substance to Lender
and counsel to Lender and Borrower, and Lender shall have received copies
of all documents which it may have reasonably requested in connection
herewith, including an opinion of counsel and officer's certificate each in
a form reasonably requested by the Lender; and
4.2 Conditions Subsequent. The Lender's obligation to make Advances
hereunder shall be subject to the fulfillment of the following conditions
subsequent:
(A) With respect to all of the Mortgage Loans for which an Advance is
made, the Borrower shall use its best efforts to deliver to the Lender or
its designee the Essential Mortgage File documents one Business Day after
the related Closing Date and such documents shall in any event be delivered
to the Lender or its designee not more than three Business Days following
the related Closing Date;
(B) The Borrower shall furnish to the Lender, periodically upon
reasonable request, good standing certificates and officer's certificates
to assure Lender of its continued authority to perform under this
Agreement; and
(C) Lender shall have filed with the appropriate state and local
governmental authorities Uniform Commercial Code financing statements,
including any continuation statements, as are necessary and appropriate,
identifying and setting forth the Collateral as security for Advances, in
order to create a first priority security interest in favor of Lender in
such Collateral.
Any consent by Lender to make Advances pursuant to this Agreement shall
automatically terminate if: (i) a decree or order of a court or agency
supervisory authority having
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jurisdiction for the appointment of a conservator or receiver or liquidator in
any insolvency, readjustment of debt, marshalling of assets and liabilities,
bankruptcy proceeding or any similar proceedings, or for the winding up or
liquidation of its affairs, shall have been entered against Borrower; or (ii)
Borrower shall consent to the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets and
liabilities, bankruptcy or similar proceedings relating to Borrower or
substantially all of its property; or (iii) Borrower shall admit in writing its
inability to pay its debts as they become due, file a petition to take advantage
of any applicable insolvency, reorganization or bankruptcy statute, make an
assignment for the benefit of its creditors, or voluntarily suspend payment of
its obligations.
Lender's consent to make Advances pursuant to this Agreement shall
automatically be suspended upon the filing by a party other than Borrower of a
petition seeking appointment of a receiver, liquidator, trustee, custodian or
other officer having similar powers over Borrower or over all or a substantial
part of its property, or the appointment of an interim receiver, trustee or
other custodian of Borrower for all or a substantial part of its property, or
the issuance of a warrant of attachment, execution or similar process against
any substantial part of the property of Borrower, and such suspension shall
continue until the later of (i) until such petition is dismissed, bonded or
discharged and (ii) the 45th day after such filing (at which time the provisions
of Section 9.1(E) shall govern)).
5. REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of the Borrower. It is understood and
agreed by Borrower and Lender that, as a material inducement to Lender to enter
into this Agreement and make Advances, Borrower hereby makes the following
representations and warranties, each of which representations and warranties (i)
is material and being relied upon by the Lender, (ii) is true in all respects as
of the date of this Agreement, and (iii) shall survive the execution of this
Agreement.
(A) Borrower has been duly organized and is validly existing as a
corporation under the laws of the state of Rhode Island.
(B) Borrower is duly licensed where required as a "Licensee" or is
otherwise qualified in each state in which it transacts business and
neither is in default of such state's applicable laws, rules and
regulations, except where the failure to so qualify or such default would
not have a material adverse effect on the ability
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of Borrower to conduct its business or to perform its obligations under
this Agreement and the Secured Note.
(C) Borrower has the requisite power and authority and legal right to
own and grant a lien on all of its right, title and interest in and to the
Collateral and Borrower has the requisite power and authority and legal
right to execute and deliver, engage in the transactions contemplated by,
and perform and observe the terms and conditions of, this Agreement and the
Secured Note.
(D) Borrower is able to meet its obligations when they become due and
is not in default (beyond any applicable cure period) under any mortgage,
borrowing agreement or other instrument or agreement pertaining to
indebtedness for borrowed money in excess of $10,000 and the execution and
delivery by Borrower of this Agreement and the Secured Note will not result
in any violation of any such mortgage, instrument or agreement to which
Borrower is a party or by which its property is bound.
(E) Borrower is not in default under any term or provision of any
agreement between Borrower and any third parties, which agreement involves
the receipt or potential receipt or the payment or potential payment by
Borrower of more than $10,000.
(F) All financial statements including all notes thereto or
certificates of Borrower or any of its officers furnished to Lender are
true and complete. All such financial statements have been prepared in
accordance with GAAP.
(G) This Agreement and the Secured Note have each been duly authorized
and executed by Borrower and each is valid, binding and enforceable against
Borrower in accordance with its terms, except that such enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws (whether statutory, regulatory or decisional) now or hereafter
in effect relating to creditors' rights generally, and the execution,
delivery and performance by Borrower of this Agreement and the Secured Note
do not conflict with any law, rule, regulation, order, judgment, writ,
injunction or decree applicable to Borrower of any court, regulatory body,
administrative agency or governmental body having jurisdiction over
Borrower.
(H) No consent, approval, authorization or order of, registration or
filing with, or notice to any governmental authority or court is required
under applicable law in connection with the execution, delivery
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and performance by Borrower of this Agreement and the Secured Note.
(I) There is no action, proceeding or investigation pending or, to the
best knowledge of Borrower, threatened against it before any court,
administrative agency or other tribunal (i) asserting the invalidity of
this Agreement or the Secured Note, (ii) seeking to prevent the
consummation of any of the transactions contemplated by this Agreement or
the Secured Note, or (iii) which could reasonably be expected to materially
and adversely affect the performance by Borrower of its obligations under,
or the validity or enforceability of, this Agreement or the Secured Note.
(J) Since the date of this Agreement, there has been no material
adverse change in the business, operations, financial condition, properties
or prospects of Borrower.
(K) The person or persons signatory to this Agreement and any document
executed pursuant to it on behalf of Borrower have full power and authority
to bind Borrower. The execution, delivery and performance of this
Agreement, and the Exhibits attached hereto and the other documents
contemplated herein, and the performance by Borrower of all transactions
contemplated herein and therein, have been duly authorized by all necessary
and appropriate corporate action on the part of the Borrower.
5.2 Representations and Warranties of the Borrower as to Each Mortgage
Loan.
(I) It is understood and agreed by Borrower and Lender that as a material
inducement to Lender to enter into this Agreement and make Advances, the
Borrower hereby represents and warrants to the Lender as of each Closing Date
with respect to each Mortgage Loan delivered to Lender:
(A) The Borrower is the payee and holder of each Note within the
meaning of the Uniform Commercial Code and is the sole owner of the
Mortgage Loan and has the right to pledge, assign and transfer the Mortgage
Loan to the Lender. The Borrower has not sold, assigned or otherwise
transferred any right or interest in or to the Mortgage Loan and has not
pledged the Mortgage Loan as collateral for any Loan or obligation of
Borrower or other purpose, except pursuant to this Agreement. The pledge of
the Mortgage Loan by the Borrower to the Lender validly pledges such
Mortgage Loan or Borrower's interest therein to Lender free and clear of
any pledges, liens,
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claims, encumbrances, mortgages, charges, exceptions, participation
interests or other interests and/or security interests of any third
parties;
(B) Except as expressly disclosed to and agreed by the Lender in
writing, each Mortgage Loan conforms to the Lender Approved Guidelines;
(C) All information set forth in any Certified Schedule of Mortgage
Loans delivered to Lender is true and correct in all material respects, and
all other information furnished to Lender by Borrower with respect to the
Mortgage Loan(s) is true and correct in all material respects as of the
Closing Date;
(D) Each Note and Mortgage and the Essential Mortgage File Documents
and Related Assets are in every respect genuine, are the valid instruments
they purport on their face to be, are the legal, valid, binding, and
enforceable obligation of the Mortgagor thereunder and not subject to any
discount, allowance, setoff, counterclaim, presenting pending bankruptcy or
other defense; none of the Notes, Mortgages or Essential Mortgage File
Documents or Related Assets are forged or have been entered into by any
persons without the required legal capacity; only one original Note has
been executed by the Mortgagor; and no foreclosure (including any
non-judicial foreclosure) or any other legal action has been brought by the
Borrower or any senior lienholder in connection therewith;
(E) No instruments other than those delivered to the Custodian with
each group of Essential Mortgage File Documents are required under
applicable law to evidence the indebtedness represented by such Mortgage
Loan(s) or to perfect the lien of the Mortgage(s);
(F) Except as has been disclosed to and agreed to by the Lender in
writing, there is no agreement with the Mortgagor regarding any variation
of the interest rate and schedules of payment (except as described in the
Note and Mortgage) or other terms and conditions of the Mortgage Loan, no
Mortgagor has been released from liability on the Note, and no Mortgage
Property has been released);
(G) The Mortgage Loan is secured by a valid Mortgage, of first or
second priority, on real
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property, and such Mortgage has been properly delivered to the appropriate
public recording official to be filed, recorded or otherwise perfected in
due course in accordance with applicable law in the appropriate
jurisdiction;
(H) The applicable Related Assets do not result in a violation of any
applicable federal or state law or regulation, including, without
limitation, Fair Credit Reporting Act and Regulations, the Federal
Truth-in-Lending Act and Regulation Z, the Federal Equal Credit Opportunity
Act and Regulation B, the Federal Real Estate Settlement Procedures Act and
Regulation X, the Federal Debt Collection Practices Act and any federal or
state usury laws and regulations. All disclosures required by law, federal,
state or local, were properly made prior to the closing of the Mortgage
Loan;
(I) The Borrower has in its possession or has delivered to the Lender
or its designee a title policy or a written commitment or interim binder
which is in full force and effect issued by the title insurance company,
dated and certified as of the date the Mortgage Loan was funded, with a
statement by the title insurer or closing agent or attorney on such binder
or commitment that the priority of the lien of the related Mortgage on and
after the date of closing of the related Mortgage Loan is insured; which is
an amount at least as great as the outstanding principal balance of the
Mortgage Loan; which names the Borrower or its predecessors, its successors
and assigns as the insured party and which is issued by a title insurer
that is qualified to do business in the jurisdiction where the Mortgage
Property is located. Such policy shall, as to the date of such policy: (i)
Insure the absence of any lien of taxes or other assessments that are due
and payable as to the Mortgage Property; (ii) Disclose whether all taxes
and other assessments due as of the date of the policy have been
paid-in-full as to the Mortgage Property; and (iii) Disclose all other
matters to which like properties are commonly subject;
(J) The Note and Mortgage contain customary, valid, legal and
enforceable provisions such as to render the rights and remedies of the
holder thereof adequate for the realization against the Mortgage Property
of the benefits of the security
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created thereby subject to applicable bankruptcy and other creditors'
rights laws;
(K) The proceeds of the Mortgage Loan have been fully disbursed and
any and all requirements as to completion of on-site and off-site
improvements and disbursement of any escrow funds therefore have been
complied with;
(L) There are no mechanic's liens or similar liens or claims which
have been filed for work, labor or material affecting the Mortgage Property
which are or may be liens prior to or equal with the lien of the Mortgage
and senior mortgage(s);
(M) The Mortgage Property is free of material damage and waste and is
in average repair and there is no proceeding pending or threatened for the
total or partial condemnation of the Mortgage Property, and the Mortgage
Property is free and clear of all hazardous material to the best of
Borrower's knowledge;
(N) All matured obligations pursuant to the Note and Mortgage have
been paid or performed (excluding payments less than 29 days delinquent on
a contractual basis) and the Borrower has waived any defaults, breach,
violation or event of acceleration;
(O) The Borrower has no knowledge of any fact as to such Mortgage Loan
which it has failed to disclose which would materially and adversely affect
the value or marketability of such Mortgage Loans;
(P) The Borrower has no knowledge of any impediments to title that
adversely affect the value (from the appraised value used to arrive at the
loan-to-value ratio), enjoyment or marketability of the Mortgage Property;
(Q) Where required by law, the Borrower has filed for record a request
for notice of action by a senior lienholder under a senior lien, and the
Borrower has notified any superior lienholder in writing of the existence
of the Mortgage Loan and requested notification of any action to be taken
against the Borrower by the superior lienholder. The Borrower shall, upon
request of the Lender, cooperate in recording a new request for action in
favor of the Lender and in providing superior
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lienholders with written requests for notification to the Lender of action
against the Mortgagor;
(R) There is no default, breach, violation or event of acceleration
existing under any senior Mortgage which, with or without (i) notice, and
(ii) the expiration of any grace or cure period, would constitute a
default, breach, violation or event of acceleration;
(S) Each Note and Mortgage contains a provision for the acceleration
of the payment of the unpaid principal balance of the Mortgage Loan in the
event the related Mortgage Property is sold without the prior consent of
the mortgagee thereunder to the extent permitted by applicable law;
(T) All real estate appraisals made in connection with each Mortgage
Loan have been performed in accordance with industry standards in the
appraising industry in the area where the apprised property is located and
have been performed by an appraiser who satisfies the requirements of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989;
(U) To the best of Borrower's knowledge, no hazardous or toxic
materials or wastes or products regulated by law or ordinance or asbestos
or asbestos products or materials or polychlorinated biphenyls or urea
formaldehyde insulation have ever been used or employed in the
construction, use or maintenance of the Mortgage Property or have ever been
stored, treated at or disposed of on the Mortgage Property. However, in the
event it has been determined that asbestos or asbestos products or asbestos
materials have been used or employed in the construction, use, or
maintenance of the Mortgage Property, a duly qualified appraiser or
engineer has certified that the material is in good repair or has been
removed;
(V) To the best of Borrower's knowledge, there has not occurred nor
has any person or entity alleged that there has occurred, upon the Mortgage
Property any spillage, leakage, discharge or release into the air, soil or
groundwater of any hazardous materials or regulated wastes;
(W) There are no delinquent taxes, ground rents, water charges, sewer
rents, assessments, insurance premiums, leasehold payments, including
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assessments payable in future installments (one or more installments of
which are delinquent) or other outstanding charges affecting the related
Mortgage Property which constitute a lien on the Mortgage Property prior
to the Mortgage;
(X) All buildings upon the Mortgage Property are insured by a
generally acceptable insurer against loss by fire, hazards of extended
coverage and such other hazards as are customary in the area where the
Mortgage Property is located, pursuant to insurance policies conforming to
the requirements of FNMA and FHLMC. All such insurance policies contain a
standard mortgagee clause naming the Borrower, successors and assigns as
mortgagee and all premiums thereon have been paid. If upon origination of
the Mortgage Loan, the Mortgage Property was in an area identified on a
Flood Hazard Map or Flood Insurance Rate Map issued by the Federal
Emergency Management Agency as having special flood hazards (and such flood
insurance has been made available) a flood insurance policy meeting the
requirements of the current guidelines of the Federal Insurance
Administration is in effect which policy conforms to the requirements of
FNMA and FHLMC. The Mortgage obligates the Mortgagor thereunder to maintain
all such insurance at the Mortgagor's cost and expense, and on the
Mortgagor's failure to do so, authorizes the holder of the Mortgage to
maintain such insurance at Mortgagor's cost and expense and to seek
reimbursement therefor from the Mortgagor;
(Y) Except for the obligor under the Mortgage Loan all parties which
have had any interest in the Mortgage Loan, whether as mortgagee, assignee,
pledgee or otherwise, are (or, during the period in which they held and
disposed of such interest, were) in compliance with any and all applicable
"doing business" and licensing requirements of the laws of the state
wherein the Mortgage Property is located;
(Z) All improvements which were considered in determining the
Appraised Value of the related Mortgage Property lay wholly within the
boundaries and building restriction lines of the Mortgage Property, and no
improvements on adjoining properties encroach upon the Mortgage Property;
(AA) In the event the Mortgage constitutes a deed of trust, a trustee,
duly qualified under applicable law to serve as such, has been properly
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designated and currently so serves and is named in the Mortgage, and no
fees or expenses are or will become payable by the mortgagee to the
trustee under the deed of trust, except in connection with a trustee's
sale after default by the Mortgagor;
(BB) No Mortgage Loan contains provisions pursuant to which monthly
payments are (i) paid or partially paid with funds deposited in any
separate account established by the Borrower, the Mortgagor, or anyone on
behalf of the Mortgagor, (ii) paid by any source other than the Mortgagor
or (iii) contains any other similar provisions which may constitute a
"buydown" provision. The Mortgage Loan is not a graduated payment mortgage
loan and the Mortgage Loan does not have a shared appreciation or other
contingent interest feature;
(CC) The Mortgagor has executed a statement to the effect that the
Mortgagor has received all disclosure materials required by applicable law
with respect to the making of adjustable rate mortgage loans and rescission
materials with respect to Refinanced Mortgage Loans, and such statement is
and will remain part of the Related Assets;
(DD) No Mortgage Loan was made in connection with (i) the construction
or rehabilitation of a Mortgage Property or (ii) facilitating the trade-in
or exchange of a Mortgage Property;
(EE) The Mortgage Property is lawfully occupied under applicable law;
all inspections, licenses and certificates required to be made or issued
with respect to all occupied portions of the Mortgage Property and, with
respect to the use and occupancy of the same, including but not limited to
certificates of occupancy, have been made or obtained from the appropriate
authorities;
(FF) The Assignment of Mortgage is in recordable form and is
acceptable for recording under the laws of the jurisdiction in which the
Mortgage Property is located; and
(GG) Any principal advances made to the Mortgagor prior to the Closing
Date have been consolidated with the outstanding principal amount secured
by the Mortgage, and the secured principal amount, as consolidated, bears a
single interest rate and single repayment term. The lien of the Mortgage
securing the consolidated principal amount
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is expressly insured as having first or second lien priority by a title
insurance policy, an endorsement to the policy insuring the mortgagee's
consolidated interest or by other title evidence acceptable to FNMA and
FHLMC. The consolidated principal amount does not exceed the original
principal amount of the Mortgage Loan.
(HH) As of each Closing Date, with respect to the aggregate of (i) all
Mortgage Loans then included as Collateral hereunder and (ii) those
Mortgage Loans intended to be so included on such Closing Date:
(a) No Mortgage Loan is secured by a third lien;
(b) Each balloon loan provides for scheduled monthly payments
based on a 30-year amortization schedule with a balloon
payment of the balance due under such loan at the end of the
15th year or at the end of the fifth year from the date of
its origination;
(c) No Mortgage Loan is contractually delinquent for more than 29
days;
(d) No more than 5% of the aggregate outstanding principal
balance of the Mortgage Loans is secured by Mortgaged
Properties that are condominiums;
(e) No more than 20% of the aggregate outstanding principal
balance of the Mortgage Loans is secured by Mortgage
Properties that are investor owned;
(f) The weighted average Loan-to-Value Ratio of the Mortgage
Loans is not greater than 75%;
(g) No Mortgage Loan has a Loan-to-Value Ratio greater than 80%
(other than 1% of the principal balance of the Mortgage
Loans, which may have a Loan-to-Value Ratio of 100% provided
that such loan has been preapproved by Lender for sale to a
third party);
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(h) No more than 20% of the aggregate outstanding principal
balance of the Mortgage Loans is represented by loans made on
a no income verification basis; and
(i) The aggregate outstanding principal balance of the Mortgage
Loans which are ARMs is no more than $1,000,000.
(II) The Mortgage Loans consisting of ARMs (i) were not selected by Borrower for
inclusion on a Borrowing Request on any basis which would adversely affect
Lender, (ii) individually and in the aggregate are of no less than the average
credit quality of the ARMs in the pool of mortgage loans owned by the Borrower,
(iii) have not had the right to future changes in the interest rate and payment
schedules waived by Borrower or any previous holder of such ARM, (iv) are
secured by a first lien, and (v) have as an applicable Index a reference to the
London interbank offering rate or U.S. Treasury Securities.
5.3 Survival. To induce Lender to provide Advances, Borrower makes the
representations and warranties set forth herein, each and all of which shall:
(i) survive the execution and delivery of this Agreement and the making of any
Advance by Lender; (ii) inure to the benefit of Lender and (iii) be deemed to
have been relied upon in making Advances hereunder by Lender regardless in each
case of any investigation or review Lender may have or shall hereafter make;
provided, however, that any such representations and warranties shall not be
deemed to survive with respect to any Collateral which secures any Advances
which are repaid in full.
6. COVENANTS.
During the term of this Agreement, and thereafter for so long as there is
any outstanding amounts owed to the Lender pursuant to this Agreement, Borrower
hereby makes to the Lender each of the following covenants (both affirmative and
negative):
6.1 Affirmative Covenants.
(A) Borrower shall timely make any payments of interest or principal
or any other sum, which has become due whether by acceleration or otherwise
(including the failure to make a mandatory prepayment), under the terms of
the Secured Note, this Agreement or any other document evidencing or
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securing indebtedness of Borrower to Lender or any of its affiliates.
(B) In the event of a filing against Borrower of a petition for
liquidation, reorganization, arrangement or adjudication as a bankrupt or
similar relief under the bankruptcy, insolvency or similar laws of the
United States or any state or territory thereof or any foreign jurisdiction
or there shall be appointed a receiver, conservator, liquidator, assignee,
custodian, trustee, sequestrator or other similar official of Borrower or
any substantial part of its property or the ordering of the winding-up or
liquidation of its affairs, dismissal of such filing, appointment or Order
shall be secured within 90 days of such filing.
(C) Borrower shall maintain Equity of at least $300,000.
(D) Borrower shall, promptly upon preparation, but in no event later
than 45 days (unless otherwise agreed, in which event no later than 60
days) following the end of its first three fiscal quarters, deliver to
Lender its unaudited financial statements as of the end of such fiscal
quarter, together with a certificate of the chief executive officer or the
chief accounting officer of the Borrower to the effect that (i) to the best
knowledge of such officer, such financial statements are true, complete and
correct and (ii) nothing has come to the attention of such officer which
has caused such officer to believe that such financial statements were not
prepared in accordance with GAAP. Borrower shall, promptly upon
preparation, but in no event later than 75 days (unless otherwise agreed,
in which event no later than 90 days) following the end of such party's
fourth fiscal quarter, deliver to Lender its audited and certified
financial statements, prepared in accordance with GAAP, as of the end of
the most recently ended fiscal year, which audits and certifications shall
each be prepared by an independent public accounting firm. In all cases,
financial statements shall include, without limitation, a balance sheet, a
profit and loss statement and a statement of cash flows.
(E) Borrower shall notify Lender in writing, promptly upon learning of
(I) any breach of any representation, warranty, covenant or agreement (i)
under this Agreement, (ii) any borrowing
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agreement or other instrument or agreement pertaining to indebtedness
for borrowed money in excess of $150,000; or (II) the existence of any
default of which Borrower has knowledge under any agreement involving the
receipt or potential receipt or the payment or potential receipt or the
payment or potential payment by Borrower of more than $150,000.
(F) Borrower shall, promptly upon filing, deliver to Lender copies of
all public filings made by it with any governmental or quasi-governmental
body.
(G) Borrower shall pay and discharge all taxes, assessments and
governmental charges upon it, its income and properties as and when such
taxes, assessments and charges are due and payable, except and to the
extent only that such taxes, assessments and charges are being actively
contested in good faith and by appropriate proceedings, Borrower shall
maintain adequate reserves on its books therefor.
(H) Borrower shall file all federal, state and local tax returns and
other reports the Borrower is required by law to file and maintain adequate
reserves for the payment of all taxes, assessments, governmental charges,
and levies imposed upon it, its income, or its profits, or upon any
property belonging to it.
(I) The Borrower shall preserve and maintain the Borrower's separate
existence as a corporation and all rights, privileges, and franchises in
connection therewith, and maintain its qualification and good standing in
all states in which the failure to be so qualified might have a material
adverse effect on the financial condition, business or properties of the
Borrower.
(J) Borrower shall comply with all laws, ordinances, governmental
rules and regulations to which the Borrower is subject, and obtain and keep
in force any and all licenses, permits, franchises, or other governmental
authorizations from, give all such notices promptly to, register, enroll or
file promptly all such agreements, instruments or documents required by
applicable laws with, and promptly take all such other legally required
action with respect to, any governmental or regulatory authority, agency or
official, as is required under any provision of any applicable law and that
it is unnecessary (i) for the continued
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operation of any of the Borrower's activities or business or the
performance by the Borrower of any of its agreements or obligations under
this Agreement, the Secured Note, or Custodial Agreement, or (ii) to ensure
the continuing legality, validity, binding effect or enforceability of this
Agreement, the Secured Note, or Custodial Agreement or any of the
obligations thereunder of the Borrower necessary to the ownership of its
properties or to the conduct of its businesses.
(K) The Borrower shall provide the Lender with such other
documentation and information pertaining to any Mortgage Loans, at any time
and from time to time, as Lender may reasonably request.
(L) If any Advance is made pursuant to a Custodian's certification set
forth in clause (i) of Section 4.1(B) hereof, the Borrower shall, within
three Business Days deliver to the Lender a certificate of the Custodian to
the effect set forth in Section 4.1(B)(ii).
6.2 Negative Covenants.
(A) Borrower shall not (i) assign or attempt to assign this Agreement
or any rights hereunder, without first obtaining the specific written
consent of Lender, which consent can be withheld for any reason or for no
reason, or (ii) grant any security interest, lien or other encumbrance on
any Collateral to other than Lender or any of its affiliates.
(B) Borrower shall not commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consent to the entry of an order for relief in an involuntary case under
any such law or to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar
official) of Borrower, or of any substantial part of its property, and
Borrower shall not make any general assignment for the benefit of
creditors, or fail generally to pay debts as such debts become due, and
shall not take corporate action in furtherance of any of the foregoing.
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(C) Borrower shall not suffer any material adverse change in its
business, operations, financial condition, properties or prospects.
(D) Borrower shall not default under any term or provision of any
agreement between (x) Borrower and (y) Lender or any of its affiliates or
any third parties, which default shall not have been cured within an
applicable cure period, if any.
(E) There shall be no Change of Control, and Borrower shall not merge
or consolidate with or into, any other entity without the prior written
consent of Lender, which consent shall not be unreasonably withheld.
(F) During the term of this Agreement, Borrower shall not engage in
any business other than as a mortgage loan broker or mortgage banking firm,
except with the prior written consent of Lender, which consent shall not be
unreasonably withheld.
(G) Borrower shall not (i) dissolve or terminate its existence, (ii)
enter into any joint venture or become a partner in any partnership, (iii)
transfer any assets to any affiliate except as otherwise expressly
permitted or contemplated hereby, or (iv) issue or distribute any
securities or create any subsidiary without the prior written consent of
Lender, which consent shall not be unreasonably withheld; provided,
however, that any Change of Control which is caused by any of the actions
described in this subsection 6.2(G) shall not have the effect of validating
a Change of Control which is otherwise prohibited under the provisions of
subsection 6.2(E).
(H) Except for the making and purchase of mortgage loans in the
ordinary course of business, Borrower shall not make or permit to exist
investments in or loans to any other person, entity or affiliates.
(I) Borrower shall not guarantee, endorse or otherwise in any way
become or be responsible for any obligations of any other person, entity or
affiliate; provided, however, that nothing contained herein shall prevent
Borrower from (i) indemnifying its officers and directors pursuant to the
bylaws of Borrower, (ii) endorsing checks and other instruments of or for
deposit, (iii) the sale of mortgage loans with recourse in the ordinary
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course of business of Borrower, (iv) reimbursing amounts due under
tax, assessment and other customary provisions in real estate leases
governing Borrower's leases and (v) agreeing to customary indemnities of
the type and kind normally included in agreements to borrow money or
underwriting or placement agreements of the Borrower;
provided, further, however, that no transaction that occurs in the course of
buying and selling mortgages will constitute a violation of this section it made
in the ordinary course of business of Borrower.
(J) Borrower shall not, in the aggregate, make or commit to make
capital expenditures in excess of $300,000 during the period commencing on
the date of this Agreement terminating on the first anniversary date
hereof; and thereafter, Borrower shall not, in the aggregate, make or
commit to make capital expenditures in excess of $300,000 during any single
year measured from the first anniversary date hereof, without the written
consent of Lender, which consent shall not be unreasonably withheld.
(K) Borrower will not commit any act in violation of applicable laws,
or regulations promulgated pursuant thereto that relate to the Mortgage
Loans or that materially and adversely affect the operations or financial
condition of Borrower.
7. REPAYMENT OF ADVANCES.
7.1 Repayment. No Advance is pre-payable, except as required by Section
7.4. Borrower agrees to pay Lender any of its direct costs incurred in prepaying
any Mortgage Loan earlier than the Repayment Date. Any such repayment shall be
paid to Lender by wire transfer to an account designated by the Lender in
immediately available funds in any event on the earlier to occur of any sale
thereof and the Repayment Date. The Lender shall deliver to Borrower or its
designee the Essential Mortgage File Documents and any other Related Assets in
its possession with respect to such Mortgage Loan after such repayment.
7.2 Interest on Advances. Borrower shall pay to Lender on the fifteenth
Business Day of each month interest on all Advances that were outstanding at any
time during the prior month at an annual rate equal to the Advance Libor Rate
plus 150 basis points.
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7.3 Computation of Interest. Interest on Advances shall be computed on the
basis of a 360-day year and 12 30-day months. In computing the interest on any
Advances, the date of making the Advance shall be included and the date of
repayment shall be excluded; provided, that if an Advance is repaid on the same
day on which it is made, one day's interest shall be paid on that Advance.
7.4 Mandatory Prepayments and Rights.
(A) The Lender has the right to require, in its unreviewable
discretion, the Borrower to prepay any Advance in part and to the extent of
the outstanding principal balance of each related Mortgage Loan which
breaches one or more of the representations and warranties listed above;
provided, however, that if no Event of Default has occurred and is
continuing, then in lieu of any prepayment required by this Section 7.4(A),
the Borrower may pledge additional Mortgage Loans complying with the terms
of this Agreement with an aggregate outstanding principal balance equal to
the amount of such required prepayment.
(B) The Borrower shall prepay an Advance in part (i) in the event of a
payoff of a related Mortgage Loan, in an amount equal to the portion of the
Advance that relates to such Mortgage Loan; (ii) in the event of a
Curtailment, in an amount equal to such Curtailment; (iii) if a Mortgage
Loan is delivered in substitution of a Mortgage Loan previously listed on a
Certified Schedule of Mortgage Loans and the then-outstanding principal
balance of the substitute Mortgage Loan is less than the portion of the
Advance that relates to the replaced Mortgage Loan, in an amount equal to
such difference; and (iv) on the last day of any month, in an amount equal
to the aggregate of all principal payments received by the Borrower during
such month in respect of the Mortgage Loans and not previously remitted to
the Lender; provided, however, that if no Event of Default has occurred,
then in lieu of any prepayment required by this clause (iv), the Borrower
may pledge additional Mortgage Loans complying with the terms of this
Agreement with an aggregate outstanding principal balance equal to the
amount of such required prepayment.
(C) If at any time more than 5% of the aggregate principal balance of
the Mortgage Loans is more than 60 days delinquent (determined as to each
Mortgage Loan on a contractual basis), the
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Lender may require the Borrower to prepay the Advances in part with
respect to such Mortgage Loans so that not more than 5% of the aggregate
principal balance of the Mortgage Loans is more than 60 days contractually
delinquent, and in the event that any Mortgage Loan is contractually
delinquent for 90 or more days, the Borrower shall prepay the Advances in
part with respect to such Mortgage Loan.
(D) Within 15 Business Days of receipt of a Spread Deficiency Notice,
if a Spread Deficiency shall then still exist Borrower shall either:
(i) pay to the Lender an amount equal to the product of (a) the aggregate
principal balance of the Mortgage Loans pledged to the Lender and (b) the
product of (x) .00025 and (y) the Spread Deficiency; or
(ii) substitute one or more Mortgage Loans previously included on one or
more Certified Schedules of Mortgage Loans with substitute Mortgage Loans
complying with the provisions of this Agreement so that the result of such
substitution is to eliminate the Spread Deficiency;
provided, however, that if any payment is made by the Borrower to Lender
pursuant to this subsection, (a) such payment shall be applied to reduce
the outstanding principal balance of the Advances and (b) the Spread
Deficiency relating to such payment shall be deemed "cured" (the amount of
such Spread Deficiency, the "Cured Spread Deficiency Amount") and no
further payment shall be required in respect of the Spread Deficiency
unless the amount of the Spread Deficiency exceeds the Cured Spread
Deficiency Amount.
In the event that the yield on Four Year Treasury Securities is rising, the
Borrower may, but is not required to, cure the Spread Deficiency by more
than the minimum required amount for the purpose of delaying or reducing
expected future Spread Deficiencies.
(E) Any prepayment required by clauses (i), (ii) or (iii) of Section
7.4(B) of this Agreement shall be no later than five Business Days after
the date on which the event giving rise to such required prepaying occurs.
Unless otherwise specified in this Agreement, any other prepayment required
of this Section 7 shall be made within
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three Business Days of the event giving rise to such required prepayment.
(F) In the event a prepayment is required under this Agreement as a
result of a Curtailment or full repayment by the Mortgagor of the Mortgage
Loan, then the amount of such prepayment shall be applied first to reduce
the outstanding principal balance of the related Advance, then to reduce
the accrued and unpaid interest of the related Advance. In all other cases,
the amount of such prepayment shall be applied first to reduce the accrued
and unpaid interest of the Advances and then to reduce the outstanding
principal balance of the Advances.
(G) The Borrower shall comply with the document delivery requirements
set forth in the Custodial Agreement including, without limitation, the
delivery of all documents necessary to complete each mortgage file relating
to the Mortgage Loans within three Business Days following the Closing Date
for the Advance relating to such Mortgage Loans.
7.5 Default Rate. Any amount owing to Lender by Borrower under this
Agreement which is not paid on the related Repayment Date, shall bear interest
at the Default Rate until paid.
8. SECURITY
8.1 Grant of Security Interest. To secure the payment of Advances and the
performance of Borrower's other obligations hereunder, Borrower pledges and
hypothecates to Lender, and grants a continuing lien and first priority security
interest in favor of Lender in, all of Borrower's right, title and interest in
and to the following (the "Collateral"):
(A) All Mortgage Loans, Mortgages, Mortgage Notes and Essential
Mortgage File Documents, Related Assets and other documents and property as
shall be deposited with, or held by or at the direction of Lender pursuant
to this Agreement and the Custodial Agreement;
(B) All payments and prepayments of principal, interest, penalties and
other income due or to become due on all Mortgage Loans, Mortgages and
Mortgage Notes referred to in Paragraph (a) above, and all proceeds
thereof, all the right,
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title and interest of every nature whatsoever of Borrower in and to
the same and all property used in connection therewith (subject to
Borrower's right under this Agreement to collect certain payments so long
as no Event of Default shall have occurred and be continuing) including,
without limitation, the following: (i) all rights, liens and security
interests existing with respect to, or as security for, all such Mortgage
Loans; (ii) all hazard insurance policies, flood insurance policies (if
applicable), title insurance policies or condemnation proceeds with respect
to each such Mortgage Loan (and amounts receivable by Borrower for the
purpose of payment of real property taxes, assessments and insurance
premiums pursuant to the terms of Mortgage Notes); (iii) the servicing
rights attributable to the Mortgage Loans; and (iv) all private mortgage
insurance policies, if any, with respect to each such Mortgage Loan.
(C) All files, surveys, certificates, correspondence, appraisals,
computer programs, tapes, discs, cards, accounting records and other
records and data of Borrower related to the Mortgage Loans referred to in
Paragraph (a) above (but not including the general accounting materials of
Borrower); and
(D) All products, profits and proceeds of any of the property
described in the foregoing Paragraphs (A) and (B) and any other property or
documents relating to any of the foregoing that may, from time to time
hereafter, come into Borrower's possession and/or be delivered by Borrower
to Lender or its designee under this Agreement.
8.2 Authority to Collect. So long as no Event of Default shall have
occurred and be continuing, Borrower shall have the right to collect for its own
account all payments (but not proceeds of the sale of Mortgage Loans) of
principal, interest, penalties and other amounts due or to become due on
Mortgage Loans and pledged and hypothecated under this Agreement.
8.3 Lender Appointed Attorney-in-Fact. Upon the occurrence of an Event of
Default, Borrower hereby appoints Lender as Borrower's attorney-in-fact, with
full power of substitution, for the purpose of taking such action and executing
such documents, in the name of Borrower or otherwise, as Lender may deem
necessary or advisable to further perfect its interest in, or realize upon, or
execute
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its interest in the Collateral, which appointment is coupled with an interest
and is irrevocable. Lender agrees promptly to notify Borrower after any such
action or execution of instruments, provided that the failure to give such
notice shall not affect the validity of such action or execution of instruments.
8.4 Security for Obligations. This Agreement shall constitute a security
agreement and create a continuing first perfected security interest in the
Collateral, and shall: (i) remain in full force and effect until payment in full
of Secured Note; (ii) be binding upon Borrower, its respective successors and
assigns and (iii) inure to the benefit of Lender and its successors, transferees
and assigns.
9. EVENTS OF DEFAULT.
9.1 Event of Default. The occurrence of any of the following conditions or
events shall constitute an "Event of Default" hereunder:
(A) Failure to Make Payments When Due. (i) Failure to pay the
principal of any Advance by the Repayment Date, whether at maturity, by
acceleration, by notice of prepayment or otherwise; or (ii) Failure to pay
any interest on Advances with respect to any month by the fifteenth
Business Day of the following month; or
(B) Default in Other Agreements. Failure of Borrower to pay or any
default in the payment of any principal of or interest on any other
indebtedness or in the payment of any contingent obligation beyond any
period of grace provided or breach or default with respect to any other
material term of any evidence of any other indebtedness or of any loan
agreement, security agreement, mortgage, indenture or other agreement
relating thereto, if the effect of such failure, default or breach is to
cause, or to permit the holder or holders of that indebtedness (or a
trustee on behalf of such holder or holders) to cause, indebtedness of
Borrower in the aggregate amount of $10,000 or more to become or be
declared due prior to its stated maturity; or
(C) Breach of Representations, Warranties, etc. Breach by Borrower of
any representation, warranty, covenant or agreement set forth in this
Agreement; provided, however, that no breach of the representations and
warranties set forth in Section 5.2 shall be deemed to have occurred if (i)
such breach involves less than 5% of the Mortgage Loans
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securing any Advances, and (ii) such Mortgage Loans are repaid or
substituted pursuant to Section 7.4(A) within five (5) business days after
Borrower learns of such breach, whether by written notice from Lender of
such breach or otherwise; or
(D) Other Defaults. Borrower shall default in the performance of or
compliance with any term contained in this Agreement, other than those
referred to in Paragraphs (A) and (C) above and such default shall not have
been remedied or waived within 10 days after Borrower learns of such
breach, whether by written notice from Lender of such breach or otherwise;
or
(E) Involuntary Bankruptcy; Appointment of Receiver, etc. Either: (i)
a court having jurisdiction in the premises shall enter a decree or order
for relief in respect of Borrower in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, which decree or order is not stayed; or (ii) any other similar
relief shall be granted under any applicable federal or state law, or a
decree or order of a court having jurisdiction in the premises for the
appointment of a receiver, liquidator, trustee, custodian or other officer
having similar powers over Borrower or over all or a substantial part of
its property, shall have been entered, or the involuntary appointment of an
interim receiver, trustee or other custodian of Borrower for all or a
substantial part of its property, or the issuance of a warrant of
attachment, execution or similar process against any substantial part of
the property of Borrower, and the continuance of any such events in clauses
(i) and (ii) for 45 days unless dismissed, bonded or discharged; or
(F) Voluntary Bankruptcy; Appointment of Receiver, etc. Borrower shall
have an order for relief entered with respect to either party or commence a
voluntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or shall consent to the entry of an order
for relief in an involuntary case, or to the conversion to an involuntary
case, under any such law, or shall consent to the appointment of or taking
possession by a receiver, trustee or other custodian for all or a
substantial part of its property; the making by Borrower of any assignment
for the benefit of creditors; or the inability or failure of Borrower, or
the admission of Borrower
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in writing of its inability to pay its debts as such debts become due
or the Board of Directors of Borrower (or any committee thereof) adopts any
resolution or otherwise authorizes action to approve any of the foregoing;
or
(G) Judgments and Attachments. Any money judgment, writ or warrant of
attachment, or similar process involving in any case an amount in excess of
$10,000 shall be entered or filed against Borrower or its assets and shall
remain undischarged, unvacated, unbonded or unstayed for a period of 30
days or in any event later than five days prior to the date of any proposed
sale thereunder; or
(H) Dissolution; Liquidation. Any order, judgment or decree shall be
entered against Borrower decreeing its dissolution or liquidation and such
order shall remain undishcarged or unstayed for a period in excess of 20
days.
9.2 Remedies.
(A) Upon the occurrence of any Event of Default, the unpaid principal
amount of and accrued interest on the Secured Note and any interest on
Advances due under Section 7 shall automatically become due and payable,
without presentment, demand or other requirements of any kind, all of which
are hereby expressly waived by Borrower, and the obligation of Lender to
make Advances shall thereupon terminate.
(B) Upon the occurrence of any Event of Default, Lender may do any or
all of the following:
(i) Foreclose upon or otherwise enforce its security interest and
lien on the Collateral to secure all payments and performance of
obligations owed by Borrower under Secured Note and this Agreement.
(ii) Notify all obligors of Collateral that the Collateral has
been assigned to Lender and that all payments thereon are to be made
directly to Lender or such other party as may be designated by Lender;
settle, compromise or release, in whole or in part, any amounts owing
on the Collateral, any portion of the Collateral, by any such obligor
on terms acceptable to Lender in a commercially reasonable manner;
enforce
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payment and prosecute any action or proceeding with respect to any
and all Collateral; and where any such Collateral is in default,
foreclose on, and enforce security interests in, such Collateral by
any available judicial procedure or without judicial process and sell
property acquired as a result of any such foreclosure in a
commercially reasonable manner.
(iii) Cause any disposition of all or any portion of the
Collateral to be conducted immediately upon the occurrence of an Event
of Default (or immediately upon the expiration of any period of delay
or notice required by law) or Lender may delay any such sale or other
disposition for such period of time as Lender deems to be in its best
interest. Should Lender decide to conduct more than one such sale or
disposition, the Lender may at its option cause the same to be
conducted simultaneously or successively on the same day or upon such
different days or at such different times and in such order as Lender
may deem to be in its best interests. Borrower waives, to the fullest
extent permitted by law, any prejudice resulting to it from any such
decision.
(iv) Sell the Collateral in one or more lots, at one or more
times, at public or private sales, in an established market therefor
or otherwise, and with or without notice of any kind, as Lender may
elect, at such prices and on such terms, as to cash or credit, as
Lender may deem proper, and in the case of pledged Mortgages, with or
without servicing rights. Any sale may be made at any place designated
by Lender, and Lender shall have the right to become the Lender at any
such sale which is open to the public. Lender shall have the right in
connection with the Collateral either to sell the same as above
provided, or to foreclose, sue upon, or otherwise seek to enforce the
same in its own name or in the name of Borrower as provided herein.
Subject to the foregoing provisions of this paragraph, after an Event
of Default shall occur and be continuing, Lender shall have the right
to renew, extend the time of payment of, or otherwise modify, amend,
supplement, settle or compromise, in any manner, any obligations for
the payment of
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money included in the Collateral, any security therefor and any
other agreements, instruments, claims or chooses in action of any
kind, which may be included in the Collateral.
(v) Take possession of all or any portion of the Collateral that
is not already in the possession of Lender and Borrower agrees
immediately to assemble and make available the Collateral to Lender at
a location convenient to the Lender. Lender may manage and protect the
Collateral, do any acts which Lender deems proper to protect the
Collateral as security hereunder, and sue upon any contract or claim
relating to the Collateral and receive any payments due thereon or any
damages thereunder, and apply all sums received to the payment of the
indebtedness secured hereby in accordance with Section 9.3 in such
order as Lender shall determine. Any such actions of Lender shall not,
absent written ratification by Lender, be deemed to impose upon Lender
any of Borrower's obligations under any contracts.
(vi) Be entitled, without regard to the adequacy of the security
for the indebtedness secured hereby, to the appointment of a receiver
by any court having jurisdiction, without notice, to take possession
of and protect, collect, manage, liquidate, and sell the Collateral or
any portion thereof, collect the payments due with respect to the
Collateral or any portion thereof, and do anything that a lender or
owner of the Collateral is authorized with respect thereto to do.
(vii) Act, or contract with a third party to act, as servicer of
each item of Collateral requiring, servicing with any such third
party's fees to be paid by Borrower.
(viii) Exercise all rights and remedies of a secured creditor
under the Uniform Commercial Code, including, but not limited to,
selling the Collateral at public or private sale.
(ix) Exercise any and all other rights and remedies of Lender as
it shall deem appropriate at law, in equity, or otherwise.
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(C) All remedies are cumulative. Any failure on the part of Lender to
exercise or any delay in exercising any right hereunder shall not operate
as a waiver thereof, nor shall any single or partial exercise by Lender of
any right hereunder preclude any other exercise thereof or the exercise of
any other right.
9.3 Application of Proceeds. Any money collected by Lender pursuant to this
Section 9 (whether upon voluntary payment, foreclosure or otherwise) shall be
promptly applied as follows unless otherwise required by provisions of
applicable law:
(A) First, to the payment of all expenses incurred by Lender under
this Agreement in enforcing its rights hereunder including all costs and
expenses of collection, reasonable attorneys fees, court costs and
foreclosure expenses.
(B) Second, to the payment of all interest on Advances to the extent
amounts are then due thereon.
(C) Third, to the payment of all principal of Advances to the extent
amounts are then due thereon.
(D) Fourth, to Borrower.
10. INDEMNIFICATION.
Without limiting any other rights which Lender or Borrower may have
hereunder or under applicable law, and in addition to any other indemnity
provided hereunder. Borrower hereby agrees to indemnify Lender and its
respective officers, directors, agents and employees (each, an "Indemnified
Party") from and against any and all Losses incurred by any of them relating to
or resulting from:
(i) any representation or warranty made by Borrower (or any officers,
employees or agents of Borrower) under or in connection with this
Agreement, any periodic report required to be furnished hereunder or any
other information or document delivered by Borrower pursuant hereto, which
shall have been false or incorrect in any material respect when made or
deemed made;
(ii) the failure by Borrower to comply with any applicable law, rule
or regulation with respect to any Advance or any other transaction
contemplated hereunder; or
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(iii) the failure by Borrower (if so requested by Lender) to execute
and properly file, or any delay in executing and properly filing, financing
statements or other similar instruments or documents under the Uniform
Commercial Code of any applicable jurisdiction or other applicable laws
with respect to the Collateral.
The agreements of Borrower in this Section 10 shall be in addition to any
liabilities that Borrower may otherwise have and shall apply whether or not
Lender or any other Indemnified Party is a formal party to any lawsuit, claim or
other proceeding. For purposes of enforcing such agreements, Borrower hereby
consents to personal jurisdiction, service and venue in any court in which any
claim or proceeding which relates to the services or matters that are the
subject of this Agreement is brought against Lender or other Indemnified Party.
11. NOTICES
All notices or other communications provided for herein shall be in writing
and shall be deemed to have been given or made when sent Certified Mail, Return
Receipt Requested, postage prepaid, or, in the case of telegraphic notice, when
delivered to the telegraph company, addressed as set forth below or to such
other address as may be hereafter designated in writing by the respective
parties hereto:
Lender: Industry Mortgage Company, L.P.
3450 Buschwood Park Drive, Suite 250
Tampa, Florida 33168
Attn: Mr. George Nicholas
Fax: (813) 932-8257
Tel: (813) 932-2211
Borrower: Mortgage Central Corp. (d/b/a Equitystars)
25 Blackstone Valley Place
Lincoln, RI 02865
Attn: Mr. David B. MacDonald
Fax: (401) 334-4029
Tel: (800) 872-0800
12. APPOINTMENT OF ATTORNEY.
Borrower hereby appoints any officer or employee of Lender its true and
lawful attorney to sign and deliver to Lender on behalf of Borrower any
instrument or document and also any other writing which may be used in
connection therewith to evidence any security interest in any Collateral. This
power of attorney shall not be used to create any new obligation of Borrower to
Lender not provided for herein or
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for the institution of suit in Borrower's name, except as may be set forth in
Section 8.2 hereof.
13. ACCESS TO BORROWER DOCUMENTS AND INFORMATION.
Borrower shall provide to Lender and its appointed agents access to
documentation and information regarding the Collateral and the Borrower as
Lender may reasonably request, including, but not limited to, the Mortgage Loans
and any and all accounting records and financial statements of Borrower, such
access being afforded without charge upon reasonable request and during normal
business hours at the offices of the Borrower designated by it within the
continental United States.
14. TERMINATION.
Lender's obligation to make Advances pursuant to this Agreement shall
terminate upon the earliest of the following to occur: (i) the first quarterly
renewal date, commencing on April 1, 1996 and continuing on each July 1, October
1, January 1, and April 1, thereafter; provided, however, that unless Lender has
sent written notice of its intention to terminate this Agreement to Borrower 30
days prior to any such quarterly renewal date, this Agreement, including
Lender's obligation to make Advances hereunder shall continue to the next
quarterly renewal date; (ii) any Event of Default; (iii) the first anniversary
date of the commencement of this Agreement; provided, however, that Lender may
renew the Agreement to the next succeeding anniversary date by sending written
notice of its intention to renew this Agreement to Borrower.
In the event of termination, all outstanding Advances under the Note and
this Agreement shall become immediately due and payable without further notice
or demand.
15. MISCELLANEOUS PROVISIONS.
15.1 Custodial Agreement. Notwithstanding anything stated herein to the
contrary, the Lender and the Borrower agree to enter into a custodial agreement
with a mutually acceptable bank or other such custodian for the purposes of
retaining custody of the Essential Mortgage File Documents, which custodial
agreement shall have terms and provisions which are reasonably agreed upon by
the parties thereto.
15.2 Representation of Servicer and Lender. If any of the Mortgage Loans
are presently serviced by any third party, Borrower shall obtain and deliver on
the Closing Date a representation and warranty to Lender from each such servicer
that, as of the Closing Date, there are no taxes, ground, rents, water charges,
sewer rents, assessments payable
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in future installments, or other outstanding charges adversely affecting the
lien of any Mortgage or Mortgaged Property, which amounts are being escrowed and
which are due and payable. If requested by the Lender, each such servicer shall
submit proof of the foregoing representation and warranty.
15.3 Costs and Expenses. Except as explicitly provided herein, Borrower and
Lender shall each fulfill its obligations pursuant hereto at its own cost and
expense.
15.4 Agency; Joint Venture. Neither this Agreement nor any action taken
pursuant hereto shall make either party an agent or representative of the other
or be deemed to create a joint venture among the parties hereto.
15.5 Complete Agreement; Modification; Sale or Assignment. This Agreement
constitutes the complete agreement between Borrower and Lender with respect to
the subject matter hereof and may not be modified, altered, or amended except by
a writing signed by Borrower and Lender. Neither party hereto may sell, assign,
or transfer any of its rights or obligations pursuant hereto except with the
written consent of the other party, which consent shall not be unreasonably
withheld. Nothing herein shall in any way limit Lender's right to assign the
Secured Note to any other person or entity.
15.6 No Waiver. No undertaking, agreement, covenant, representation or
warranty of Borrower contained herein shall be deemed to have been waived by
Lender, unless such waiver is by an instrument in writing signed by Lender. Any
such waiver by Lender shall not be deemed to be waiver of any other undertaking,
agreement, covenant, representation or warranty. Lender's failure, at any time,
to require strict performance of any provision hereof shall not waive, affect or
diminish any right of Lender thereafter to demand strict compliance therewith or
performance thereof.
15.7 Parties. This Agreement, shall be binding upon, and inure to the
benefits of, the successors and permitted assigns of the parties hereto.
15.8 Severability; Section Headings. Any invalidity of any provision of
Secured Note or this Agreement shall not affect the validity of any other
provision hereof. The section headings contained herein shall be without
substantive meaning and shall not be deemed to be a part of this Agreement.
15.9 Construction. Wherever from the context it appears appropriate, each
term stated in either the singular or plural shall include the singular and
plural, and pronouns stated in the masculine, feminine, or neuter gender shall
include the masculine, feminine, and the neuter. The words
39
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<PAGE>
"herein," "hereof," "hereto," "hereby," and other words of similar import shall
be deemed to refer to this Agreement as a whole and not to any particular
section, subsection, or clause of this Agreement.
15.10 Interpretation. No provision of this Agreement, the Secured Note or
the Custodial Agreement shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured,
drafted or dictated such provision.
15.11 GOVERNING LAW, CONSENT TO FORUM. THIS AGREEMENT HAS BEEN NEGOTIATED,
EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN NEW YORK, NEW
YORK. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS
RULES THEREIN. BORROWER HEREBY CONSENTS AND AGREES THAT THE SUPREME COURT OF NEW
YORK COUNTY, NEW YORK OR, AT LENDER'S OPTION, THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR
AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO
THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT.
BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY
ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY
OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING FOR
SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. NOTHING
IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF LENDER TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE
ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE
TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER
APPROPRIATE FORUM OR JURISDICTION.
15.12 WAIVER OF TRIAL BY JURY AND OTHER WAIVERS BY BORROWER. BORROWER
WAIVES (i) THE RIGHT TO TRIAL BY JURY (WHICH LENDER HEREBY ALSO WAIVES) IN ANY
ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED
TO THIS AGREEMENT; (ii) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF
PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY, RELEASE, COMPROMISE,
SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL ACCOUNTS, CONTRACT RIGHTS,
DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES ANY TIME HELD BY LENDER ON
WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS
WHATEVER LENDER MAY DO IN THIS REGARD; (iii) NOTICE PRIOR TO TAKING POSSESSION
OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY
ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S REMEDIES; (iv)
THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS; and (v) NOTICE OF
ACCEPTANCE HEREOF, BORROWER
40
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EACH ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO
LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING UPON THE
FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER. BORROWER WARRANTS AND
REPRESENTS THAT IT HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO AT TRIAL BY THE COURT.
15.13 Headings. The Sections headings are not part of this Agreement and
shall not be used in its interpretation.
15.14 Counterparts. For the purpose of facilitating the execution of this
Agreement and for other purposes, this Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deemed to be an original,
and together shall constitute and be one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties intending to be legally bound hereby, as of the date first written
above.
INDUSTRY MORTGAGE COMPANY, L.P.
By Industry Mortgage Corporation,
Its: General Partner
By:
--------------------------
Name: George Nicholas
Title: Chief Executive Officer
MORTGAGE CENTRAL CORP. (d/b/a
Equitystars),
a Rhode Island Corporation
By: /s/ David B. MacDonald
--------------------------
Name: David B. MacDonald
Title: President
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties intending to be legally bound hereby, as of the date first written
above.
INDUSTRY MORTGAGE COMPANY, L.P.
By Industry Mortgage Corporation,
Its: General Partner
By: /s/ Tim Griffin
--------------------------
Name: Tim Griffin
Title: Vice President
MORTGAGE CENTRAL CORP. (d/b/a Equitystars),
a Rhode Island Corporation
By:
--------------------------
Name: David B. MacDonald
Title: President
<PAGE>
<PAGE>
LIST OF EXHIBITS
Exhibit A Form of Secured Note
Exhibit B List of Related Assets
Exhibit C Form of Request for Borrowing
Exhibit D Lender Approved Guidelines
Exhibit E Form of Officers' Certificate
Exhibit F Certified Schedule of Mortgage Loans
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<PAGE>
PROMISSORY NOTE
Up to $10,000,000 Dated: JANUARY 2, 1996
FOR VALUE RECEIVED the undersigned Mortgage Central Corp., a Rhode Island
Corporation ("Borrower") HEREBY PROMISES TO PAY to the order of Industry
Mortgage Company, L.P., a Delaware limited partnership ("Lender"), for the
benefit of Lender and holders from time to time of interest herein, in lawful
money of the United States of America, (i) the principal amount of each Advance
made by Lender to Borrower pursuant to the Loan and Security Agreement dated as
of January 2, 1996 (as amended from time to time, the "Loan and Security
Agreement") between Lender and Borrower, on the Repayment, and (ii) interest on
each such Advance outstanding from and including the date on which such Advance
is made until the principal amount of such Advance is paid in full, such
interest to be payable on the fifteenth Business Day of the month following the
month with respect to which it accrued (provided that, any overdue principal and
accrued interest thereon shall be payable on demand), at an interest rate per
annum with respect to such Advance equal to the interest rate applicable to such
Advance pursuant to Section 7.2 of the Loan and Security Agreement. Each Advance
shall be made pursuant to an executed Request for Borrowing (each as defined in
the Loan and Security Agreement).
1. Definitions. All capitalized terms not otherwise defined herein shall have
the meanings ascribed to them in the Loan and Security Agreement.
2. Loan and Security Agreement. This promissory note ("Promissory Note") is the
Secured Note referred to in the Loan and Security Agreement and is entitled to
the benefits thereof and shall be subject to the provisions thereof. This
Promissory Note is secured pursuant to the Loan and Security Agreement.
1
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3. Payments and Computations. Borrower shall make each payment hereunder not
later than 5:00 P.M. (New York time) on the day when due to Lender in same day
funds. All computations of interest shall be made by Lender on the basis of a
year of 360 days of 12 30-day months occurring in the period for which such
interest is payable. Any payment to be made hereunder otherwise due on a
Business Day shall be made on the next succeeding Business Day and such
extension of time shall in such case be included in the computation of payment
of interest.
The term "Affiliates" as used herein means all persons or entities directly or
indirectly controlling, controlled by, or under common control with Borrower.
The term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management policies of any person or
entity, whether through ownership of securities, by contract or otherwise.
4. Amendments, Etc. No amendment or waiver of any provision of this Promissory
Note, nor consent to any departure by Borrower therefrom, shall in any event be
effective unless the same shall be in writing and signed by Lender and then such
amendment, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
5. Notices. All written communications hereunder shall be mailed, telecopied or
delivered at the respective addresses as listed in the Loan and Security
Agreement or at such other address as shall be designated by a party in a
written notice to the other parties. All such notices and communications shall
be effective when delivered to the party to which such notice is to be given.
6. No Waiver; Remedies. No failure on the part of Lender to exercise, and no
delay in exercising, any right hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right hereunder preclude any other
or further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
2
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7. Binding Effect; Governing Law; Venue. This Promissory Note shall be binding
upon Borrower and their successors and assigns and shall inure to the benefit of
Lender and its successors and assigns. Lender may assign to any entity, by
bookkeeping entry on Lender's records, all or any part of, or any interest in
Lender's rights and benefits hereunder, provided that any such interest shall
not be less than $100,000. To the extent of such assignment, such assignee shall
have the same rights and benefits against Borrower as it would have had if it
were Lender hereunder. This Promissory Note shall be construed in accordance
with, and governed by, the laws of the State of New York, without giving effect
to the conflict of law principles thereof. Borrower waives trial by jury.
Borrower hereby submits to, and waives any objection it may have to personal
jurisdiction and venue in, the courts of the State of New York and the United
Stated District Court for the Southern District of New York, over any disputes
arising out of or relating to this Promissory Note. Borrower consents to service
of process by mail at the address specified in Section 11 of the Loan and
Security Agreement and waives any objection it may have to the sufficiency or
adequacy of such method of service of process.
THIS NOTE IS GOVERNED BY THE PROVISIONS OF THE LOAN AND SECURITY AGREEMENT WHICH
IS INCORPORATED HEREIN BY REFERENCE, AND IN THE EVENT ANY TERMS OF THIS NOTE ARE
INCONSISTENT WITH THE TERMS OF THE LOAN AND SECURITY AGREEMENT, THE TERMS OF THE
LOAN AND SECURITY AGREEMENT SHALL GOVERN THIS NOTE. NOTWITHSTANDING THE
FOREGOING SENTENCE, NO REFERENCE HEREIN TO THE LOAN AND SECURITY AGREEMENT AND
NO PROVISION OF THIS NOTE OR OF THE LOAN AND SECURITY AGREEMENT SHALL ALTER OR
IMPAIR THE OBLIGATIONS OF THE BORROWER, WHICH ARE ABSOLUTE AND UNCONDITIONAL, TO
PAY THE PRINCIPAL OF AND INTEREST ON THIS NOTE AT THE RESPECTIVE TIMES AND AT
THE RATES HEREIN PRESCRIBED.
3
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IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be executed
by its respective officer thereunto duly authorized, as of the date first above
written.
MORTGAGE CENTRAL CORP.
a Rhode Island Corporation
By: /s/ David B. MacDonald
------------------------------
Name: David B. MacDonald
Title: President
4
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Schedule of Advances
Applicable
Date Amount Rate
- ---- ------ ----------
__________________ $_________________ ___________
acknowledged by _______________
the Borrower
__________________ $_________________ ___________
acknowledged by _______________
the Borrower
__________________ $_________________ ___________
acknowledged by _______________
the Borrower
__________________ $_________________ ___________
acknowledged by _______________
the Borrower
__________________ $_________________ ___________
acknowledged by _______________
the Borrower
__________________ $_________________ ___________
acknowledged by _______________
the Borrower
5
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__________________ $_________________ ___________
acknowledged by _______________
the Borrower
__________________ $_________________ ___________
acknowledged by _______________
the Borrower
6
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EXHIBIT B
LIST OF RELATED ASSETS
The following documents must be included in the package of Related Assets
to be delivered by the Borrower to the Lender to be included as Collateral:
1. Original Note, endorsed in blank.
2. Loan Application.
3. Verification of Employment and Income as described in the "Product
Descriptions" in the Lender Approved Underwriting Guidelines.
4. Credit Reports as expressed in the "Product Descriptions" in the
Lender Approved Underwriting Guidelines.
5. Appraisal Report.
6. Disclosure Statement, federal and state.
7. Rescission Documents.
8. Fair Lending and Equal Credit Notices, federal and state.
9. Note and Disclosure Riders, when applicable.
10. Certified or True Copy of the Mortgage or Deed of Trust.
11. Original, Recordable Assignment of the Mortgage.
12. Preliminary Title Report and evidence that an ALTA policy has been
ordered.
13. Evidence of Hazard Insurance and documentation showing proper coverage
and loss payable endorsement has been ordered.
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14. Evidence of Flood Insurance with loss payable endorsement in effect or
ordered. (Only if the Mortgage Property is in Flood Zone "A".)
15. Authorization to Release Information.
16. Balloon Rider, if applicable.
<PAGE>
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EXHIBIT C
NOTICE OF BORROWING NO.
Pursuant to the Loan and Security Agreement dated January 2, 1996 between you
and the undersigned, the undersigned hereby gives notice of its election to
borrow from you and Advance and, in conjunction therewith sets forth below the
following information (all capitalized terms used herein shall have the meaning
specified therefor in the Loan and Security Agreement).
1. The outstanding principal balance of the Loan is $_______________.
2. The principal amount of this Advance is $_______________.
3. The Quoted Rate for this advance is ______________% per annum.
4. The beginning Business Day of this Advance is ___________________.
5. The maturity Date of this Advance is ___________________.
6. The Collateral Value of the items of Collateral shall be ______________%.
The undersigned hereby certifies that the following statements are true and
correct on the date hereof and shall be true and correct on the date of the
Advance requested herein, before and after giving effect thereto:
A. Each of the representations and warranties contained in the Loan and Security
Agreement are true and correct in all material respects.
B. No Default or Event of Default (as such terms are defined in the Promissory
Note) has occurred and is continuing.
The Advance made pursuant hereto shall be made in connection with the items of
Collateral described in the undersigned's Collateral Submission Summary No.
_________ dated _______________.
By: _________________________
Title: _________________________
Date: _________________________
<PAGE>
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EXHIBIT D
LENDER APPROVED UNDERWRITING GUIDELINES
(ATTACHED)
<PAGE>
<PAGE>
EXHIBIT E
OFFICER'S CERTIFICATE
The undersigned, President of Mortgage Central Corp. (the "Company"),
pursuant to the Loan and Security Agreement dated this date ("Loan and Security
Agreement") between the Company and INDUSTRY MORTGAGE COMPANY, L.P. ("IMC"),
does hereby certify to IMC as follows:
1. The following named persons (i) are officers of the Company, (ii) are
authorized to sign on the Company's behalf, (iii) now hold the title set
forth opposite their respective names, and (iv) the signature set forth
opposite their respective names are the true and genuine signatures of such
officers:
Name Office(s) Signature
---- -------- ---------
David MacDonald /s/ David MacDonald
---------------------------------------------------------------------------
Glenn Tourtellot /s/ Glenn Tourtellot
---------------------------------------------------------------------------
Michael Dearrian /s/ Michael Derderian
---------------------------------------------------------------------------
2. Attached hereto as Annex A, are true copies of such resolutions duly
adopted by the Company on January 2, 1996. Each such resolution has not
been amended, modified or rescinded and is still in full force and effect.
3. The representatives and warranties contained in Section 5.1 of the Loan and
Security Agreement are true and correct in all material respects on and as
of the this day.
4. The Company is in compliance with all the terms and provisions set forth in
the Loan and Security Agreement required to be complied with or performed
by the Company on or before the date hereof.
5. No event of Default, or any default that would become an Event of Default
with the passage of time, as defined in the Loan and Security Agreement,
has occurred.
<PAGE>
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ANNEX A
WRITTEN CONSENT TO RESOLUTIONS
IN LIEU OF SPECIAL MEETING OF
DIRECTORS OF
MORTGAGE CENTRAL CORP.
Pursuant to the authority contained in Section ________, General
Corporation Law of the State of Rhode Island, the adoption of the following
resolutions is consented to by the undersigned, being the sole director of this
Corporation:
RESOLVED, that the Corporation is hereby authorized to execute and deliver
to Industry Mortgage Company, L.P. ("IMC") the Loan and Security Agreement and
the Custodial Agreement with the Bank of Boston, and all other instruments
necessary or appropriate to effect the transactions thereby contemplated, all
with such modifications as are approved by such officers, which approval shall
be conclusively evidenced by their execution thereof;
RESOLVED, that the Corporation is hereby authorized to execute and deliver
to IMC the Secured Note for an amount of up to $10,000,000, as described in the
Loan and Security Agreement;
RESOLVED, that the President of the Corporation is hereby authorized to
execute and deliver to IMC and to Mortgage Central Corp.'s counsel,
_______________________, any officer's certificates required in connection with
the transactions contemplated by the Loan and Security Agreement;
RESOLVED, that the officers of the Corporation are hereby authorized and
directed to take all such other actions as they deem necessary or appropriate to
carry into effect the foregoing resolutions;
RESOLVED, that this Written Consent shall be effective as of January 2,
1996.
Date: 1/2/96 By: /s/ David B. MacDonald
-------------- ------------------------
Title: Director
<PAGE>
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EXHIBIT F
INFORMATION TO BE INCLUDED ON
CERTIFIED SCHEDULE OF MORTGAGE LOANS
1. Borrower Name.
2. Account Number.
3. Original Balance.
4. Current Balance.
5. Interest Rate.
6. Remaining Term.
7. Original Term to Maturity.
8. Combined Loan-to-Value Ratio.
9. Next Due Date.
10. The Original Principal and Interest Payment.
11. The Index.
12. The Gross Margin.
13. The Starter Rate.
14. Type of Loan, e.g. fixed-rate, ARM.
<PAGE>
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CUSTODIAL AGREEMENT
Dated as of January 2, 1996
among
INDUSTRY MORTGAGE COMPANY, L.P.,
MORTGAGE CENTRAL CORP.
and
THE FIRST NATIONAL BANK OF BOSTON,
as Custodian
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TABLE OF CONTENTS
Page
----
Definitions..................................................................2
Delivery of Custodian's Mortgage Files.......................................4
Certification................................................................6
Deficiencies in Custodian's Mortgage Files...................................7
Pledge of Mortgage Loans.....................................................8
Obligations of the Custodian.................................................9
Release of Custodian's Mortgage File........................................11
Release Upon Redelivery or Payment..........................................11
Fees and Expenses of the Custodian..........................................12
Examination of Custodian's Mortgage Files...................................12
Transfer of Custodian's Mortgage Files Upon Termination.....................12
Insurance of the Custodian..................................................12
Periodic Statements.........................................................12
Copies of Mortgage Documents................................................13
Resignation by and Removal of the Custodian; Successor Custodian............13
Indemnity...................................................................14
Limitation of Liability.....................................................14
Term of Agreement...........................................................15
Authorized Representatives..................................................16
Notices.....................................................................16
Governing Law...............................................................17
Assignment..................................................................17
Counterparts................................................................17
Headings....................................................................18
<PAGE>
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CUSTODIAL AGREEMENT
CUSTODIAL AGREEMENT dated as of January 2, 1996 among INDUSTRY MORTGAGE
COMPANY, L.P., a Delaware limited partnership, having an address at 3450
Buschwood Park Drive, Suite 250 Tampa, Florida 33618 (the "Lender"), MORTGAGE
CENTRAL CORP. (d/b/a Equitystars), a Rhode Island corporation, having an address
at 25 Blackstone Valley Place, Lincoln, RI, 02865 (the "Borrower") and The First
National Bank of Boston, a national banking association, having an address at
100 Federal Street, Boston, Massachusetts 02110 (the "Custodian").
WHEREAS, the Borrower is either the owner of, or holder of a security
interest in, certain Mortgage Loans; and
WHEREAS, the Lender has agreed to provide interim financing for the
Mortgage Loans pursuant to the Loan and Security Agreement; and
WHEREAS, the Borrower, under the terms of the Loan and Security Agreement,
shall grant to the Lender a security interest in all of its right, title and
interest in the Mortgage Loans and in the documents related thereto for the
purposes of securing the due and punctual payment of all amounts due from the
Borrower to the Lender under the terms of the Loan and Security Agreement and
the Secured Note given pursuant thereto; and
WHEREAS, the Custodian is a financial institution regulated as a national
banking association; and
WHEREAS, the Borrower will deliver to the Custodian (i) the Mortgage Notes
for the Mortgage Loans and prior to the time of the Custodian's release of the
funds for the related Advance from the Custodian's Escrow Account, the Lender
desires that the Custodian take possession of such Mortgage Notes as the
custodian for, and bailee of, the Borrower, and after the time of the
Custodian's release of the funds for the related Advance, the Lender desires
that the Custodian take possession of such Mortgage Notes as the custodian for,
and bailee of, the Lender, in order to perfect the Lender's security interest in
such Mortgage Notes, (ii) certain other documents specified in this Agreement
after the time of the related Advance and the Lender desires that the Custodian
take possession of such other documents as custodian for, and bailee of, the
Lender in order to perfect Lender's security interest in such other documents,
in each case in accordance with the terms and conditions of this Agreement; and
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WHEREAS, the Custodian will release the funds for such Advance and
immediately transfer it to the Borrower's Account upon satisfaction of certain
conditions; and
WHEREAS, the Lender may from time to time pledge the Mortgage Loans and the
related Custodian's Mortgage Files in accordance with the terms and conditions
of this Agreement as collateral for such Pledgee Loans and desires to have the
Custodian act as bailee of, and agent for, the Pledgee of such Mortgage Loans
and the related Custodian's Mortgage Files in accordance with the terms and
conditions of this Agreement.
NOW, THEREFORE, the parties, intending to be legally bound, hereby agree as
follows:
1. Definitions. In addition to the terms defined elsewhere in this
Agreement or in the Loan and Security Agreement, the following terms shall have
the following meanings when used in this Agreement:
"Advance" means an Advance made pursuant to the Loan and Security
Agreement.
"Assignment of Mortgage" means an assignment of the Mortgage, notice of
transfer or equivalent instrument sufficient under the laws of the jurisdiction
wherein the related mortgaged property is located in form sufficient, when
recorded, to reflect of record the sale of the Mortgage to a third party.
"Borrower's Account" means an account in the name of Borrower with the
Custodian to which the funds for Advances may be transferred from the
Custodian's Escrow Account.
"Business Day" means any day other than a Saturday, Sunday or a day on
which banking institutions in New York City or Boston are authorized or
obligated by law or executive order to be closed.
"Certified Schedule of Mortgage Loans" means a schedule of the pledged
Mortgage Loans with respect to which an Advance will be made on any Closing
Date, which specifies the characteristics of such Mortgage Loans which is
countersigned by the Lender, and which sets forth as to each Mortgage Loan the
information called for by Exhibit 8 attached hereto.
"Custodian's Escrow Account" means an escrow account opened for the purpose
of holding the funds for the Advances until such time as all conditions set
forth for the release of such funds have been satisfied.
2
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"Custodian Mortgage File" means, with respect to a Mortgage Loan, those
documents listed in Section 3(b) of this Agreement that are delivered to the
Custodian prior to the release of the funds for an Advance and all documents
subsequently delivered to the Custodian pursuant to Section 3(c).
"Deficiency" means a failure of a document to correspond substantively to
the information on the Certified Schedule of Mortgage Loans or the absence of a
required document from a Custodian's Mortgage File.
"Loan and Security Agreement" means the Loan and Security Agreement dated
as of January 2, 1996 (as the same may be amended or supplemented from time to
time) between Lender and Borrower pursuant to which the Lender agrees to provide
interim funding to the Borrower secured by the Mortgage Loans. The Lender agrees
to furnish to the Custodian a copy of the Loan and Security Agreement including
any supplements or amendments thereto.
"Mortgage" means the mortgage, deed of trust or other instrument creating a
first or second lien on a property.
"Mortgage Loan" means an individual mortgage loan which is delivered to the
Custodian pursuant to this Agreement.
"Mortgage Note" means the note or other evidence of indebtedness evidencing
the indebtedness of a mortgagor under a Mortgage Loan.
"Notice of Default" means a notice of default delivered by a Pledgee to the
Custodian stating that a default by the Lender has occurred under a Security
Agreement.
"Notice of Pledge" means a notice of pledge of Mortgage Loans and related
Custodian's Mortgage Files held by the Custodian, substantially in the form of
Exhibit 5 to this Agreement.
"Person" means any association, business trust, company, corporation,
partnership, limited partnership, limited liability company, estate,
governmental authority, joint venture, natural person, trust or other entity.
"Pledged Mortgage Loans" means Lender's interest in the Secured Notes and
those Mortgage Loans and the related Custodian's Mortgage Files that are the
collateral for the Secure Note and that are the subject of a Notice of Pledge
delivered to the Custodian and not released pursuant to a Release of Pledge.
3
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"Pledge Register" means a written record, prepared and maintained by the
Custodian, indicating the existence of a lien in favor of a Pledgee with respect
to Pledged Mortgage Loans.
"Pledgee" means a Person to which Mortgage Loans and the related
Custodian's Mortgage Files have been pledged to secure a Pledgee Loan pursuant
to a Security Agreement.
"Pledgee Loan" means a loan made to the Lender to be secured by the Pledged
Mortgage Loans held by the Custodian.
"Release of Pledge" means a release of the security interest in, and lien
upon, Pledged Mortgage Loans, substantially in the form of Exhibit 6 to this
Agreement.
"Request for Release of Custodian's Mortgage Files by Pledgee" means a
request for release, appropriately completed, substantially in the form of
Exhibit 7 to this Agreement.
"Secured Note" shall have the meaning ascribed in the Loan and Security
Agreement.
"Security Agreement" means an agreement (which may be a separate agreement
or included in a credit, loan or other agreement, between the Lender and a
Pledgee pursuant to which the Lender assigns its interest in, and lien upon,
Pledged Mortgage Loans held by the Custodian to secure one or more Pledgee
Loans.
2. Custodian's Escrow Account. The Custodian shall establish the
Custodian's Escrow Account in the name of and under the sole control and
dominion of the Lender. The Lender shall from time to time deposit funds in the
Custodian's Escrow Account which shall be disbursed by the Custodian according
to this Agreement, or pursuant to any other instructions given to the Custodian
by the Lender from time to time.
3. Delivery of Custodian's Mortgage Files. (a) The Borrower hereby
certifies and will be deemed to certify that, prior to the Custodian's release
of the funds for any Advance, (A) it has delivered to the Custodian as custodian
for, and bailee of, the Borrower, and (B) that, at such time as the Custodian
has released the funds for the related Advance and transferred such funds to the
Borrower's Account, it has released to the Custodian as custodian for, and
bailee of, the Lender, Mortgage Notes pertaining to each of the Mortgage Loans
identified in the related Certified Schedule of Mortgage Loans, a copy of which
Certified Schedule of Mortgage Loans shall be provided to the Custodian by the
Borrower.
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(b) With respect to each Mortgage Loan, the Borrower shall deliver, within
three Business Days from the Closing Date for the Advance relating to the such
Mortgage Loan, and hereby certifies and will be deemed to certify as to any
Mortgage Note that it has delivered to the Custodian as custodian for, and
bailee of, the Lender, the following documents:
(i) (x) The original Mortgage Note, with any intervening endorsements,
endorsed in blank and signed, by facsimile or manual signature, in the name
of the Borrower (the "Pledgor"), by a responsible officer thereof, with all
prior and intervening endorsements showing a complete chain of endorsement
from the originator to the Pledgor, if the Pledgor was not the originator
and, (y) with respect to manufactured housing units, the certificate of
title, if any;
(ii) Either: (x) the original Mortgage, with evidence of recording
thereon, (y) a copy of the Mortgage certified as a true copy by a
responsible officer of the Pledgor or by the closing attorney, or by an
officer of the title insurer or agent of the title insurer which issued the
related title insurance policy, or commitment therefor or, if the original
has been transmitted for recording until such time as the original is
returned by the public recording office or (z) a copy of the Mortgage
certified by the public recording office in those instances where the
original recorded Mortgage has been lost;
(iii) The original Assignment of the Mortgage in recordable form (but
not recorded) from the Pledgor in blank;
(iv) The original policy of title insurance or a true copy thereof or,
if such policy has not yet been delivered by the insurer, a true copy,
certified as to accuracy and completeness, of the commitment or binder to
issue same;
(v) All intervening assignments, if any, showing a complete chain of
assignment from the originator to the Pledgor, including any recorded
warehousing assignments, with evidence of the recording thereon, certified
by a responsible officer of the Pledgor as a true copy of the original of
such intervening assignments;
(vi) A copy of all assumption and modification agreements, if any,
certified as a true copy by a responsible officer of the Pledgor;
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(vii) In the event that the Mortgage Loan was acquired by the Pledgor
in a merger, the Reassignment of the Assignment of Beneficial Interest must
be by "[Pledgor], successor by merger to [name of predecessor]", and in the
event that the Mortgage Loan was acquired or originated by the Pledgor
while doing business under another name, the Reassignment of Assignment of
Beneficial Interest must be by "[Pledgor], formerly known as [previous
name]."
The Custodian shall be entitled to rely upon each Certified Schedule of
Mortgage Loans provided by the Borrower as the conclusive schedule in its
review, pursuant to Sections 4 and 18(b) hereof, of the Custodian's Mortgage
Files. From time to time, the Borrower shall forward to the Custodian for
inclusion in the appropriate Custodian's Mortgage File any additional original
loan documents evidencing any assumption or modification of a Mortgage Loan
approved by the Borrower.
(c) The Borrower, the Lender and the Custodian may from time to time agree
in writing to alternative delivery procedures with respect to any particular
Mortgage Loans.
4. Certification. (a) Within three hours after the delivery to the
Custodian of the Mortgage Notes (or within such shorter period of time as the
Custodian shall agree) but in any case prior to the Custodian's release of the
funds for the related Advance, the Custodian shall deliver to the Lender and the
Borrower a certificate (the "Initial Certification"), in substantially the form
annexed as Exhibit 1, to the effect that, as to each Mortgage Loan listed on the
related Certified Schedule of Mortgage Loans attached to such Initial
Certification (other than any Mortgage Loan paid in full or any Mortgaged Loan
specifically identified in such certification as not covered by such
certification), based on its examination of the related Mortgage Notes, the
information set forth in the Certified Schedule of Mortgage Loans respecting
such Mortgage Loans accurately reflects the information set forth in such
Mortgage Notes.
(b) Within five (5) Business Days after the delivery to the Custodian of
the Custodian's Mortgage Files (or within such shorter period of time as the
Custodian shall agree) but in any case within 22 Business Days after the Closing
Date, provided the Custodian's Mortgage Files have been delivered to the
Custodian, the Custodian shall deliver to the Lender and the Borrower a
certificate (the "Final Certification"), in substantially the form annexed as
Exhibit 2, to the effect that, as to each Mortgage Loan listed on the related
Certified Schedule of Mortgage Loans attached to such Final Certification (other
than any Mortgage Loan paid in full or any Mortgage Loan specifically identified
in such certification as not covered by such certification), (i) all
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documents required to be delivered to it pursuant to Section 3 of this Agreement
are in its possession (other than those described in Section 3(b)(i)(y) and
3(b)(vi)), (ii) such documents have been reviewed by it and have not been
mutilated, damaged, torn or otherwise physically altered (handwritten additions,
changes or corrections shall not constitute physical alteration if initialled by
the mortgagor) and relate to such Mortgage Loan, and (iii) based on its
examination of the related Mortgage Note, the information set forth on the
Certified Schedule of Mortgage Loans (other than items (i), (iv), (x) and
(xiii)) accurately reflects the information set forth in the Custodian's
Mortgage File. The Custodian shall be under no duty or obligation to inspect,
review or examine any such documents, instruments, certificates or other papers
to determine that they are valid, genuine, enforceable, in recordable form,
legal, sufficient or appropriate for the represented purpose or that they are
other than what they purport to be on their face or to determine whether any
Mortgage File should include any of the documents listed in Section 3(b)(vi)
hereunder.
(c) The Borrower, the Lender and the Custodian may from time to time agree
in writing to alternative certification procedures with respect to any
particular Mortgage Loans.
5. Deficiencies in Custodian's Mortgage Files. (a) If the Initial
Certification discloses discrepancies between the information set forth on the
Certified Schedule of Mortgage Loans and a Mortgage Note, then the Lender shall
promptly notify the Custodian that either (1) such Mortgage Note is to be deemed
deleted from the related Certified Schedule of Mortgage Loans and the
Custodian's Mortgage Loan file relating to the deficient Mortgage Loan shall be
returned to the Borrower by the Custodian or (2) the entire Certified Schedule
of Mortgage Loans is to be deemed "defective" and all Mortgage Notes received by
the Custodian shall be returned to the Borrower by the Custodian.
(b) If the Final Certification discloses that any of the documents
enumerated in Section 3 are missing or discloses any Deficiencies in the
documents included in any Custodian's Mortgage Files, then the Lender shall
promptly notify the Custodian that either (1) the Borrower shall deliver within
five (5) Business Days the missing documents noted in the Final Certification to
the Custodian, (2) the Lender has waived the Deficiencies noted in the
Certification, (3) the Borrower shall cure the Deficiencies within five (5)
Business Days, or (4) the Borrower shall substitute another Mortgage Loan for
the deficient Mortgage Loan and shall deliver to the Custodian the Custodian's
Mortgage File with respect to the substituted Mortgage Loan.
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(c) If the Lender's notice states that the Borrower shall take any of the
actions specified in clauses (1) or (3) of subsection (b) above and the Borrower
fails to take such actions within five (5) Business Days after the Custodian's
receipt of such notice, then the Custodian shall notify the Lender and the
Borrower of such failure and release or retain the deficient Mortgage Note or
Custodian's Mortgage File, as the case may be, in accordance with the written
instructions of the Lender.
(d) If the Lender's notice states that the Borrower shall take the actions
specified in clause (4) of subsection (b) above, then the Custodian shall return
the deficient Mortgage Note or Custodian's Mortgage File, as the case may be,
to the Borrower upon receipt of the Mortgage Note or Custodian's Mortgage File,
as the case may be, to be substituted therefor. If the Borrower fails to deliver
the substituted Mortgage Note or Custodian's Mortgage File, as the case may be,
to the Custodian within five (5) Business Days after the Custodian's receipt of
such notice, then the Custodian shall notify the Lender and the Borrower of such
failure and release or return the Mortgage Note or Custodian's Mortgage File, as
the case may be, in accordance with the written instructions of the Lender.
(e) Within five (5) Business Days after receipt by the Custodian of any
additional documents pursuant to Section 5(b)(4), the Custodian shall review
such documents and deliver to the Lender and the Borrower a revised Final
Certification. If the revised Final Certification shall indicate any remaining
deficiencies in a Custodian's Mortgage File, the provisions of this Section 5
shall again be followed.
6. Pledge of Mortgage Loans. (a) The Custodian hereby agrees to recognize
and record on the Pledge Register a pledge of Mortgage Loans and the related
Custodian's Mortgage Files to a Pledgee in accordance with the provisions of a
Notice of Pledge delivered to the Custodian by the Lender. Upon its receipt of a
Notice of Pledge, the Custodian shall reflect on the Pledge Register that the
Pledgee identified in the Notice of Pledge is the pledgee of the Pledged
Mortgage Loans that are the subject of the Notice of Pledge. The Borrower hereby
consents to any such pledge.
(b) Upon receipt by the Custodian of a Notice of Default and a Request for
Release of Custodian's Mortgage Files by Pledgee, the Custodian shall as
promptly as practicable notify Borrower thereof and within five (5) Business
Days thereafter, deliver to the person designated by such Pledgee the
Custodian's Mortgage Files relating to the Pledged Mortgage Loans specified in
such Request and record
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such release on the Certified Schedule of Mortgage Loans and the Pledge
Register.
(c) Upon receipt by the Custodian of a Release of Pledge from a Pledgee,
the Custodian shall reflect on the Pledge Register, to the extent that the
Custodian then has in its possession the related Custodian's Mortgage Files,
that the Mortgage Loans that are the subject of the Release of Pledge are no
longer subject to lien.
7. Obligations of the Custodian. (a) The Custodian shall open and maintain
the Custodian's Escrow Account and shall maintain statements relating to the
Custodian's Escrow Account reflecting the funding and release of each Advance.
(b) The Custodian shall segregate and maintain continuous custody of the
Custodian's Mortgage Files in secure facilities in accordance with customary
standards for such custody. The Mortgage Note (and Assignment of Mortgage) shall
be maintained in fireproof facilities.
(c) With respect to any Advance, the Custodian shall transfer the related
funds for such Advance to the Borrower's Account in the amount specified on the
related Certified Schedule of Mortgage Loans (less the aggregate principal
balance of any Mortgage Notes deemed to be deleted pursuant to clause (1) of
Section 4(a), above) within one hour of the satisfaction of the following
conditions:
(i) receipt from the Lender of the Certified Schedule of Mortgage Loans;
(ii) deposit by the Lender into the Custodian's Escrow Account of the funds
for the Advances related to such Certified Schedule of Mortgage Loans;
(iii)receipt of the Mortgage Notes listed on such Certified Schedule of
Mortgage Loans;
(iv) completion by the Custodian of the Initial Certification and delivery
by the Custodian to the Lender of the competed Initial Certification;
and
(v) acknowledgement of Lender of receipt of the Initial Certification.
(d) With respect to the Mortgage Note and the other documents constituting
each Custodian's Mortgage File, unless there shall be in effect a Notice of
Pledge delivered to the Custodian with respect to such Custodian's Mortgage
File, the
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Custodian shall (i) act exclusively as the custodian for, and the bailee of,
prior to the time of the release of the related Advance, the Borrower, and
thereafter, the Lender, (ii) hold all documents constituting such Custodian's
Mortgage File received by it for the exclusive use and benefit of, prior to the
time of the release of the funds for the related Advance, the Borrower, and
thereafter, the Lender, and (iii) make disposition thereof only in accordance
with the terms of this Agreement or with written instructions furnished by,
prior to the time of the release of the related Advance, the Borrower, and
thereafter, the Lender.
Upon delivery to the Custodian of Notice of Pledge, the Custodian shall
thereafter hold the Custodian's Mortgage Files that are the subject of such
Notice of Pledge as bailee of, and agent for, the Pledgee identified in such
Notice until (a) the Custodian receives from the Pledgee a Release of Pledge
with respect to such Custodian's Mortgage Files or (b) the related Custodian's
Mortgage Files are released or transferred pursuant to the provisions of this
Agreement. Upon delivery to the Custodian of a Notice of Pledge and until
receipt of a Release of Pledge by the Custodian, the Lender's interest in the
Pledged Mortgage Loans shall be subject and subordinate to the interest and
rights of the Pledgee of such Pledged Mortgage Loans, and the Custodian shall
make disposition of the related Custodian's Mortgage Files only in accordance
with the terms of this Agreement or with written instructions furnished by the
Pledgee in accordance with Section 6(b) of this Agreement.
(e) The Lender, upon the release of the Mortgage Loans from the lien of the
Loan and Security Agreement, shall notify the Custodian in writing with respect
to such release, and the Custodian shall then deliver the Mortgage Loans to the
Borrower or the Borrower's designee. No such notice shall be effective as to
Pledged Mortgage Loans unless the Pledgee of such Pledged Mortgage Loans shall
consent to such release in a Release of Pledge delivered to the Custodian;
provided, however, that Pledgee will give such consent if Borrower has the right
to obtain such release under the Loan and Security Agreement.
(f) In the event that (i) the Lender, the Borrower, a Pledgee or the
Custodian shall be served by a third party with any type of levy, attachment,
writ or court order with respect to any Custodian's Mortgage File or a document
included within a Custodian's Mortgage File or (ii) a third party shall
institute any court proceeding by which any Custodian's Mortgage File or a
document included within a Custodian's Mortgage File shall be required to be
delivered otherwise than in accordance with the provisions of this Agreement,
the party receiving such service shall promptly deliver or cause to be delivered
to the other parties to this
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Agreement and any Pledgees that have an interest in the related Mortgage Loans
copies of all court papers, orders, documents and other materials concerning
such proceedings. The Custodian shall continue to hold and maintain all
Custodian's Mortgage Files that are the subject of such proceedings pending a
final order of a court of competent jurisdiction permitting or directing
disposition thereof. Upon final determination of such court, the Custodian shall
dispose of such Custodian's Mortgage File or a document included within such
Custodian's Mortgage File as directed by such determination or, if no such
determination is made, in accordance with the provisions of this Agreement.
Reasonable expenses of the Custodian incurred as a result of such proceedings
shall be borne by the Borrower.
8. Release of Custodian's Mortgage File. From time to time and as
appropriate for the foreclosure or servicing of any of the Mortgage Loans, the
Custodian is hereby authorized upon receipt of a written request and receipt
provided by the Borrower acknowledged by the Lender and, if a pledge is then in
effect, the Pledgee in substantially the form annexed as Exhibit 3 (a "Request
for Release and Receipt of Documents"), to release to the Borrower within two
(2) Business Days, the related Custodian's Mortgage File or the documents from a
Custodian's Mortgage File set forth in such Request and Receipt of Documents.
All documents so released to the Borrower shall be held by the Borrower in trust
for the benefit of the Lender (and, if a Notice of Pledge is then in effect with
respect to such Custodian's Mortgage File, such Pledgee, as its interest may
appear) in accordance with the Loan and Security Agreement. The Borrower shall
return to the Custodian each and every document previously requested from the
Custodian's Mortgage File when the Borrower's need therefor in connection with
such foreclosure or servicing no longer exists, unless the Mortgage Loan shall
be liquidated, in which case, upon receipt of a certification to this effect
from the Borrower to the Custodian in substantially the form annexed as Exhibit
3, the Borrower's prior receipt shall be returned by the Custodian to the
Borrower. The Lender and any pledgee, as the case may be, agrees to acknowledge,
within five (5) Business Days of receipt, any Request for Release and Receipt of
Documents properly completed and submitted by the Borrower, and not unreasonably
to withhold any such acknowledgment.
9. Release Upon Redelivery or Payment. Upon the payment in full of any
Mortgage Loan, which shall be evidenced by the delivery to the Custodian of the
Borrower's Request for Release and Receipt of Documents in substantially the
form annexed as Exhibit 3, the Custodian shall promptly release the related
Custodian's Mortgage File to the Borrower.
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10. Fees and Expenses of the Custodian. It is understood that the Custodian
shall be entitled to charge fees and receive reimbursement for expenses under
this Agreement from the Borrower and such fees and expenses shall be the sole
obligation of the Borrower. Such agreed upon fees and expenses shall initially
be as set forth in the separate fee letter submitted by the Custodian to the
Borrower dated January 2, 1996.
11. Examination of the Custodian's Mortgage Files. Upon reasonable prior
written notice to the Custodian, (a) the Lender or the Borrower and their
respective authorized representatives and (b) if a Notice of Pledge is then in
effect, the Pledgee and its authorized representatives, will be permitted during
normal business hours to examine the Custodian's Mortgage Files, documents,
records and other papers in the possession, or under the control, of the
Custodian relating to any of all of the Mortgage Loans (except that, in the case
of an examination by a Pledgee, access shall be limited to those Custodian's
Mortgage Files that are pledged to such Pledgee). Any expenses incurred by
Custodian in connection with such examination shall be borne by the party making
the request.
12. Transfer of Custodian's Mortgage Files Upon termination. If (a) the
Custodian is furnished with written notice and satisfactory evidence from the
Lender that the Loan and Security Agreement has been terminated as to any or all
of the Mortgage Loans, and (b) there shall not then be in effect a Notice of
Pledge delivered to the Custodian with respect to such Mortgage Loans, the
Custodian shall, upon written request of the Lender, release to such persons as
the Lender shall designate such Custodian's Mortgage Files relating to such
Mortgage Loans as the Lender shall request. If, however, a Notice of Pledge is
then in effect with respect to any pledged Mortgage Loans, the rights of the
Lender under this Section 12 shall be exercisable only by the Pledgee with
respect to such Pledged Mortgage Loans.
13. Insurance of the Custodian. The Custodian shall, at its own expense,
maintain at all times during the term of this Agreement and keep in full force
and effect (a) fidelity insurance, (b) theft of documents insurance, and (c)
forgery insurance. All such insurance shall be in amounts, with standard
coverage and subject to deductibles, as are customary for similar insurance
typically maintained by banks that act as custodian in similar transactions.
14. Periodic Statements. Within 30 days after the written request of the
Lender or a Pledgee, if there shall then be in effect a Notice of Pledge at any
other time, the Custodian shall provide to the Lender and such Pledgee a list of
all the Mortgage Loans for which the Custodian holds a
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Custodian's Mortgage File pursuant to this Agreement (except that, in the case
of a Pledgee, the list shall be limited to the Pledged Mortgage Loans pledged to
such Pledgee). Such list may be in the form of a copy of all Certified Schedule
of Mortgage Loans with manual deletions to specifically denote any Mortgage
Loans paid off, liquidated, released or redelivered since the date of this
Agreement.
15. Copies of Mortgage Documents. Within five (5) Business Days after the
written request and at the expense of the Lender, or a Pledgee, with respect to
Pledged Mortgage Loans, the Custodian shall provide the Lender or the Pledgee,
as the case may be, with copies of the documents in the Custodian's Mortgage
Files (except that, in the case of a Pledgee, the documents shall be limited to
those related to the Pledged Mortgage Loans pledged to such Pledgee).
16. Resignation by and Removal of the Custodian; Successor Custodian. (a)
The Custodian may at any time resign and terminate its obligations under this
Agreement upon at least 60 days prior written notice to the Borrower, the Lender
and each Pledgee, if any. Promptly after receipt of notice of the Custodian's
resignation, the Borrower shall appoint, by written instrument, a successor
custodian, subject to written approval by the Lender. If the Borrower fails to
appoint a successor within 30 days, the Lender shall appoint a successor
custodian. If both the Borrower and the Lender fail to appoint a successor
custodian pursuant to the terms hereof, the Custodian may petition a court of
competent jurisdiction to appoint a successor custodian. One original
counterpart of such instrument of appointment shall be delivered to each of the
Borrower, the Custodian and the successor custodian. The Lender shall give
written notice of such appointment to each Pledgee.
(b) The Lender, with or without cause, upon at least 60 days written notice
to the Custodian, may remove and discharge the Custodian (or any successor
custodian thereafter appointed) from the performance of its obligations under
this Agreement. A copy of such notice shall be delivered to the Borrower and
each Pledgee, if any. Promptly after the giving of notice of removal of the
Custodian, the Lender shall appoint, by written instrument, a successor
custodian. One original counterpart of such instrument of appointment shall be
delivered to each of the Borrower, the Custodian and the successor custodian.
The Borrower shall give written notice of such appointment to each Pledgee.
(c) In the event of any such resignation or removal, the custodian shall
promptly transfer to the successor custodian, without recourse or warranty of
any kind, as directed in writing by the Lender, all the Custodian's Mortgage
Files being administered under this Agreement, and to
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the extent (if any) and in the manner directed by the Lender, the Custodian
shall complete the endorsements on the Mortgage Notes.
17. Indemnity. The Borrower and the Lender, acting severally, each agree to
indemnify and hold harmless the Custodian against any and all claims, losses,
liabilities or expenses (including, but not limited to, reasonable attorneys'
fees, court costs and costs of investigation) of any kind or nature whatsoever
arising out of its actions in connection with this Agreement that may be imposed
upon, incurred by or asserted against the Custodian; provided, however, that
this Section shall not relieve the Custodian from liability for its willful
misfeasance, bad faith or gross negligence. The Custodian hereby acknowledges
that if it, in bad faith, fails to follow the express terms of this Agreement
which results in a loss or liability to the Lender or the Borrower, that shall
be deemed to constitute gross negligence on the part of the Custodian hereunder
except insofar as any such failure may be excused (a) by the provisions of
Section 18 hereof or (b) by the need for the Custodian to follow any contrary
orders or instructions received by it from any court having jurisdiction,
federal or state banking authorities or other governmental or regulatory bodies
having jurisdiction over the Custodian. The provisions of this Section 17 shall
survive the resignation or removal of the Custodian and the termination of this
Agreement.
18. Limitation of Liability. (a) The Custodian shall not be liable to the
Borrower or the Lender, any Pledgee or any other Person with respect to any
action taken or not taken by it in good faith in the performance of its
obligations under this Agreement. The obligations of the Custodian shall be
determined solely by the express provisions of this Agreement. No
representation, warranty, covenant, agreement, obligation or duty of the
Custodian shall be implied with respect to this Agreement or the Custodian's
services hereunder.
(b) In the Custodian's review of documents pursuant to Section 4 of this
Agreement, the Custodian shall be under no duty or obligation to inspect, review
or examine the Custodian's Mortgage Files to determine that the contents thereof
are genuine, enforceable or appropriate for the represented purpose or that they
have been actually recorded or are in recordable form or that they are other
than what they purport to be on their face.
(c) The Custodian may rely, and shall be protected in acting or refraining
to act, upon and need not verify the accuracy of, (i) any oral instructions from
any persons the Custodian believes to be authorized to give such instructions,
who shall only be, with respect to the Borrower and to the
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Lender, persons the Custodian believes in good faith to be Authorized
Representatives (as defined in Section 20 hereof), and (ii) any written
instruction, notice, order, request, direction, certificate, opinion or other
instrument or document believed by the Custodian to be genuine and to have been
signed and presented by the proper party or parties, which, with respect to the
Borrower and to the Lender, shall mean signature and presentation by Authorized
Representatives whether such presentation is by personal delivery, express
delivery or facsimile.
(d) The Custodian may consult with counsel nationally recognized in the
area of commercial transactions and reasonably acceptable to the Lender with
regard to legal questions arising out of or in connection with this Agreement,
and the advice or opinion of such counsel shall be full and complete
authorization and protection in respect of any action taken, omitted or suffered
by the Custodian in reasonable reliance, in good faith, and in accordance
therewith; provided, however, that if the Lender (i) gives instructions to the
Custodian or (ii) provides an opinion of counsel selected by the Lender, which
in either case conflict with any such advice or opinion of counsel, then the
Custodian shall follow such instructions of the Lender or such opinion of
counsel selected by the Lender, and shall be fully protected in acting or
refraining to act thereon.
(e) No provision of this Agreement shall require the Custodian to expend or
risk its own funds or otherwise incur financial liability in the performance of
its duties under this Agreement if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity is not reasonably
assured to it.
(f) The Custodian shall not be responsible or liable for, and makes no
representation or warranty with respect to, the validity, adequacy or perfection
of any lien upon, or security interest in, any Mortgage Loans or Custodian's
Mortgage Files purported to be granted at any time to the Lender or a Pledgee.
19. Term of Agreement. This Agreement shall be terminated upon the later of
(a) the final payment or other liquidation (or advance with respect thereto) of
the last Mortgage Loan in the Custodian's Mortgage Files, (b) the disposition of
all property acquired upon foreclosure or deed in lieu of foreclosure of any
Mortgage Loan in the Custodian's Mortgage Files, (c) the final remittance of all
funds due the Lender under the Loan and Security Agreement on the Maturity Date
or (d) the delivery to a Pledgee or its designee of all of the Custodian's
Mortgage Files following a Notice of Default.
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If any of the circumstances described in clause (a), (b) or (c) of this
section shall occur, promptly after written notice from both the Borrower and
the Lender to the Custodian to such effect, all documents remaining in the
Custodian's Mortgage Files shall be delivered to the Borrower.
20. Authorized Representatives. The names of the officers or
representatives of the Borrower and of the Lender who are authorized to give and
receive notices, requests and instructions and to deliver certificates and
documents in connection with this Agreement on behalf of Borrower and on behalf
of the Lender ("Authorized Representatives") are set forth on Exhibit 4, along
with the specimen signature of each such officer. From time to time, the
Borrower and the Lender may, by delivering to the Custodian a revised exhibit,
change the information previously given, but the Custodian shall be entitled to
rely conclusively on the last exhibit until receipt of a superseding exhibit.
21. Notices. All demands, notices and communications relating to this
Agreement shall be in writing and shall be deeded to have duly given when
received by the other party or parties at the address shown below, whether by
personal delivery, express delivery or facsimile, or such other address as may
hereafter be furnished to the other party or parties by like notice. Any such
demand, notice or communication hereunder shall be deemed to have been received
on the date delivered to or received at the premises of the addressee.
If to the Borrower:
Mortgage Central Corp. (d/b/a Equitystars)
25 Blackstone Valley Place
Lincoln, RI 02865
Attention: Mr. David B. MacDonald
Phone Number: (800) 872-0800
Fax Number: (401) 334-4029
If to the Custodian:
The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Attention: David Hall
Phone Number: (617) 575-3101
Fax Number: (617) 575-2011
16
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<PAGE>
If to the Lender:
Industry Mortgage Company, L.P.
3450 Buschwood Park Drive
Suite 250
Tampa, Florida 33618
Attention: George Nicholas
Phone Number: (813) 932-2211
Fax Number: (813) 932-8257
If to any Pledgee:
[At the address specified in
the applicable Notice of Pledge.]
22. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to conflict
of laws rules applied in the State of New York.
23. Consent to Service; Submission to Jurisdiction; Waiver of Trial by
Jury. Each party irrevocably consents to the service of process by registered or
certified mail, postage prepaid, to it at its address given pursuant to Section
21 hereof. With respect to any claim arising out of this Agreement each party
irrevocably submits to the exclusive jurisdiction of the courts of the State of
New York and the United States District Court located in the Borough of
Manhattan, City of New York and each party irrevocably waives any objection
which it may have at any time to the laying of venue of any suit, action or
proceeding arising out of or relating hereto brought in any such court,
irrevocably waives any claim that any such suit, action or proceeding brought in
any such court has been brought in any inconvenient forum and further
irrevocably waives the right to object, with respect to such claim, suit, action
or proceeding brought in any such court, that such court does not have
jurisdiction over such party, provided that service of process is made as set
forth in this Section 23 hereof, or by any other lawful means. To the extent
permitted by applicable law, each party irrevocably waives all right of trial by
jury in any action, proceeding or counterclaim arising out of or in connection
with this Agreement or any matter arising hereunder.
24. Assignment. No party to this Agreement may assign its rights or
delegate its obligations under this Agreement without the express written
consent of the other parties, except as otherwise set forth in this Agreement.
25. Counterparts. For the purposes of facilitating the execution of this
Agreement and for other purposes, this Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deeded to be an original.
17
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to hereunto set their hand as of the day and year first above
written.
MORTGAGE CENTRAL CORP. (d/b/a
Equitystars),
a Rhode Island Corporation
(Borrower)
By: /s/ David B. MacDonald
----------------------------------
Name: Mr. David B. MacDonald
Title: President
THE FIRST NATIONAL BANK OF BOSTON
(Custodian)
By: ________________________________
Name:
Title:
INDUSTRY MORTGAGE COMPANY, L.P.
(Lender)
By: Industry Mortgage Corporation,
its General Partner
By: __________________________________
Name: George Nicholas
Title: Chairman of the Board and
Chief Executive Officer
19
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to hereunto set their hand as of the day and year first above
written.
MORTGAGE CENTRAL CORP. (d/b/a
Equitystars),
a Rhode Island Corporation
(Borrower)
By: _______________________________
Name: Mr. David B. MacDonald
Title: President
THE FIRST NATIONAL BANK OF BOSTON
(Custodian)
By: ________________________________
Name:
Title:
INDUSTRY MORTGAGE COMPANY, L.P.
(Lender)
By: Industry Mortgage Corporation,
its General Partner
By: /s/ George Nicholas
----------------------------------
Name: George Nicholas
Title: Chairman of the Board and
Chief Executive Officer
19
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to hereunto set their hand as of the day and year first above
written.
MORTGAGE CENTRAL CORP. (d/b/a
Equitystars),
a Rhode Island Corporation
(Borrower)
By: /s/ David B. MacDonald
----------------------------------
Name: Mr. David B. MacDonald
Title: President
THE FIRST NATIONAL BANK OF BOSTON
(Custodian)
By: /s/ David Hall
----------------------------------
Name: David Hall
Title: Sen. Manager
INDUSTRY MORTGAGE COMPANY, L.P.
(Lender)
By: Industry Mortgage Corporation,
its General Partner
By: __________________________________
Name: George Nicholas
Title: Chairman of the Board and
Chief Executive Officer
19
<PAGE>
<PAGE>
EXHIBIT 1
Aggregate Principal Balance No.______
of the Mortgage Loans on the
Certified Schedule of Mortgage Loans dated:
_______________, ____, 199____: $_________________
Initial Certification
Industry Mortgage Company, L.P.
3450 Buschwood Park Drive, Suite 250
Tampa, Florida 33618
Attention: George Nicholas
Re: Custodial Agreement (the "Custodial Agree-
ment") dated as of January 2, 1996, among
Industry Mortgage Company, L.P., Mortgage
Central Corp., and The First National Bank of
Boston
Gentlemen:
In accordance with the provisions of Section 4(a) of the Custodial
Agreement, the undersigned, as Custodian, hereby certifies that, as to each
Mortgage Loan listed in the Certified Schedule of Mortgage Loans dated
______________, ____, 199____ (other than any Mortgage Loan paid in full or any
Mortgage Loan listed on the attachment hereto), it has reviewed the documents
delivered to it pursuant to Section 3(b) of the Custodial Agreement and has
determined that (i) based on its examination of the related Mortgage Notes, the
information set forth in the Certified Schedule of Mortgage Loans respecting
such Mortgage Loans accurately reflects the information set forth in such
Mortgage Notes, and (ii) each Mortgage Note has been endorsed as provided in
Section 3(c) of the Custodial Agreement. The Custodian has made no independent
examination of such documents beyond the review specifically required in the
above-referenced Custodial Agreement. The Custodian makes no representations as
to: (i) the validity, legality, sufficiency, enforceability or genuineness of
any Mortgage Note or any of the Mortgage Loans identified on the Certified
Schedule of Mortgage Loans, or (ii) the collectability, insurability,
effectiveness or suitability of any such Mortgage Loan.
1-1
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<PAGE>
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the above-captioned Custodial Agreement.
THE FIRST NATIONAL BANK OF BOSTON,
as Custodian
By: _______________________________
Print Name: ___________________
Title: ________________________
1-2
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<PAGE>
EXHIBIT 2
Aggregate Principal Balance No.______
of the Mortgage Loans on the
Certified Schedule of Mortgage Loans dated:
_______________, ____, 199____: $_________________
Final Certification
Industry Mortgage Company, L.P.
3450 Buschwood Park Drive, Suite 250
Tampa, Florida 33618
Attention: George Nicholas
Re: Custodial Agreement (the "Custodial
Agreement") dated as of January 2, 1996,
among Industry Mortgage Company, L.P.,
Mortgage Central Corp., and The First
National Bank of Boston
Gentlemen:
In accordance with the provisions of Section 4(b) of the Custodial
Agreement, the undersigned, as Custodian, hereby certifies that, as to each
Mortgage Loan listed in the Certified Schedule of Mortgage Loans dated
______________, ____, 199____ (other than any Mortgage Loan paid in full or any
Mortgage Loan listed on the attachment hereto), it has reviewed the documents
delivered to it pursuant to Section 3 of the Custodial Agreement and has
determined that (i) all such documents are in its possession (other than those
described in Section 3(c)(i)(y) and Section 3(c)(vi)), (ii) such documents have
been reviewed by it and have not been mutilated, damaged, torn or otherwise
physically altered and relate to such Mortgage Loan, (iii) based on its
examination, and only as to the foregoing documents, the information set forth
in the Certified Schedule of Mortgage Loans (other than items (i), (iv), (x) and
(xiii)) respecting such Mortgage Loan accurately reflects the information set
forth in the Custodian's Mortgage File and (iv) each Mortgage Note has been
endorsed as provided in Section 3 of the Custodial Agreement. The Custodian has
made no independent examination of such documents beyond the review specifically
required in the above-referenced Custodial Agreement. The Custodian makes no
representations as to: (i) the validity, legality, sufficiency, recordability,
enforceability or genuineness of any such documents contained in each or any of
the Mortgage Loans identified on the Certified Schedule of Mortgage Loans, or
(ii) the collectability, insurability, effectiveness or suitability of any such
Mortgage Loan.
2-1
<PAGE>
<PAGE>
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the above-captioned Custodial Agreement.
THE FIRST NATIONAL BANK OF BOSTON,
as Custodian
By: _______________________________
Print Name: ___________________
Title: ________________________
2-2
<PAGE>
<PAGE>
EXHIBIT 3
REQUEST FOR RELEASE AND RECEIPT OF DOCUMENTS
To: The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Re: Custodian Agreement (the "Custodial
Agreement") dated as of January 2, 1996,
among Industry Mortgage Company, L.P.,
Mortgage Central Corp., and
The First National Bank of Boston
In connection with the administration of the Mortgage Loans held by you as
the Custodian for the Lender, we request the release, and acknowledge receipt,
of the (Custodian's Mortgage File/specify documents) for the Mortgage Loan
described below, for the reason indicated.
Mortgagor's Name Address & Zip Code:
Mortgage Loan Number:
Reason for Requesting Documents (Check one)
_______ 1. Mortgage Loan Paid in Full
_______ 2. Mortgage Loan Redelivered Pursuant to
Section 9 of the Custodial Agreement
_______ 3. Mortgage Loan Liquidated by _____________
_______ 4. Mortgage Loan in Foreclosure
_______ 5. Mortgage Loan substituted with alternate Mortgage Loan to be
delivered to the Custodian with a revised Mortgage Schedule
indicating substitutions
_______ 6. Other (explain) _________________________________________
If Item 1, 2, 3, or 5 above is checked, and if all or part of the Custodian's
Mortgage File was previously released to us, please release to us our previous
receipt on file with you,
3-1
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<PAGE>
as well as any additional documents in your possession, relating to the above
specified Mortgage Loan.
If Item 4 or 6 above is checked, upon our return of all of the above documents
to you as the Custodian, please acknowledge your receipt by signing in the space
indicated below, and returning this form.
MORTGAGE CENTRAL CORP., a
Rhode Island corporation
(Borrower)
By:___________________________
Print Name: _______________
Title:_____________________
Date:______________________
ACKNOWLEDGED
INDUSTRY MORTGAGE COMPANY, L.P.
(Lender)
By: Industry Mortgage Corporation,
General Partner
By: _______________________________
Name: George Nicholas
Title: Chief Executive Officer
Date: ________________________
__________________________________
[PLEDGEE]
By: _______________________________
Name:__________________________
Title:_________________________
Date:__________________________
DOCUMENTS RETURNED TO THE CUSTODIAN:
THE FIRST NATIONAL BANK OF BOSTON
Custodian
By: _______________________________
Print Name:____________________
Title:_________________________
Date:__________________________
3-2
<PAGE>
<PAGE>
EXHIBIT 4
Authorized Representatives
a) of Mortgage Central Corp.
Name Specimen Signatures
1. David B. MacDonald /s/ David B. MacDonald
----------------------------
2. Glenn Tourtellot /s/ Glenn Tourtellot
----------------------------
3. Michael Derderian /s/ Michael Derderian
----------------------------
4.
----------------------------
5.
----------------------------
6.
----------------------------
b) of Industry Mortgage Company, L.P.
Name Specimen Signatures
1. George Nicholas
----------------------------
2. Thomas G. Middleton
----------------------------
3. Phyllis A. Blair
----------------------------
4. Timothy W. Griffin
----------------------------
5. Susan W. McCarthy
----------------------------
6. David B. MacDonald /s/ David B. MacDonald
----------------------------
7. Glenn Tourtellot /s/ Glenn Tourtellot
----------------------------
8. Michael Derderian /s/ Michael Derderian
----------------------------
4-1
<PAGE>
<PAGE>
EXHIBIT 4
Authorized Representatives
a) of Mortgage Central Corp.
Name Specimen Signatures
1. David B. MacDonald
----------------------------
2. Glenn Tourtellot
----------------------------
3. Michael Derderian
----------------------------
4.
----------------------------
5.
----------------------------
6.
----------------------------
b) of Industry Mortgage Company, L.P.
Name Specimen Signatures
1. George Nicholas /s/ George Nicholas
----------------------------
2. Thomas G. Middleton /s/ Thomas G. Middleton
----------------------------
3. Phyllis A. Blair /s/ Phyllis A. Blair
----------------------------
4. Timothy W. Griffin /s/ Timothy W. Griffin
----------------------------
5. Susan W. McCarthy
----------------------------
6. David B. MacDonald
----------------------------
7. Glenn Tourtellot
----------------------------
8. Michael Derderian
----------------------------
4-2
<PAGE>
<PAGE>
EXHIBIT 5
NOTICE OF PLEDGE
To: The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Attention: David Hall
The undersigned (the "Lender") hereby notifies you, as Custodian, that the
Mortgage Loans and related Custodian's Mortgage Files specified in the attached
Schedule A (the "Pledged Mortgage Loan") have been pledged by us pursuant to a
___________________ Agreement (the "Security Agreement") dated as of
_________________, between the Lender and _____________________ (the "Pledgee")
and are to be held by you as bailee of, and agent for, the Pledgee as secured
party pursuant to the provisions of the Custodial Agreement dates as of January
2, 1996 among the Lender, Industry Mortgage Company, L.P., and you (the
"Custodial Agreement") until released or transferred as provided in the
Custodial Agreement.
A security interest in the Pledged Mortgage Loans has been granted to the
Pledgee, a corporation having an address at ____________________________,
pursuant to the Security Agreement. You are instructed to enter the Pledgee's
name and address in your records as the pledgee of such Pledged Mortgage Loans
and to promptly provide to the Pledgee an acknowledgement of this Notice of
Pledge by signing in the space provided below and delivering an acknowledged
copy of this Notice to the Pledgee at the above address. Such acknowledgement
will serve to confirm that this Notice of Pledge has been duly received by you
and that (i) the related Custodian's Mortgage Files are being held by you as
bailee of, and agent for, the Pledgee and (ii) you have duly reflected on your
records that the Pledgee has
5-1
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<PAGE>
been granted a security interest in and to such Mortgage Loans and related
Custodian's Mortgage Files all in accordance with the provisions of the
Custodial Agreement.
INDUSTRY MORTGAGE COMPANY, L.P.
By: Industry Mortgage Corporation,
General Partner
By:__________________________________
Name:________________________________
Title:_______________________________
Date:________________________________
ACKNOWLEDGED:
THE FIRST NATIONAL BANK OF BOSTON,
as Custodian
By:________________________________
Name:___________________________
Title:__________________________
Date:___________________________
5-2
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<PAGE>
EXHIBIT 6
RELEASE OF PLEDGE
To: The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Attention: David Hall
The undersigned, in accordance with Section 6 of the Custodial Agreement
dated as of January 2, 1996 among Industry Mortgage Company, L.P., Mortgage
Central Corp. and The First National Bank of Boston, hereby releases all of its
lien and security interest in the Mortgage Loans and related Custodian's
Mortgage Files identified in Schedule A to this Release of Pledge and instructs
the Custodian to reflect such release on its records.
(PLEDGEE)
By: ______________________________
Name:_________________________
Title:________________________
Date:_________________________
6-1
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<PAGE>
EXHIBIT 7
REQUEST FOR RELEASE OF MORTGAGE FILES BY PLEDGEE
To: The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Attention: David Hall
In connection with the administration of the Mortgage Loans held by you as
Custodian, under the Custodial Agreement dated as of January 2, 1996 among
Industry Mortgage Company, L.P., Mortgage Central Corp. and you, as Custodian,
the undersigned requests the release of the Custodian's Mortgage Files for the
Mortgage Loans identified in Schedule A to this Request. A Notice of Default
relating to such Mortgage Loans and Custodian's Mortgage Files accompanies or
has preceded this Request for Release of such Custodian's Mortgage Files.
(PLEDGEE)
By: ______________________________
Name:_________________________
Title:________________________
Date:_________________________
Acknowledged:
THE FIRST NATIONAL BANK OF BOSTON,
as Custodian
By: ______________________________
Name:_________________________
Title:________________________
Date:_________________________
7-1
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<PAGE>
EXHIBIT 8
INFORMATION TO BE INCLUDED ON
CERTIFIED SCHEDULE OF MORTGAGE LOANS
1. Borrower Name.
2. Account Number.
3. Original Balance.
4. Current Balance.
5. Interest Rate.
6. Remaining Term.
7. Combined Loan-to-Value Ratio.
8. Next Due Date.
8-1
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<PAGE>
CUSTODIAL AGREEMENT
Dated as of January 29, 1996
among
INDUSTRY MORTGAGE COMPANY, L.P.,
AMERICAN INDUSTRIAL LOAN ASSOCIATION,
APPROVED RESIDENTIAL MORTGAGE, INC.,
ARMADA RESIDENTIAL MORTGAGE, LLC
and
THE FIRST NATIONAL BANK OF BOSTON,
as Custodian
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
----
Definitions ............................................................... 2
Delivery of Custodian's Mortgage Files .................................... 4
Certification ............................................................. 6
Deficiencies in Custodian's Mortgage Files ................................ 7
Pledge of Mortgage Loans .................................................. 8
Obligations of the Custodian .............................................. 9
Release of Custodian's Mortgage File ...................................... 11
Release Upon Redelivery or Payment ........................................ 11
Fees and Expenses of the Custodian ........................................ 12
Examination of Custodian's Mortgage Files ................................. 12
Transfer of Custodian's Mortgage Files Upon Termination ................... 12
Insurance of the Custodian ................................................ 12
Periodic Statements ....................................................... 12
Copies of Mortgage Documents .............................................. 13
Resignation by and Removal of the Custodian; Successor Custodian .......... 13
Indemnity ................................................................. 14
Limitation of Liability ................................................... 14
Term of Agreement ......................................................... 15
Authorized Representatives ................................................ 16
Notices ................................................................... 16
Governing Law ............................................................. 17
Assignment ................................................................ 17
Counterparts .............................................................. 17
Headings .................................................................. 18
<PAGE>
<PAGE>
CUSTODIAL AGREEMENT
CUSTODIAL AGREEMENT dated as of January 29, 1996 among INDUSTRY MORTGAGE
COMPANY, L.P., a Delaware limited partnership, having an address at 3450
Buschwood Park Drive, Suite 250, Tampa, Florida 33618 (the "Lender"), AMERICAN
INDUSTRIAL LOAN ASSOCIATION, and its subsidiaries, APPROVED RESIDENTIAL
MORTGAGE, INC., and ARMADA RESIDENTIAL MORTGAGE, LLC, jointly and severally,
each having an address at 3420 Holland Road, Suite 107, Virginia Beach, VA
23452, (the "Borrower") and The First National Bank of Boston, a national
banking association, having an address at 100 Federal Street, Boston,
Massachusetts 02110 (the "Custodian").
WHEREAS, the Borrower is either the owner of, or holder of a security
interest in, certain Mortgage Loans; and
WHEREAS, the Lender has agreed to provide interim financing for the
Mortgage Loans pursuant to the Loan and Security Agreement; and
WHEREAS, the Borrower, under the terms of the Loan and Security Agreement,
shall grant to the Lender a security interest in all of its right, title and
interest in the Mortgage Loans and in the documents related thereto for the
purposes of securing the due and punctual payment of all amounts due from the
Borrower to the Lender under the terms of the Loan and Security Agreement and
the Secured Note given pursuant thereto; and
WHEREAS, the Custodian is a financial institution regulated as a national
banking association; and
WHEREAS, the Borrower will deliver to the Custodian (i) the Mortgage Notes
for the Mortgage Loans and prior to the time of the Custodian's release of the
funds for the related advance from the Custodian's Escrow Account, the Lender
desires that the Custodian take possession of such Mortgage Notes as the
custodian for, and bailee of, the Borrower, and after the time of the
Custodian's release of the funds for the related Advance, the Lender desires
that the Custodian take possession of such Mortgage Notes as the custodian for,
and bailee of, the Lender, in order to perfect the Lender's security interest in
such Mortgage Notes, (ii) certain other documents specified in this Agreement
after the time of the related Advance and the Lender desires that the Custodian
take possession of such other documents as custodian for, and bailee of, the
Lender in order to perfect Lender's security
<PAGE>
<PAGE>
interest in such other documents, in each case in accordance with the terms and
conditions of this Agreement; and
WHEREAS, the Custodian will release the funds for such Advance and
immediately transfer it to the Borrower's Account upon satisfaction of certain
conditions; and
WHEREAS, the Lender may from time to time pledge the Mortgage Loans and
the related Custodian's Mortgage Files in accordance with the terms and
conditions of this Agreement as collateral for such Pledgee Loans and desires to
have the Custodian act as bailee of, and agent for, the Pledgee of such Mortgage
Loans and the related Custodian's Mortgage Files in accordance with the terms
and conditions of this Agreement.
NOW, THEREFORE, the parties, intending to be legally bound, hereby agree
as follows:
1. Definitions. In addition to the terms defined elsewhere in this
Agreement or in the Loan and Security Agreement, the following terms shall have
the following meanings when used in this Agreement:
"Advance" means an Advance made pursuant to the Loan and Security
Agreement.
"Assignment of Mortgage" means an assignment of the Mortgage, notice of
transfer or equivalent instrument sufficient under the laws of the jurisdiction
wherein the related mortgaged property is located in form sufficient, when
recorded, to reflect of record the sale of the Mortgage to a third party.
"Borrower's Account" means an account in the name of Borrower with the
Custodian to which the funds for Advances may be transferred from the
Custodian's Escrow Account.
"Business Day" means any day other than a Saturday, Sunday or a day on
which banking institutions in New York City or Boston are authorized or
obligated by law or executive order to be closed.
"Certified Schedule of Mortgage Loans" means a schedule of the pledged
Mortgage Loans with respect to which an Advance will be made on any Closing
Date, which specifies the characteristics of such Mortgage Loans, which is
countersigned by the Lender, and which sets forth as to each Mortgage Loan the
information called for by Exhibit 8 attached hereto.
"Custodian's Escrow Account" means an escrow account opened for the
purpose of holding the funds for the Advances
2
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<PAGE>
until such time as all conditions set forth for the release of such funds have
been satisfied.
"Custodian's Mortgage File" means, with respect to a Mortgage Loan, those
documents listed in Section 3(b) of this Agreement that are delivered to the
Custodian prior to the release of the funds for an Advance and all documents
subsequently delivered to the Custodian pursuant to Section 3(c).
"Deficiency" means a failure of a document to correspond substantively to
the information on the Certified Schedule of Mortgage Loans or the absence of a
required document from a Custodian's Mortgage File.
"Loan and Security Agreement" means the Loan and Security Agreement dated
as of January 29, 1996 (as the same may be amended or supplemented from time to
time) between Lender and Borrower pursuant to which the Lender agrees to provide
interim funding to the Borrower secured by the Mortgage Loans. The Lender agrees
to furnish to the Custodian a copy of the Loan and Security Agreement including
any supplements or amendments thereto.
"Mortgage" means the mortgage, deed of trust or other instrument creating
a first or second lien on a property.
"Mortgage Loan" means an individual mortgage loan which is delivered to
the Custodian pursuant to this Agreement.
"Mortgage Note" means the note or other evidence of indebtedness
evidencing the indebtedness of a mortgagor under a Mortgage Loan.
"Notice of Default" means a notice of default delivered by a Pledgee to
the Custodian stating that a default by the Lender has occurred under a Security
Agreement.
"Notice of Pledge" means a notice of pledge of Mortgage Loans and related
Custodian's Mortgage Files held by the Custodian, substantially in the form of
Exhibit 5 to this Agreement.
"Person" means any association, business trust, company, corporation,
partnership, limited partnership, limited liability company, estate,
governmental authority, joint venture, natural person, trust or other entity.
"Pledged Mortgage Loans" means Lender's interest in the Secured Notes and
those Mortgage Loans and the related Custodian's Mortgage files that are the
collateral for the
3
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<PAGE>
Secured Note and that are the subject of a Notice of Pledge delivered to the
Custodian and not released pursuant to a Release of Pledge.
"Pledge Register" means a written record, prepared and maintained by the
Custodian, indicating the existence of a lien in favor of a Pledgee with respect
to Pledged Mortgage Loans.
"Pledgee" means a Person to which Mortgage Loans and the related
Custodian's Mortgage Files have been pledged to secure a Pledgee Loan pursuant
to a Security Agreement.
"Pledgee Loan" means a loan made to the Lender to be secured by the
Pledged Mortgage Loans held by the Custodian.
"Release of Pledge" means a release of the security interest in, and lien
upon, Pledged Mortgage Loans, substantially in the form of Exhibit 6 to this
Agreement.
"Request for Release of Custodian's Mortgage Files by Pledgee" means a
request for release, appropriately completed, substantially in the form of
Exhibit 7 to this Agreement.
"Secured Note" shall have the meaning ascribed in the Loan and Security
Agreement.
"Security Agreement" means an agreement (which may be a separate agreement
or included in a credit, loan or other agreement) between the Lender and a
Pledgee pursuant to which the Lender assigns its interest in, and lien upon,
Pledged Mortgage Loans held by the Custodian to secure one or more Pledgee
Loans.
2. Custodian's Escrow Account. The Custodian shall establish the
Custodian's Escrow Account in the name of and under the sole control and
dominion of the Lender. The Lender shall from time to time deposit funds in the
Custodian's Escrow Account which shall be disbursed by the Custodian according
to this Agreement, or pursuant to any other instructions given to the Custodian
by the Lender from time to time.
3. Delivery of Custodian's Mortgage Files. (a) The Borrower hereby
certifies and will be deemed to certify that, prior to the Custodian's release
of the funds for any Advance, (A) it has delivered to the Custodian as custodian
for, and bailee of, the Borrower, and (B) that, at such time as the Custodian
has released the funds for the related Advance and transferred such funds to the
Borrower's Account, it has released to the Custodian as custodian for, and
bailee of, the Lender, Mortgage Notes pertaining to each of the Mortgage
4
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<PAGE>
Loans identified in the related Certified Schedule of Mortgage Loans, a copy of
which Certified Schedule of Mortgage Loans shall be provided to the Custodian by
the Borrower.
(b) With respect to each Mortgage Loan, the Borrower shall deliver, within
three Business Days from the Closing Date for the Advance relating to the such
Mortgage Loan, and hereby certifies and will be deemed to certify as to any
Mortgage Note that it has delivered to the Custodian as custodian for, and
bailee of, the Lender, the following documents:
(i) (x) The original Mortgage Note, with any intervening
endorsements, endorsed in blank and signed, by facsimile or manual
signature, in the name of the Borrower (the "Pledgor"), by a responsible
officer thereof, with all prior and intervening endorsements showing a
complete chain of endorsement from the originator to the Pledgor, if the
Pledgor was not the originator and, (y) with respect to manufactured
housing units, the certificate of title, if any;
(ii) Either: (x) the original Mortgage, with evidence of recording
thereon, (y) a copy of the Mortgage certified as a true copy by a
responsible officer of the Pledgor or by the closing attorney, or by an
officer of the title insurer or agent of the title insurer which issued
the related title insurance policy, or commitment therefor or, if the
original has been transmitted for recording until such time as the
original is returned by the public recording office or (z) a copy of the
Mortgage certified by the public recording office in those instances where
the original recorded Mortgage has been lost;
(iii) The original assignment of Mortgage in recordable form (but
not recorded) from the Pledgor in blank;
(iv) The original policy of title insurance or a true copy thereof
or, if such policy has not yet been delivered by the insurer, a true copy,
certified as to accuracy and completeness, of the commitment or binder to
issue same;
(v) All intervening assignments, if any, showing a complete chain of
assignment from the originator to the Pledgor, including any recorded
warehousing assignments, with evidence of the recording thereon, certified
by a responsible officer of the Pledgor as a true copy of the original of
such intervening assignments;
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(vi) A copy of assumption and modification agreements, if any,
certified as a true copy by a responsible officer of the Pledgor;
(vii) In the event that the Mortgage Loan was acquired by the
Pledgor in a merger, the Reassignment of the Assignment of Beneficial
Interest must be by "[Pledgor], successor by merger to [name of
predecessor]", and in the event that the Mortgage Loan was acquired or
originated by the Pledgor while doing business under another name, the
Reassignment of Assignment of Beneficial Interest must be by "[Pledgor],
formerly known as [previous name]."
The Custodian shall be entitled to rely upon each Certified Schedule of
Mortgage Loans provided by the Borrower as the conclusive schedule in its
review, pursuant to Sections 4 and 18(b) hereof, of the Custodian's Mortgage
Files. From time to time, the Borrower shall forward to the Custodian for
inclusion in the appropriate Custodian's Mortgage File any additional original
loan documents evidencing any assumption or modification of a Mortgage Loan
approved by the Borrower.
(c) The Borrower, the Lender and the Custodian may from time to time agree
in writing to alternative delivery procedures with respect to any particular
Mortgage Loans.
4. Certification. (a) Within three hours after the delivery to the
Custodian of the Mortgage Notes (or within such shorter period of time as the
Custodian shall agree) but in any case prior to the Custodian's release of the
funds for the related Advance, the Custodian shall deliver to the Lender and the
Borrower a certificate (the "Initial Certification"), in substantially the form
annexed as Exhibit 1, to the effect that, as to each Mortgage Loan listed on the
related Certified Schedule of the Mortgage Loans attached to such Initial
Certification (other than any Mortgage Loan paid in full or any Mortgage Loan
specifically identified in such certification as not covered by such
certification), based on its examination of the related Mortgage Notes, the
information set forth in the Certified Schedule of Mortgage Loans respecting
such Mortgage Loans accurately reflects the information set forth in such
Mortgage Notes.
(b) Within five (5) Business Days after the delivery to the Custodian of
the Custodian's Mortgage Files (or within such shorter period of time as the
Custodian shall agree) but in any case within 22 Business Days after the Closing
Date, provided the Custodian's Mortgage Files have been delivered to the
Custodian, the Custodian shall deliver to the Lender and the Borrower a
certificate (the "Final Certification"), in substantially the form annexed as
Exhibit 2, to the effect that, as to each Mortgage Loan listed on the
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related Certified Schedule of Mortgage Loans attached to such Final
Certification (other than any Mortgage Loan paid in full or any Mortgage Loan
specifically identified in such certification as not covered by such
certification), (i) all documents required to be delivered to it pursuant to
Section 3 of this Agreement are in its possession (other than those described in
Section 3(b)(i)(y) and 3(b)(vi)), (ii) such documents have been reviewed by it
and have not been mutilated, damaged, torn or otherwise physically altered
(handwritten additions, changes or corrections shall not constitute physical
alteration if initialled by the mortgagor) and relate to such Mortgage Loan, and
(iii) based on its examination of the related Mortgage Note, the information set
forth on the Certified Schedule of Mortgage Loans (other than items (i), (iv),
(x) and (xiii)) accurately reflects the information set forth in the Custodian's
Mortgage File. The Custodian shall be under no duty or obligation to inspect,
review or examine any such documents, instruments, certificates or other papers
to determine that they are valid, genuine, enforceable, in recordable form,
legal, sufficient or appropriate for the represented purpose or that they are
other than what they purport to be on their face or to determine whether any
Mortgage File should include any of the documents listed in Section 3(b)(vi)
hereunder.
(c) The Borrower, the Lender and the Custodian may from time to time agree
in writing to alternative certification procedures with respect to any
particular Mortgage Loans.
5. Deficiencies in Custodian's Mortgage Files. (a) If the Initial
Certification discloses discrepancies between the information set forth on the
Certified Schedule of Mortgage Loans and a Mortgage Note, then the lender shall
promptly notify the Custodian that either (1) such Mortgage Note is to be deemed
deleted from the related Certified Schedule of Mortgage Loans and the
Custodian's Mortgage Loan file relating to the deficient Mortgage Loan shall be
returned to the Borrower by the Custodian or (2) the entire Certified Schedule
of Mortgage Loans is to be deemed "defective" and all Mortgage Notes received by
the Custodian shall be returned to the Borrower by the Custodian.
(b) If the Final Certification discloses that any of the documents
enumerated in Section 3 are missing or discloses any Deficiencies in the
documents included in any Custodian's Mortgage Files, then the Lender shall
promptly notify the Custodian that either (1) the Borrower shall deliver within
five (5) Business Days the missing documents noted in the Final Certification to
the Custodian, (2) the Lender has waived the Deficiencies noted in the
Certification, (3) the Borrower shall cure the Deficiencies within five (5)
Business Days, or (4) the Borrower shall substitute another
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Mortgage Loan for the deficient Mortgage Loan and shall deliver to the Custodian
the Custodian's Mortgage File with respect to the substituted Mortgage Loan.
(c) If the Lender's notice states that the Borrower shall take any of the
actions specified in clauses (1) or (3) of subsection (b) above and the Borrower
fails to take such actions within five (5) Business Days after the Custodian's
receipt of such notice, then the Custodian shall notify the Lender and the
Borrower of such failure and release or retain the deficient Mortgage Note or
Custodian's Mortgage File, as the case may be, in accordance with the written
instructions of the Lender.
(d) If the Lender's notice states that the Borrower shall take the actions
specified in clause (4) of subsection (b) above, then the Custodian shall return
the deficient Mortgage Note or Custodian's Mortgage File, as the case may be, to
the Borrower upon receipt of the Mortgage Note or Custodian's Mortgage File, as
the case may be, to be substituted therefor. If the Borrower fails to deliver
the substituted Mortgage Note or Custodian's Mortgage File, as the case may be,
to the Custodian within five (5) Business Days after the Custodian's receipt of
such notice, then the Custodian shall notify the Lender and the Borrower of such
failure and release or return the Mortgage Note or Custodian's Mortgage File, as
the case may be, in accordance with the written instructions of the Lender.
(e) Within five (5) Business Days after receipt by the Custodian of any
additional documents pursuant to Section 5(b)(4), the Custodian shall review
such documents and deliver to the Lender and the Borrower a revised Final
Certification. If the revised Final Certification shall indicate any remaining
deficiencies in a Custodian's Mortgage File, the provisions of this Section 5
shall again be followed.
6. Pledge of Mortgage Loans. (a) The Custodian hereby agrees to recognize
and record on the Pledge Register a pledge of Mortgage Loans and the related
Custodian's Mortgage Files to a Pledgee in accordance with the provisions of a
Notice of Pledge delivered to the Custodian by the Lender. Upon its receipt of a
Notice of Pledge, the Custodian shall reflect on the Pledge Register that the
Pledgee identified in the Notice of Pledge is the pledgee of the Pledged
Mortgage Loans that are the subject of the Notice of Pledge. The Borrower hereby
consents to any such pledge.
(b) Upon receipt by the Custodian of a Notice of Default and a Request for
Release of Custodian's Mortgage Files by Pledgee, the Custodian shall as
promptly as practicable notify Borrower thereof and within five (5)
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Business Days thereafter, deliver to the person designated by such Pledgee the
Custodian's Mortgage Files relating to the Pledged Mortgage Loans specified in
such Request and record such release on the Certified Schedule of Mortgage Loans
and the Pledge Register.
(c) Upon receipt by the Custodian of a Release of Pledge from a Pledgee,
the Custodian shall reflect on the Pledge Register, to the extent that the
Custodian then has in its possession the related Custodian's Mortgage Files,
that the Mortgage Loans that are the subject of the Release of Pledge are no
longer subject to lien.
7. Obligations of the Custodian. (a) The Custodian may open and maintain
the Custodian's Escrow Account and may maintain statements relating to the
Custodian's Escrow Account reflecting the funding and release of each Advance.
(b) The Custodian shall segregate and maintain continuous custody of the
Custodian's Mortgage Files in secure facilities in accordance with customary
standards for such custody. The Mortgage Note (and Assignment of Mortgage) shall
be maintained in fireproof facilities.
(c) With respect to any Advance, the Custodian may transfer the related
funds for such Advance to the Borrower's Account in the amount specified on the
related Certified Schedule of Mortgage Loans (less the aggregate principal
balance of any Mortgage Notes deemed to be deleted pursuant to clause (1) of
Section 4(a), above) within one hour of the satisfaction of the following
conditions:
(i) receipt from the Lender of the Certified Schedule of Mortgage Loans;
(ii) deposit by the Lender into the Custodian's Escrow Account of the
funds for the Advances related to such Certified Schedule of
Mortgage Loans;
(iii) receipt of the Mortgage Notes listed on such Certified Schedule of
Mortgage Loans;
(iv) completion by the Custodian of the Initial Certification and
delivery by the Custodian to the Lender of the completed Initial
Certification; and
(v) acknowledgment of Lender of receipt of the Initial Certification.
(d) With respect to the Mortgage Note and the other documents constituting
each Custodian's Mortgage File, unless
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there shall be in effect a Notice of Pledge delivered to the Custodian with
respect to such Custodian's Mortgage file, the Custodian shall (i) act
exclusively as the custodian for, and the bailee of, prior to the time of the
release of the related Advance, the Borrower, and thereafter, the Lender, (ii)
hold all documents constituting such Custodian's Mortgage File received by it
for the exclusive use and benefit of, prior to the time of the release of the
funds for the related Advance, the Borrower, and thereafter, the Lender, and
(iii) make disposition thereof only in accordance with the terms of this
Agreement or with written instructions furnished by, prior to the time of the
release of the related Advance, the Borrower, and thereafter, the Lender.
Upon delivery to the Custodian of Notice of Pledge, the Custodian shall
thereafter hold the Custodian's Mortgage Files that are the subject of such
Notice of Pledge as bailee of, and agent for, the Pledgee identified in such
Notice until (a) the Custodian receives from the Pledgee a Release of Pledge
with respect to such Custodian's Mortgage Files or (b) the related Custodian's
Mortgage Files are released or transferred pursuant to the provisions of this
Agreement. Upon delivery to the Custodian of a Notice of Pledge and until
receipt of a Release of Pledge by the Custodian, the Lender's interest in the
Pledged Mortgage Loans shall be subject and subordinate to the interest and
rights of the Pledgee of such Pledged Mortgage Loans, and the Custodian shall
make disposition of the related Custodian's Mortgage Files only in accordance
with the terms of this Agreement or with written instructions furnished by the
Pledgee in accordance with Section 6(b) of this Agreement.
(e) The Lender, upon the release of the Mortgage Loans from the lien of
the Loan and Security Agreement, shall notify the Custodian in writing with
respect to such release and the Custodian shall then deliver the Mortgage Loans
to the Borrower or the Borrower's designee. No such notice shall be effective as
to Pledged Mortgage Loans unless the Pledgee of such Pledged Mortgage Loans
shall consent to such release in a Release of Pledge delivered to the Custodian;
provided, however, that Pledgee will give such consent if Borrower has the right
to obtain such release under the Loan and Security Agreement.
(f) In the event that (i) the Lender, the Borrower, a Pledgee or the
Custodian shall be served by a third party with any type of levy, attachment,
writ or court order with respect to any Custodian's Mortgage File or a document
included within a Custodian's Mortgage File or (ii) a third party shall
institute any court proceeding by which any Custodian's Mortgage File or a
document included within a Custodian's Mortgage File shall be required to be
delivered otherwise than in accordance with the provisions of this
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Agreement, the party receiving such service shall promptly deliver or cause to
be delivered to the other parties to this Agreement and any Pledgees that have
an interest in the related Mortgage Loans copies of all court papers, orders,
documents and other materials concerning such proceedings. The Custodian shall
continue to hold and maintain all Custodian's Mortgage Files that are the
subject of such proceedings pending a final order of a court of competent
jurisdiction permitting or directing disposition thereof. Upon final
determination of such court, the Custodian shall dispose of such Custodian's
Mortgage File or a document included within such Custodian's Mortgage File as
directed by such determination or, if no such determination is made, in
accordance with the provisions of this Agreement. Reasonable expenses of the
Custodian incurred as a result of such proceedings shall be borne by the
Borrower, and Custodian shall provide a written estimate of such expenses to the
Borrower within 5 Business Days of such determination.
8. Release of Custodian's Mortgage File. From time to time and as
appropriate for the foreclosure or servicing of any of the Mortgage Loans, the
Custodian is hereby authorized, upon receipt of a written request and receipt
provided by the Borrower acknowledged by the Lender and, if a pledge is then in
effect, the Pledgee in substantially the form annexed as Exhibit 3 (a "Request
for Release and Receipt of Documents"), to release to the Borrower within two
(2) Business Days, the related Custodian's Mortgage File or the documents from
a Custodian's Mortgage File set forth in such Request and Receipt of Documents.
All documents so released to the Borrower shall be held by the Borrower in trust
for the benefit of the Lender (and, if a Notice of Pledge is then in effect with
respect to such Custodian's Mortgage File, such Pledgee, as its interest may
appear) in accordance with the Loan and Security Agreement. The Borrower shall
return to the Custodian each and every document previously requested from the
Custodian's Mortgage File when the Borrower's need therefor in connection with
such foreclosure or servicing no longer exists, unless the Mortgage Loan shall
be liquidated, in which case, upon receipt of a certification to this effect
from the Borrower to the Custodian in substantially the form annexed as Exhibit
3, the Borrower's prior receipt shall be returned by the Custodian to the
Borrower. The Lender and any Pledgee, as the case may be, agrees to acknowledge,
withing five (5) Business Days of receipt, any Request for Release and Receipt
of Documents properly completed and submitted by the Borrower, and not
unreasonably to withhold any such acknowledgment.
9. Release Upon Redelivery or Payment. Upon the payment in full of any
Mortgage Loan, which shall be evidenced by the delivery to the Custodian of the
Borrower's Request for Release and Receipt of Documents in substantially the
form
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annexed as Exhibit 3, the Custodian shall promptly release the related
Custodian's Mortgage File to the Borrower.
10. Fees and Expenses of the Custodian. It is understood that the
Custodian shall be entitled to charge fees and receive reimbursement for
expenses under this Agreement from the Borrower and such fees and expenses shall
be the sole obligation of the Borrower. Such agreed upon fees and expenses shall
initially be as set forth in the separate fee letter submitted by the Custodian
to the Borrower dated January 29, 1996.
11. Examination of Custodian's Mortgage Files. Upon reasonable prior
written notice to the Custodian, (a) the Lender or the Borrower and their
respective authorized representatives and (b) if a Notice of Pledge is then in
effect, the Pledgee and its authorized representatives, will be permitted during
normal business hours to examine the Custodian's Mortgage Files, documents,
records and other papers in the possession, or under the control, of the
Custodian relating to any or all of the Mortgage Loans (except that, in the case
of an examination by a Pledgee, access shall be limited to those Custodian's
Mortgage Files that are pledged to such Pledgee). Any expenses incurred by
Custodian in connection with such examination shall be borne by the party making
the request.
12. Transfer of Custodian's Mortgage Files Upon Termination. If (a) the
Custodian is furnished with written notice and satisfactory evidence from the
Lender that the Loan and Security Agreement has been terminated as to any or all
of the Mortgage Loans, and (b) there shall not then be in effect a Notice of
Pledge delivered to the Custodian with respect to such Mortgage Loans, the
Custodian shall, upon written request of the Lender, release to such persons as
the Lender shall designate such Custodian's Mortgage Files relating to such
Mortgage Loans as the Lender shall request. If, however, a Notice of Pledge is
then in effect with respect to any Pledged Mortgage Loans, the rights of the
Lender under this Section 12 shall be exercisable only by the Pledgee with
respect to such Pledged Mortgage Loans.
13. Insurance of the Custodian. The Custodian shall, at its own expense,
maintain at all times during the term of this Agreement and keep in full force
and effect (a) fidelity insurance, (b) theft of documents insurance, and (c)
forgery insurance. All such insurance shall be in amounts, with standard
coverage and subject to deductibles, as are customary for similar insurance
typically maintained by banks that act as custodian in similar transactions.
14. Periodic Statements. Within 30 days after the written request of the
Lender or a Pledgee, if there shall
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then be in effect a Notice of Pledge at any other time, the Custodian shall
provide to the Lender and such Pledgee a list of all the Mortgage Loans for
which the Custodian holds a Custodian's Mortgage File pursuant to this Agreement
(except that, in the case of a Pledgee, the list shall be limited to the Pledged
Mortgage Loans pledged to such Pledgee). Such list may be in the form of a copy
of all Certified Schedule of Mortgage Loans with manual deletions to
specifically denote any Mortgage Loans paid off, liquidated, released or
redelivered since the date of this Agreement.
15. Copies of Mortgage Documents. Within five (5) Business Days after the
written request and at the expense of the Lender, or a Pledgee, with respect to
Pledged Mortgage Loans, the Custodian shall provide the Lender ro the Pledgee,
as the case may be, with copies of the documents in the Custodian's Mortgage
Files (except that, in the case of a Pledgee, the documents shall be limited to
those related to the Pledged Mortgage Loans pledged to such Pledgee).
16. Resignation by and Removal of the Custodian; Successor Custodian. (a)
The Custodian may at any time resign and terminate its obligations under this
Agreement upon at least 60 days prior written notice to the Borrower, the Lender
and each Pledgee, if any. Promptly after receipt of notice of the Custodian's
resignation, the Borrower shall appoint, by written instrument, a successor
custodian, subject to written approval by the Lender. If the Borrower fails to
appoint a successor within 30 days, the Lender shall appoint a successor
custodian. If both the Borrower and the Lender fail to appoint a successor
custodian pursuant to the terms hereof, the Custodian may petition a court of
competent jurisdiction to appoint a successor custodian. One original
counterpart of such instrument of appointment shall be delivered to each of the
Borrower, the Custodian and the successor custodian. The Lender shall give
written notice of such appointment to each Pledgee.
(b) The Lender, with or without cause, upon at least 60 days written
notice to the Custodian, may remove and discharge the Custodian (or any
successor custodian thereafter appointed) from the performance of its
obligations under this Agreement. A copy of such notice shall be delivered to
the Borrower and each Pledgee, if any. Promptly after the giving of notice of
removal of the Custodian, the Lender shall appoint, by written instrument, a
successor custodian. One original counterpart of such instrument of appointment
shall be delivered to each of the Borrower, the Custodian and the successor
custodian. The Borrower shall give written notice of such appointment to each
Pledgee.
(c) In the event of any such resignation or removal, the Custodian shall
promptly transfer to the
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successor custodian, without recourse or warranty of any kind, as directed in
writing by the Lender, all the Custodian's Mortgage Files being administered
under this Agreement and, to the extent (if any) and in the manner directed by
the Lender, the Custodian shall complete the endorsements on the Mortgage Notes.
17. Indemnity. The Borrower and the Lender, acting severally, each agree
to indemnify and hold harmless the Custodian against any and all claims, losses,
liabilities or expenses (including, but not limited to, reasonable attorneys'
fees, court costs and costs of investigation) of any kind or nature whatsoever
arising out of its actions in connection with this Agreement that may be imposed
upon, incurred by or asserted against the Custodian; provided, however, that
this Section shall not relieve the Custodian from liability for its willful
misfeasance, bad faith or gross negligence. The Custodian hereby acknowledges
that if it, in bad faith, fails to follow the express terms of this Agreement
which results in a loss or liability to the Lender to the Borrower, that shall
be deemed to constitute gross negligence on the part of the Custodian hereunder
except insofar as any such failure may be excused (a) by the provisions of
Section 18 hereof or (b) by the need for the Custodian to follow any contrary
orders or instructions received by it from any court having jurisdiction,
federal or state banking authorities or other governmental or regulatory bodies
having jurisdiction over the Custodian. The provisions of this Section 17 shall
survive the resignation or removal of the Custodian and the termination of this
Agreement.
18. Limitations of Liability. (a) The Custodian shall not be liable to the
Borrower or the Lender, any Pledgee or any other Person with respect to any
action taken or not taken by it in good faith in the performance of its
obligations under this Agreement. The obligations of the Custodian shall be
determined solely by the express provisions of this Agreement. No
representation, warranty, covenant, agreement, obligation or duty of the
Custodian shall be implied with respect to this Agreement or the Custodian's
services hereunder.
(b) In the Custodian's review of documents pursuant to Section 4 of this
Agreement, the Custodian shall be under no duty or obligation to inspect, review
or examine the Custodian's Mortgage Files to determine that the contents thereof
are genuine, enforceable or appropriate for the represented purpose or that they
have been actually recorded or are in recordable form or that they are other
than what they purport to be on their face.
(c) The Custodian may rely, and shall be protected in acting or refraining
to act, upon and need not verify the
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accuracy of, (i) any oral instructions from any persons the Custodian believes
to be authorized to give such instructions, who shall only be, with respect to
the Borrower and to the Lender, persons the Custodian belies in good faith to be
Authorized Representatives (as defined in Section 20 hereof), and (ii) any
written instruction, notice, order, request, direction, certificate, opinion or
other instrument or document believed by the Custodian to be genuine and to have
been signed and presented by the proper party or parties, which, with respect
to the Borrower and tot he Lender, shall mean signature and presentation by
Authorized Representatives whether such presentation is by personal delivery,
express delivery or facsimile.
(d) The Custodian may consult with counsel nationally recognized in the
area of commercial transactions and reasonably acceptable to the Lender with
regard to legal questions arising out of or in connection with this Agreement,
and the advice or opinion of such counsel shall be full and complete
authorization and protection in respect of any action taken, omitted or suffered
by the Custodian in reasonable reliance, in good faith, and in accordance
therewith, provided, however, that if the Lender (i) gives instructions to the
Custodian or (ii) provides an opinion of counsel selected by the Lender, which
in either case conflict with any such advice or opinion of counsel, then the
Custodian shall follow such instructions of the Lender or such opinion of
counsel selected by the Lender, and shall be fully protected in acting or
refraining to act thereon.
(e) No provision of this Agreement shall require the Custodian to expend
or risk its own funds or otherwise incur financial liability in the performance
of its duties under this Agreement if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity is not reasonably
assured to it.
(f) The Custodian shall not be responsible or liable for, and makes no
representation or warranty with respect to, the validity, adequacy or perfection
of any lien upon, or security interest in, any Mortgage Loans or Custodian's
Mortgage Files purported to be granted at any time to the Lender or a Pledgee.
19. Term of Agrement. This Agreement shall be terminated upon the later of
(a) the final payument or other liquidation (or advance with respect thereto) of
the last Mortgage Loan in the Custodian's Mortgage Files, (b) the disposition of
all property acquired upon foreclosure or deed in lieu of foreclosure of any
Mortgage Loan in the Custodian's Mortgage Files, (c) the final remittance of all
funds due the Lender under the Loan and Security Agreement on the Maturity Date
or (d) the delivery to a Pledgee or its designee of all
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of the Custodian's Mortgage Files following a Notice of Default.
If any of the circumstances described in clause (a), (b) or (c) of this
section shall occur, promptly, but no later than 15 Business Days after written
notice from both the Borrower and the Lender to the Custodian to such effect,
after written notice from both the Borrower and the Lender to the Custodian to
such effect, all documents remaining in the Custodian's Mortgage Files shall be
delivered to the Borrower.
20. Authorized Representatives. The names of the officers or
representatives of the Borrower and of the Lender who are authorized to give and
receive notices, requests and instructions and to deliver certificates and
documents in connection with this Agreement on behalf of Borrower and on behalf
of the Lender ("Authorized Representatives") are set forth on Exhibit 4, along
with the specimen signature of each such officer. From time to time, the
Borrower and the Lender may, by delivering to the Custodian a revised exhibit,
change the information previously given, but the Custodian shall be entitled to
rely conclusively on the last exhibit until receipt of a superseding exhibit.
21. Notices. All demands, notices and communications relating to this
Agreement shall be in writing and shall be deemed to have been duly given when
recieved by the other party or parties at the address shown below, whether by
personal delivery, express delivery or facsimile, or such other address as may
hereafter be furnished to the other party or parties by like notice. Any such
demand, notice or communication hereunder shall be deemed to have been received
on the date delivered to or received at the premises of the addressee.
If to the Borrower:
American Industrial Loan Association
3420 Holland Rd., Suite 107
Virginia Beach, VA 23452
Attention; Allen D. Wykle
Phone number: (804) 430-1400
Fax number: (804) 430-1978
If to the Custodian:
The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Attention: David Hall
Phone Number: (617) 575-3101
Fax Number: (617) 575-3011
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IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to hereunto set their hand as of the day and year first above
written.
AMERICAN INDUSTRIAL LOAN ASSOCIATION,
a Virgina Corporation
(Borrower)
By: ALLEN D. WYKLE
------------------------------------
Name: Allen D. Wykle
Title: President
APPROVED RESIDENTIAL MORTGAGE, INC.,
a Virgina Corporation
By: NEIL PHELAN
------------------------------------
Name: Neil Phelan
Title: President
ARMANDA RESIDENTIAL MORTGAGE, LLC,
a Virginia Limited Liability Company
By: Approved Residential Mortgage, Inc.
Its: Managing Member
By: ALLEN D. WYKLE
------------------------------------
Name: Allen D. Wykle
Title: Managing Member Chairman
THE FIRST NATIONAL BANK OF BOSTON
(Custodian)
By: DAVID HALE
------------------------------------
Name: David Hale
Title: Senior Manager
INDUSTRY MORTGAGE COMPANY, L.P.
(Lender)
By: Industry Mortgage Corporation,
its General Partner
By: GEORGE NICHOLAS
------------------------------------
Name: George Nicholas
Title: Chairman of the Board and
Chief Executive Officer
17
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EXHIBIT 1
No._______
Aggregate Principal Balance
of the Mortage Loans on the
Certified Schedule of Mortgage Loans dated
___________________, _______, 199__: $________________
Initial Certification
Industry Mortgage Company, L.P.
3450 Buschwood Park Drive, Suite 250
Tampa, Florida 33618
Attention: George Nicholas
Re: Custodial Agreement (the "Custodial Agree-
ment") dated as of January _____, 1996, among
Industry Mortgage Company, L.P., American
Industrial Loan Association, Approved Resi-
dential Mortgage, Inc., Armada Residential
Mortgage, LLC and The First National Bank of
Boston
Gentlemen:
In accordance with the provisions of Section 4(a) of the Custodial
Agreement, the undersigned, as Custodian, hereby certifies that, as to each
Mortgage Loan listed in the Certified Schedule of Mortgage Loans dated
_______________, _____, 199_____ (other than any Mortgage Loan paid in full or
any Mortgage Loan listed on the attachment hereto), it has reviewed the
documents delivered to it pursuant to Section 3(b) of the Custodial Agreement
and has determined that (i) based on its examination of the related Mortgage
Notes, the information set forth in the Certified Schedule of Mortgage Loans
respecting such Mortgage Loans accurately reflects the information set forth in
such Mortgage Notes, and (ii) each Mortgage Note has been endorsed as provided
in Section 3(c) of the Custodial Agreement. The Custodian has made no
independent examination of such documents beyond the review specifically
required in the above-referenced Custodial Agreement. The Custodian makes no
representations as to: (i) genuineness of any Mortgage Note or any of the
Mortgage Loans identified on the Certified Schedule of Mortgage Loans, or (ii)
the collectability, insurability, effectiveness or suitability of any such
Mortgage Loan.
1-1
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Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the above-captioned Custodial Agreement.
THE FIRST NATIONAL BANK OF BOSTON,
as Custodian
By: ______________________________
Print Name: ____________________
Title: _________________________
1-2
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EXHIBIT 2
No. _____
Aggregate Principal Balance
of the Mortgage Loans on the
Certified Schedule of Mortgage Loans dated
____________, ___, 199__: $______________
Final Certification
Industrial Mortgage Company, L.P.
3450 Buschwood Park Drive, Suite 250
Tampa, Florida 33618
Attention: George Nicholas
Re: Custodial Agreement (the "Custodial
Agreement") dated as of January ___,
1996, among Industry Mortgage Company,
L.P., American Industrial Loan
Association, Approved Residential
Mortgage, Inc., Armada Residential
Mortgage, LLC and The First National
Bank of Boston
Gentlemen:
In accordance with the provisions of Section 4(b) of the Custodial
Agreement, the undersigned, as Custodian, hereby certifies that, as to each
Mortgage Loan listed in the Certified Schedule of Mortgage Loans dated
__________________, ____, 199__ (other than any Mortgage Loan paid in full or
any Mortgage Loan listed on the attachment hereto), it has reviewed the
documents delivered to it pursuant to Section 3 of the Custodial Agreement and
has determined that (i) all such documents are in its possession (other than
those described in Section 3(c)(i)(y) and Section 3(c)(vi)), (ii) such documents
have been reviewed by it and have not been mutilated, damaged, torn or otherwise
physically altered and relate to such Mortgage Loan, (iii) based on its
examination, and only as to the foregoing documents, the information set forth
in the Certified Schedule of Mortgage Loans (other than items (i), (iv), (x) and
(xiii)) respecting such Mortgage Loan accurately reflects the information set
forth in the Custodian's Mortgage File and (iv) each Mortgage Note has been
endorsed as provided in Section 3 of the Custodial Agreement. The Custodian has
made no independent examination of such documents beyond the review specifically
required in the above-referenced Custodial Agreement. The Custodian makes no
representations as to: (i) the validity, legality, sufficiency, recordability,
enforceability or genuineness of any such documents contained in each or any of
the Mortgage Loans
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identified on the Certified Schedule of Mortgage Loans, or (ii) the
collectability, insurability, effectiveness or suitability of any such Mortgage
Loan.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the above-captioned Custodial Agreement.
THE FIRST NATIONAL BANK OF BOSTON,
as Custodian
By: ________________________________
Print Name: ____________________
Title: _________________________
2-2
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EXHIBIT 3
REQUEST FOR RELEASE AND RECEIPT OF DOCUMENTS
To: The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Re: Custodial Agreement (the "Custodial
Agreement") dated as of January ___,
1996, among Industry Mortgage Company,
L.P., American Industrial Loan
Association, Approved Residential
Mortgage, Inc., Armada Residential
Mortgage, LLC and
The First National Bank of Boston
In connection with the administration of the Mortgage Loans held by you as
the Custodian for the Lender, we request the release, and acknowledge receipt,
of the (Custodian's Mortgage File/specify documents) for the Mortgage Loan
described below, for the reason indicated.
Mortgagor's Name Address & Zip Code:
Mortgage Loan Number:
Reason for Requesting Documents (check one)
____ 1. Mortgage Loan Paid in Full
____ 2. Mortgage Loan Redelivered Pursuant to
Section 9 of the Custodial Agreement
____ 3. Mortgage Loan Liquidated by ____________________
____ 4. Mortgage Loan in Foreclosure
____ 5. Mortgage Loan substituted with alternate
Mortgage Loan to be delivered to the
Custodian with a revised Mortgage Schedule
indicating substitutions
____ 6. Other (explain) ________________________________
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If item 1, 2, 3 or 5 above is checked, and if all or part of the Custodian's
Mortgage file was previously released to us, please release to us our previous
receipt on file with you, as well as any additional documents in your possession
relating to the above specified Mortgage Loan.
If item 4 or 6 above is checked, upon our return of all of the above documents
to you as the Custodian, please acknowledge your receipt by signing in the space
indicated below, and returning this form.
AMERICAN INDUSTRIAL LOAN
ASSOCIATION, a Virginia
corporation
(Borrower)
By: ________________________________
Print Name: ____________________
Title: _________________________
ACKNOWLEDGED
INDUSTRY MORTGAGE COMPANY, L.P.
(Lender)
By: Industry Mortgage Corporation,
General Partner
By: _______________________________
Name: George Nicholas
Title: Chief Executive Officer
Date: _________________________
- ------------------------------------
(PLEDGEE)
By: ________________________________
Name: __________________________
Title: _________________________
Date: __________________________
DOCUMENTS RETURNED TO THE CUSTODIAN:
THE FIRST NATIONAL BANK OF BOSTON
(Custodian)
By: ________________________________
Print Name: ____________________
Title: _________________________
Date: __________________________
3-2
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EXHIBIT 4
Authorized Representatives
a) of Approved Residential Mortgage, Inc.
Name Specimen Signatures
- ---- -------------------
1. Allen Wykle ALLEN WYKLE
2. Eric Yeakel ERIC YEAKEL
3.
4.
5.
6.
b) of Industry Mortgage Company, L.P.
Name Specimen Signatures
- ---- -------------------
1. George Nicholas
2. Thomas G. Middleton THOMAS G. MIDDLETON
3. George Freeman GEORGE FREEMAN
4. Timothy W. Griffin TIMOTHY W. GRIFFIN
5. Susan W. McCarthy
4-1
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<PAGE>
EXHIBIT 4
Authorized Representatives
a) of American Industrial Loan Association
Name Specimen Signatures
- ---- -------------------
1.
2. Eric Yeakel ERIC YEAKEL
3. Allen Wykle ALLEN WYKLE
4.
5.
6.
b) of Industry Mortgage Company, L.P.
Name Specimen Signatures
- ---- -------------------
1. George Nicholas
2. Thomas G. Middleton THOMAS G. MIDDLETON
3. George Freeman GEORGE FREEMAN
4. Timothy W. Griffin TIMOTHY W. GRIFFIN
5. Susan W. McCarthy
4-2
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<PAGE>
EXHIBIT 4
Authorized Representatives
a) of Armada Residential Mortgage, LLC
Name Specimen Signatures
- ---- -------------------
1. Neil Phelan NEIL PHELAN
2. Eric Yeakel ERIC YEAKEL
3. Allen Wykle ALLEN WYKLE
4.
5.
6.
b) of Industry Mortgage Company, L.P.
Name Specimen Signatures
- ---- -------------------
1. George Nicholas
2. Thomas G. Middleton THOMAS G. MIDDLETON
3. George Freeman GEORGE FREEMAN
4. Timothy W. Griffin TIMOTHY W. GRIFFIN
5. Susan W. McCarthy
4-3
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EXHIBIT 5
NOTICE OF PLEDGE
To: The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Attention: David Hall
The undersigned (the "Lender") hereby notifies you, as Custodian, that the
Mortgage Loans and related Custodian's Mortgage Files specified in the attached
Schedule A (the "Pledged Mortgage Loans") have been pledged by us pursuant to a
_________________ Agreement (the "Security Agreement") dated as of
______________, between the Lender and _________________ (the "Pledgee") and are
to be held by you as bailee of, and agent for, the Pledgee as secured party
pursuant to the provisions of the Custodial Agreement dated as of January ___,
1996 among the Lender, Industry Mortgage Company, L.P., and you (the "Custodial
Agreement") until released or transferred as provided in the Custodial
Agreement.
A security interest in the Pledged Mortgage Loans has been granted to the
Pledgee, a corporation having an address at ____________________, pursuant to
the Security Agreement. You are instructed to enter the Pledgee's name and
address in your records as the pledgee of such Pledged Mortgage Loans and to
promptly provide to the Pledgee an acknowledgment of this Notice of Pledge by
signing in the space provided below and delivering an acknowledged copy of this
Notice to the Pledgee at the above address. Such acknowledgment will serve to
confirm that this Notice of Pledge has been duly received by you and that (i) as
bailee of, and agent for, the Pledgee and (ii) you have duly reflected on your
records that the Pledgee has
5-1
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<PAGE>
been granted a security interest in and to such Mortgage Loans and related
Custodian's Mortgage Files all in accordance with the provisions of the
Custodial Agreement.
INDUSTRY MORTGAGE COMPANY, L.P.
By: Industry Mortgage Corporation,
General Partner
By: ________________________________
Name: __________________________
Title: _________________________
Date: __________________________
ACKNOWLEDGED:
THE FIRST NATIONAL BANK OF BOSTON,
as Custodian
By: _______________________________
Name: _________________________
Title: ________________________
Date: _________________________
5-2
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<PAGE>
EXHIBIT 6
RELEASE OF PLEDGE
To: The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Attention: David Hall
The undersigned, in accordance with Section 6 of the Custodial Agreement
dated as of January _____, 1996 among Industry Mortgage Company, L.P., American
Industrial Loan Association and The First National Bank of Boston, hereby
releases all of its lien and security interest in the Mortgage Loans and related
Custodian's Mortgage Files identified in Schedule A to this Release of Pledge
and instructs the Custodian to reflect such release on its records.
(PLEDGEE)
By: ________________________________
Name: __________________________
Title: _________________________
Date: __________________________
6-1
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EXHIBIT 7
REQUEST FOR RELEASE OF MORTGAGE FILES BY PLEDGEE
To: The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Attention: David Hall
In connection with the administration of the Mortgage Loans held by you as
Custodian, under the Custodial Agreement dated as of January ____, 1996 among
Industry Mortgage Company, L.P., American Industrial Loan Association and you,
as Custodian, the undersigned requests the release of the Custodian's Mortgage
Files for the Mortgage Loans identified in Schedule A to this Request. A Notice
of Default relating to such Mortgage Loans and Custodian's Mortgage Files
accompanies or has preceded this Request for Release of such Custodian's
Mortgage Files.
(PLEDGEE)
By: ________________________________
Name: __________________________
Title: _________________________
Date: __________________________
Acknowledged:
THE FIRST NATIONAL BANK OF BOSTON,
as Custodian
By: _______________________________
Name: _________________________
Title: ________________________
Date: _________________________
7-1
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EXHIBIT 8
INFORMATION TO BE INCLUDED ON
CERTIFIED SCHEDULE OF MORTGAGE LOANS
1. Borrower Name.
2. Account Number.
3. Original Balance.
4. Current Balance.
5. Interest Rate.
6. Remaining Term.
7. Combined Loan-to-Value Ratio.
8. Next Due Date.
8-1
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<PAGE>
"THIS LOAN AND SECURITY AGREEMENT made this 18th day of March, 1994
by and between The First National Bank of Boston, a national banking
association, with its principal place of business at 100 Federal Street,
Boston, Massachusetts ("Lender"), and Industry Mortgage Company, L.P., a
Delaware limited partnership, with its principal place of business at 3450
Buschwood Park Drive, Suite 250, Tampa, Florida 33618 (the "Parent") and
IMC Corporation of America, a wholly owned subsidiary of the Parent (the
"Sub" and, together with the Parent, the "Borrowers")."
3. Amendment to Term "Borrower". To reflect and incorporate the inclusion
of the Sub as a Borrower under the Loan Agreement, the term "Borrower" (in any
form) wherever it appears in the Loan Agreement and all references to "Borrower"
in the Loan Agreement, are hereby amended to read and refer to (as the case may
be) "Borrowers" or to either one or to each of them, as the context may require
in order to fully implement the intention of the within Amendment.
4. Amendment to Section 2.1. Section 2.1 of the Loan Agreement is hereby
amended by deleting such Section in its entirety and inserting the following
Section 2.1 in its place:
"2.1 Subject to each Borrower's reimbursement obligations set forth
in Section 6 hereof, Lender hereby agrees to make Advances from time to
time to Borrowers, and Borrowers hereby agree to borrow Advances from
Lender, in accordance with the terms of each Borrower's Note and this
Agreement; provided, however, that (i) the aggregate outstanding amount of
Advances provided to Borrowers hereunder shall not exceed the lesser of
$20,000,000.00, (ii) the outstanding amount of Advances to either Borrower
hereunder shall not exceed the lesser of $20,000,000.00 (minus the amount
of then outstanding and pending Advances to the such Borrower) then
granted by such Borrower to Lender, (iii) Lender must pre-approve any
investor to whom Borrowers seek to sell Mortgage Loans funded under this
Agreement; (iv) Lender may terminate its obligation to make Advances under
this Agreement to either Borrower or both Borrowers upon sixty (60) days
notice to the affected Borrower(s); (v) Lender shall not be obligated to
make any Advance in an amount less than $250,000.00, and shall not be
obligated to make more than one Advance per Borrower per Business Day; and
(vi) Lender shall not be obligated to accept any repayment by either
Borrower of principal and interest in an amount less than $250,000.00,
except for Advances repaid in accordance with section 6.5 hereof."
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<PAGE>
5. Amendment to Section 10. Section 10 of the Loan Agreement is hereby
amended by deleting the address currently set forth therein for the Borrower and
inserting the following in its place:
Parent: Industry Mortgage Company, L.P.
3450 Buschwood Park Drive, Suite 250
Tampa, Florida 33618
Attn: George Nicholas
Sub: IMC Corporation of America
3450 Buschwood Park Drive, Suite 250
Tampa, Florida 33618
Attn: George Nicholas
6. Representations, Warranties and Covenants by Sub. To effectuate the
Sub's becoming a Borrower under the Loan Agreement, the Sub hereby represents,
warrants, covenants and agrees as follows:
(a) All of the representations and warranties set forth in Section
5.1 of the Loan Agreement are true and correct as to the Sub, except that (i)
the Sub is a corporation, duly organized under the laws of the State of
Delaware; and (ii) all references to partnership action, power and authority
shall be to corporate action, power and authority.
(b) By its execution of this Amendment (and the execution and
delivery of the other documents referred to in Section 6, below), the Sub hereby
becomes a Borrower under the Loan Agreement with the same force and effect as if
originally named therein as a Borrower (but effective as of the date hereof) and
agrees to all of the terms and conditions of the Loan Agreement thereby
applicable to it thereunder. In furtherance of the foregoing, the Sub, as
security for the payment of the Advances made to it and the performance of the
Sub's other obligations under the Loan Agreement (the "Sub's Obligations"),
hereby pledges and hypothecates to Lender, and grants a security interest in
favor of Lender in, the Collateral now or hereafter owned by the Sub.
(c) This Amendment has been duly authorized, executed and delivered
by the Sub.
(d) The Sub's chief executive offices are at the addresses forth in
the Preamble to the Loan Agreement, as amended hereby.
7. Conditions Precedent to Amendment. This Amendment shall be effective
upon the delivery by the Borrowers to the Lender of the following documents:
2
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(a) This Amendment, duly executed by the Parent, the Sub and the
Lender.
(b) A Borrower's Note in the form of Exhibit A hereto, duly executed
by the Sub.
(c) An Unlimited Guaranty of Payment and Performance of the Sub's
Obligations in the form of Exhibit B hereto, duly executed by the Parent (the
"Guaranty").
(d) Appropriate UCC-1 Financing Statements naming the Sub as debtor
and the Lender as secured party, duly executed by the Sub, and a UCC search
report satisfactory to the Lender.
(e) A certificate of the Sub's legal existence and good standing
issued by the Secretary of State of Delaware.
(f) Certified copies of the Sub's charter documents and By-laws.
(g) A Certificate of the Secretary of the Sub as of the date of this
Amendment as to (i) the vote of the Sub's Board of Directors authorizing the
execution and delivery of Sub's Borrower's Note to Lender, the borrowing and
repayment of Advances as provided for in the Loan Agreement, as amended hereby,
and the execution, delivery and performance of this Amendment by the Sub, and
(ii) the incumbency of the persons authorized on behalf of the Sub to execute
and deliver this Amendment and the documents contemplated hereby (including,
without limitation, the Sub's Borrower's Note) and to request Advances from the
Lender under the Loan Agreement.
(h) A Certificate of the Parent's general partner as of the date of
this Amendment as to the execution and delivery to Lender of the Guaranty, and
the execution and delivery of this Amendment by the Parent.
8. Ratifications. The terms and provisions of this Amendment shall modify
and supersede all inconsistent terms and provisions set forth in the Loan
Agreement and the documents related thereto. Except as expressly modified by
this Amendment, the terms and provisions of the Loan Agreement and such other
documents are ratified and confirmed and shall continue in full force and
effect. The Parent hereby ratifies, affirms and acknowledges the security
interest granted to the Lender pursuant to the Loan Agreement.
9. Parent's Representations. The Parent hereby represents and warrants
that the representations and warranties set forth in Article 5 of the Loan
Agreement are
3
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true and correct in all material respects on and as of the date hereof.
10. Miscellaneous.
(a) This Amendment shall, in all respects, be governed by, and
construed in accordance with, the laws of the Commonwealth of Massachusetts
applicable to contracts made and performed in such Commonwealth without regard
to the conflict of laws provisions of such jurisdiction and the laws of the
United States of America.
(b) This Amendment shall be binding upon, and inure to the benefit
of, the successors and permitted assigns of the Parent, the Sub, and the Lender.
(c) This Amendment constitutes the complete agreement among the
Parent, the Sub and the Lender with respect to the subject matter hereof and may
not be modified, altered, or amended except by a writing signed by the Parent,
the Sub and the Lender.
(d) This Amendment may be executed in one or more counterparts, each
of which when so executed shall be deemed to be an original, but all of which
when taken together shall constitute one and the same instrument.
4
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IN WITNESS WHEREOF, this Amendment has been duly executed and delivered by
the parties intending to be legally bound hereby, as of the date first written
above.
THE FIRST NATIONAL BANK OF BOSTON
By:________________________
Name:______________________
Title:_____________________
INDUSTRY MORTGAGE COMPANY, L.P.
BY: INDUSTRY MORTGAGE CORPORATION
Its Managing General Partner
By:________________________
Name:______________________
Title:_____________________
IMC CORPORATION OF AMERICA
By:________________________
Name:______________________
Title:_____________________
5
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EXHIBIT A
PROMISSORY NOTE
(Borrower's Note-Sub)
Boston, Massachusetts
$20,000,000.00 _______________, 199_
FOR VALUE RECEIVED, the undersigned promises to pay to the order of THE
FIRST NATIONAL BANK OF BOSTON (together with any successors or assigns, the
"Bank"), a national banking association with its Head Office at 100 Federal
Street, Boston, Massachusetts 02110, the principal amount of twenty million and
no/100 Dollars ($20,000,000) or, if less, the aggregate principal amount
advanced to the undersigned by the Bank under this Note and pursuant to the
terms and conditions of a certain Loan and Security Agreement between the Bank
and the undersigned dated March 18, 1994, as amended from time to time, and to
which the undersigned became a party pursuant to a certain Fifth Amendment to
Loan and Security Agreement of even date herewith (as so amended, the "Loan
Agreement"), with interest thereon at a floating rate equal to the Base Rate. As
used herein, "Base Rate" means the rate per annum equal to the greater of.
Interest shall be payable in arrears on the 15th Business Day (as defined in the
Loan Agreement) of each month on all Advances (as defined in the Loan Agreement)
outstanding during the previous calendar month. Interest shall accrue in each
month at the Base Rate in effect on the first Business Day of each month and be
calculated on the basis of a 360-day year for the actual number of days elapsed
including holidays and days on which the Bank is not open for the conduct of
banking business. Principal shall be payable on the dates specified under the
terms and conditions of the Loan Agreement. Such principal payment dates and all
interest payment dates are collectively referred to as the "Due Date" herein.
SECTION 1. PAYMENT TERMS.
1.1 PAYMENTS. All payments hereunder shall be made by the undersigned to
the Bank in United States currency at the Bank's address specified above (or at
such other address as the Bank may specify), in immediately available funds, on
or before 2:00 p.m. (Boston, Massachusetts time) on the Due Date thereof.
Payments received by the Bank will be applied first to fees, expenses and other
amounts due hereunder (excluding principal and interest); second to accrued
interest; and third to outstanding principal. The Bank is hereby irrevocably
authorized by the undersigned to enter on the schedule forming a part of this
Note or otherwise in its records appropriate notations evidencing the date and
amount of each advance hereunder and the date and amount of each
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payment of principal made with respect thereto, and to attach to and make a part
of this Note a continuation of any such schedule as and when required. No
failure on the part of the Bank to make any such notation shall in any way
affect any advance or the rights or obligations of the Bank or any Obligor with
respect thereto. The entries on the records of the Bank (including any appearing
on this Note and any schedule attached hereto), shall be prima facie evidence of
the aggregate principal amount outstanding under this Note and interest accrued
thereon.
Any amount prepaid may be reborrowed in accordance with the terms of the
Loan Agreement.
1.2 RATE AFTER DUE DATE. To the extent permitted by applicable law,
interest on amounts due hereunder after the Due Date shall, at the option of the
Bank, be payable on demand at a rate per annum equal to the floating rate of.
SECTION 2. MISCELLANEOUS.
2.1 RIGHTS CUMULATIVE; WAIVER; AMENDMENT. All rights and remedies of the
Bank are cumulative and are exclusive of any rights or remedies provided by law
or in equity or any other agreement, and may be exercised separately or
concurrently. No delay or omission on the part of the Bank in exercising any
right hereunder shall operate as a waiver of such right or of any other right
under this Note. No waiver of any right or any amendment hereto shall be
effective unless in writing and signed by the Bank nor shall a waiver on one
occasion bar or waive the exercise of any such right on any future occasion.
Each Obligor waives presentment, notice of dishonor, protest, and all other
notices in connection with the delivery, acceptance, performance, default or
enforcement of this Note or of any collateral for the Obligations, and assents
to any extensions or postponements of the time of payment and to any other
indulgences under this Note or with respect to any such collateral, to any
substitutions, exchanges or releases of any other parties or persons primarily
or secondarily liable hereunder, that from time to time may be granted by the
Bank in connection herewith.
2.2 SECURITY; SET-OFF. In addition to the security set forth in the Loan
Agreement, the undersigned grants to the Bank, as security for the full and
punctual payment and performance of the Obligations, a continuing lien on and
security interests in all securities or other property belonging to the
undersigned now or hereafter held by the Bank and in all deposits (general or
special, time or demand, provisional or final) and other sums credited by or due
from the Bank to the undersigned or subject to
2
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withdrawal by the undersigned; and regardless of the adequacy of any collateral
or other means of obtaining repayment of the Obligations, the Bank is hereby
authorized at any time and from time to time, without notice to the undersigned
(any such notice being expressly waived by the undersigned) and to the fullest
extent permitted by law, to set off and apply such deposits and other sums
against any obligations of the undersigned for which the Due Date has passed;
provided, however, that such right of set off shall not apply to deposits of
escrow monies being held in designated escrow accounts on behalf of Mortgagors
under Mortgage Loans or investors in Mortgage Loans (with the capitalized terms
used in the within proviso having the meanings ascribed to them in the Loan
Agreement). In addition, upon the failure of the undersigned to pay all amounts
due hereunder after the Due Date, the Bank shall have in any jurisdiction where
enforcement hereof is sought the rights and remedies of a secured party under
the Uniform Commercial Code of Massachusetts.
2.3 OBLIGATION; OBLIGOR. As used herein, "Obligation" means any obligation
hereunder or otherwise of any Obligor to the Bank or to any of its affiliates
whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising; and "Obligor" means the undersigned, any
guarantor or any other person primarily or secondarily liable hereunder or in
respect hereof, including any person or entity who has pledged or granted to the
Bank a security interest in, or other lien on property on behalf of the
undersigned as collateral for the obligations.
2.4 TAXES. The undersigned agrees to indemnify the Bank and hold it
harmless from and against any transfer taxes, documentary taxes, assessments or
charges made by any governmental authority by reason of the execution, delivery,
and performance of this Note or any collateral for the obligations.
2.5 EXPENSES. The parties hereto shall pay expenses related to this Note
in accordance with the terms and conditions of the Loan Agreement.
2.6 INFORMATION. The undersigned shall provide to Lender all information
required under the Loan Agreement.
2.7 GOVERNING LAW; CONSENT TO JURISDICTION. This Note is intended to take
effect as a sealed instrument and shall be governed by, and construed in
accordance with, the laws of The Commonwealth of Massachusetts, without regard
to its conflicts of law rules. The undersigned agrees that any suit for the
enforcement of this Note may be brought in the courts of such state or any
Federal Court sitting in such state and
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consents to the non-exclusive jurisdiction of each such court and to service of
process in any such suit being made upon the undersigned by mail at the address
specified below. The undersigned hereby waives any objection that it may now or
hereafter have to the venue of any such suit or any such court or that such suit
was brought in an inconvenient court.
2.8 SEVERABILITY; AUTHORIZATION TO COMPLETE; PARAGRAPH HEADINGS. If any
provision of this Note shall be invalid, illegal or unenforceable, such
provisions shall be severable from the remainder of this Note and the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby. The Bank is hereby authorized, without further
notice, to fill in any blank spaces on this Note, and to date this Note as of
the date funds are first advanced hereunder. Paragraph headings are for the
convenience of reference only and are not a part of this Note and shall not
affect its interpretation.
2.9 JURY WAIVER. THE BANK (BY ITS ACCEPTANCE OF THIS NOTE) AND THE
UNDERSIGNED AGREE THAT NEITHER OF THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A)
SEEK A JURY TRIAL, IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, OR ANY ACTION BASED
UPON, OR ARISING OUT OF, THIS NOTE, ANY RELATED INSTRUMENTS, ANY COLLATERAL OR
THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR (B) SEEK TO
CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT
BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH SHALL BE SUBJECT TO
NO EXCEPTIONS. NEITHER THE BANK NOR THE UNDERSIGNED HAS AGREED WITH OR
REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY
ENFORCED IN ALL INSTANCES.
BORROWER:
IMC CORPORATION OF AMERICA
WITNESS:
____________________________ By:__________________________
(SIGNATURE)
____________________________ Name:________________________
(PRINT NAME)
Address: Title:_______________________
____________________________
____________________________
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SCHEDULE TO PROMISSORY NOTE
$20,000,000.00 Promissory Note dated ____________, 199_, of IMC
Corporation of America payable to the order of THE FIRST NATIONAL BANK OF
BOSTON.
Date Advance Payment Balance
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
5
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<PAGE>
EXHIBIT B
UNLIMITED GUARANTY OF PAYMENT AND PERFORMANCE
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and for the purpose of seeking to induce THE FIRST
NATIONAL BANK OF BOSTON, a national banking association (hereinafter referred to
as "Lender") to extend credit or otherwise provide financial accommodations to
IMC Corporation of America, a Delaware corporation (hereinafter, with any
successor, assign, or replacement hereafter approved by the Bank, in its
discretion, referred to as "Customer"), which extension of credit and provision
of financial accommodations will be to the direct interest, advantage and
benefit of the undersigned, Industry Mortgage Company, L.P., a Delaware limited
partnership having its principal address at 3450 Buschwood Park Drive, Suite
250, Tampa, Florida 33618 (hereinafter referred to as "Guarantor"). Guarantor
does hereby agree as follows:
1. GUARANTY OF PAYMENT AND PERFORMANCE. The Guarantor hereby
unconditionally guarantees to the Bank the full and punctual payment when due
(whether at maturity, by acceleration or otherwise), and the performance, of all
liabilities, agreements and other obligations of the Customer to the Bank,
whether direct or indirect, absolute or contingent, due or to become due,
secured or unsecured, now existing or hereafter arising or acquired (whether by
way of discount, letter of credit, lease, loan, overdraft or otherwise) (the
"Obligations"). This Guaranty is an absolute, unconditional and continuing
guaranty of the full and punctual payment and performance of the Obligations and
not of their collectibility only and is in no way conditioned upon any
requirement that the Bank first attempt to collect any of the Obligations from
the Customer or resort to any security or other means of obtaining their
payment. Should the Customer default in the payment or performance of any of the
Obligations, the obligations of the Guarantor hereunder shall become immediately
due and payable to the Bank, without demand or notice of any nature, all of
which are expressly waived by the Guarantor. Payments by the Guarantor hereunder
may be required by the Bank on any number of occasions.
2. GUARANTOR'S AGREEMENT TO PAY. The Guarantor further agrees, as the
principal obligor and not as a guarantor only, to pay to the Bank, on demand,
all costs and expenses (including court costs and legal expenses) incurred or
expended by the Bank in connection with the Obligations, this Guaranty and the
enforcement thereof, together with interest on amounts recoverable under this
Guaranty from the
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time such amounts become due until payment, provided that if such interest
exceeds the maximum amount permitted to be paid under applicable law, then such
interest shall be reduced to such maximum permitted amount.
3. UNLIMITED GUARANTY. The liability of the Guarantor hereunder shall be
unlimited.
4. WAIVERS BY GUARANTOR; BANK'S FREEDOM TO ACT. The Guarantor agrees that
the Obligations will be paid and performed strictly in accordance with their
respective terms regardless of any law, regulation or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of the Bank
with respect thereto. The Guarantor waives presentment, demand, protest, notice
of acceptance, notice of Obligations incurred and all other notices of any kind,
all defenses which may be available by virtue of any valuation, stay, moratorium
law or other similar law now or hereafter in effect, any right to require the
marshalling of assets of the Customer, and all suretyship defenses generally.
Without limiting the generality of the foregoing, the Guarantor agrees to the
provisions of any instrument evidencing, securing or otherwise executed in
connection with any Obligation and agrees that the obligations of the Guarantor
hereunder shall not be released or discharged, in whole or in part, or otherwise
affected by (i) the failure of the Bank to assert any claim or demand or to
enforce any right or remedy against the Customer; (ii) any extensions or
renewals of any Obligation; (iii) any rescissions, waivers, amendments or
modifications of any of the terms or provisions of any agreement evidencing,
securing or otherwise executed in connection with any Obligation; (iv) the
substitution or release of any entity primarily or secondarily liable for any
Obligation; (iv) the adequacy of any rights the Bank may have against any
collateral or other means of obtaining repayment of the Obligations; (vi) the
impairment of any collateral securing the Obligations, including without
limitation the failure to perfect or preserve any rights the Bank might have in
such collateral or the substitution, exchange, surrender, release, loss or
destruction of any such collateral; or (vii) any other act or omission which
might in any manner or to any extent vary the risk of the Guarantor or otherwise
operate as a release or discharge of the Guarantor, all of which may be done
without notice to the Guarantor.
5. UNENFORCEABILITY OF OBLIGATIONS AGAINST CUSTOMER. If for any reason the
Customer has no legal existence or is under no legal obligation to discharge any
of the Obligations have become irrevocable from the Customer by operation of law
or for any other reason, this Guaranty shall nevertheless be binding on the
Guarantor to the same extent as if the Guarantor at all times had been the
principal obligor on all such Obligations. In the event that acceleration of
time for payment of the Obligations is
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stayed upon the insolvency, bankruptcy or reorganization of the Customer, or for
any other reason, all such amounts otherwise subject to acceleration under the
terms of any agreement evidencing, securing or otherwise executed in connection
with any Obligation shall be immediately due and payable by the Guarantor.
6. SUBROGATION; SUBORDINATION. The Guarantor shall not exercise any rights
against the Customer arising as a result of payment by the Guarantor hereunder,
by way of subrogation or otherwise, and will not prove any claim in competition
with the Bank or its affiliates in respect of any payment hereunder in
bankruptcy or insolvency proceedings of any nature; the Guarantor will not claim
any set-off or counterclaim against the Customer in respect of any liability of
the Guarantor to the Customer; and the Guarantor waives any benefit of and any
right to participate in any collateral which may be held by the Bank or any such
affiliate. The payment of any amounts due with respect to any indebtedness of
the Customer now or hereafter held by the Guarantor is hereby subordinated to
the prior payment in full of the Obligations, provided that so long as no
default in the payment or performance of the Obligations has occurred and is
continuing, or no demand for payment of any of the Obligations has been made
that remains unsatisfied, the Customer may make, and the Guarantor may demand
and accept, any scheduled payments of principal of and interest on such
subordinated indebtedness in the amounts, at the rates and on the dates
specified in such instruments, securities or other writings as shall evidence
such subordinated indebtedness. The Guarantor agrees that after the occurrence
of any default in the payment or performance of the Obligations, the Guarantor
will not demand, sue for or otherwise attempt to collect any such indebtedness
of the Customer to the Guarantor until the Obligations shall have been paid in
full. If, notwithstanding the foregoing sentence, the Guarantor shall collect,
enforce or receive any amounts in respect of such indebtedness, such amounts
shall be collected, enforced and received by the Guarantor as trustee for the
Bank and be paid over to the Bank on account of the Obligations without
affecting in any manner the liability of the Guarantor under the other
provisions of this Guaranty.
7. SECURITY; SET-OFF. The Guarantor grants to the Bank, as security for
the full and punctual payment and performance of the Guarantor's obligations
hereunder, a continuing lien on and security interest in all securities or other
property belonging to the Guarantor now or hereafter held by the Bank and in all
deposits (general or special, time or demand, provisional or final) and other
sums credited by or due from the Bank to the Guarantor or subject to withdrawal
by the Guarantor; and regardless of the adequacy of any collateral or other
means of obtaining repayment of the Obligations, the Bank is hereby authorized
8
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<PAGE>
at any time and from time to time, without notice to the Guarantor (any such
notice being expressly waived by the Guarantor) and to the fullest extent
permitted by law, to set off and apply such deposits and other sums against the
obligations of the Guarantor under this Guaranty, whether or not the Bank shall
have made any demand under this Guaranty and although such obligations may be
contingent or unmatured.
8. FURTHER ASSURANCES. The Guarantor agrees that the Guarantor will, from
time to time at the request of the Bank, provide to the Bank such financial
information as the Bank may request, including personal financial statements (on
such forms as the Bank may prescribe) and federal and state income tax returns
and such other information relating to the business and affairs of the Guarantor
as the Bank may reasonably request. The Guarantor also agrees, upon demand after
any change in the condition or affairs (financial or otherwise) of the Guarantor
deemed by the Bank to be adverse and material, to secure the payment and
performance of its obligations hereunder by delivering, assigning or
transferring to the Bank or granting the Bank a security interest in additional
collateral of a value and character satisfactory to the Bank, and authorizes the
Bank to file any financing statement deemed by the Bank to be necessary or
desirable to perfect any security interest granted by the Guarantor to the Bank
and as agent for the Guarantor, to sign the name of the Guarantor thereto. The
Guarantor also agrees to do all such things and execute all such documents,
including such financing statements, as the Bank may consider necessary or
desirable to give full effect to this Guaranty and to perfect and preserve the
rights and powers of the Bank hereunder.
9. TERMINATION; REINSTATEMENT. This Guaranty shall remain in full force
and effect until the Bank is given written notice of the Guarantor's intention
to discontinue this Guaranty, notwithstanding any intermediate or temporary
payment or settlement of the whole or any part of the Obligations. No such
notice shall be effective unless received and acknowledged by an office of the
Bank at its head office or at the branch of the Bank where this Guaranty is
given. No such notice shall affect any rights of the Bank or of any affiliate
hereunder including, without limitation, the rights set forth in Sections 4 and
6, with respect to Obligations incurred prior to the receipt of such notice of
Obligations incurred pursuant to any contract or commitment in existence prior
to such receipt, and all checks, drafts, notes, instruments (negotiable or
otherwise) and writings made by or for the account of the Customer and drawn on
the Bank or any of its agents purporting to be dated on or before the date of
receipt of such notice, although presented to and paid or accepted by the Bank
after that date, shall form part of the Obligations. This Guaranty shall
continue to be effective or be reinstated,
9
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<PAGE>
notwithstanding any such notice, if at any time any payment made or value
received with respect to any Obligation is rescinded or must otherwise be
returned by the Bank upon the insolvency, bankruptcy or reorganization of the
Customer, or otherwise, all as though such payment had not been made or value
received.
10. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding upon the
Guarantor, its successors and assigns, and shall inure to the benefit of and be
enforceable by the Bank and its successors, transferees and assigns. Without
limiting the generality of the foregoing sentence, the Bank may assign or
otherwise transfer any agreement or any note held by it evidencing, securing or
otherwise executed in connection with the Obligations, or sell participations in
any interest therein, to any other person or entity, and such other person or
entity shall thereupon become vested, to the extent set forth in the agreement
evidencing such assignment, transfer or participation, with all the rights in
respect thereof granted to the Bank herein.
11. AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of
this Guaranty nor consent to any departure by the Guarantor therefrom shall be
effective unless the same shall be in writing and signed by the Bank. No failure
on the part of the Bank to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right.
12. NOTICES. All notices and other communications called for hereunder
shall be made in writing and, unless otherwise specifically provided herein,
shall be deemed to have been duly made or given when delivered by hand or mailed
first class mail postage prepaid or, in the case of telegraphic or telexed
notice, when transmitted, answer back received, addressed as follows: if to the
Guarantor, at the address set forth beneath its signature hereto, and if to the
Bank, at 100 Federal Street, Boston, Massachusetts 02110, Attention: Paul
Chmielinski, or at such address as either party may designate in writing.
13. GOVERNING LAW; CONSENT TO JURISDICTION. This Guaranty is intended to
take effect as a sealed instrument and shall be governed by, and construed in
accordance with, the laws of The Commonwealth of Massachusetts. The Guarantor
agrees that any suit for the enforcement of this Guaranty may be brought in the
courts of The Commonwealth of Massachusetts or any Federal Court sitting therein
and consents to the non-exclusive jurisdiction of such court and to service of
process in any such suit being made upon the Guarantor by mail at the address
specified in Section 12 hereof. The Guarantor hereby waives any objection that
it may now or hereafter have to the venue of any such suit or
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<PAGE>
any such court or that such suit was brought in an inconvenient court.
14. MISCELLANEOUS. This Guaranty constitutes the entire agreement of the
Guarantor with respect to the matters set forth herein. The rights and remedies
herein provided are cumulative and not exclusive of any remedies provided by law
or any other agreement, and this Guaranty shall be in addition to any other
guaranty of the Obligations. The invalidity or
11
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<PAGE>
PROMISSORY NOTE
(Borrower's Note-Sub)
Boston, Massachusetts
$20,000,000.00 January 31, 1996
FOR VALUE RECEIVED, the undersigned promises to pay to the order of THE
FIRST NATIONAL BANK OF BOSTON (together with any successors or assigns, the
"Bank"), a national banking association with its Head Office at 100 Federal
Street, Boston, Massachusetts 02110, the principal amount of Twenty Million and
NO/100 Dollars ($20,000,000.00), or, if less, the aggregate principal amount
advanced to the undersigned by the Bank under this Note and pursuant to the
terms and conditions of a certain Loan and Security Agreement between the Bank
and the undersigned dated March 18, 1994, as amended from time to time, and to
which the undersigned became a party pursuant to a certain Fifth Amendment to
Loan and Security Agreement of even date herewith (as so amended, the "Loan
Agreement"), with interest thereon at a floating rate equal to the Base Rate. As
used herein, "Base Rate" means the rate per annum equal to the greater of
Interest shall payable in arrears on the 15th Business Day (as defined in the
Loan Agreement) of each month on all Advances (as defined in the Loan Agreement)
outstanding during the previous calendar month. Interest shall accrue in each
month at the Base Rate in effect on the first Business Day of each month and be
calculated on the basis of a 360-day year for the actual number of days elapsed
including holidays and days on which the Bank is not open for the conduct of
banking business. Principal shall be payable on the dates specified under the
terms and conditions of the Loan Agreement. Such principal payment dates and all
interest payment dates are collectively referred to as the "Due Date" herein.
SECTION 1. PAYMENT TERMS.
1.1 PAYMENTS. All payments hereunder shall be made by the undersigned to
the Bank in United States currency at the Bank's address specified above (or at
such other address as the Bank may specify), in immediately available funds, on
or before 2:00 p.m. (Boston, Massachusetts time) on the Due Date thereof.
Payments received by the bank will be applied first to fees, expenses and other
amounts due hereunder (excluding principal and interest); second to accrued
interest; and third to outstanding principal. The Bank is hereby irrevocable
authorized by the undersigned to enter on the schedule forming a part of this
Note or otherwise in its records appropriate notations evidencing the date and
amount of each advance hereunder and the date and amount of each payment of
principal made with respect thereto, and to attach to and make a part of this
Note a continuation of any such schedule as and when required. No failure on the
part of the Bank to make any such notation shall in any way affect any advance
or the rights or obligations of the Bank or any Obligor with respect thereto.
The entries on the records of the Bank (including any appearing on this Note
<PAGE>
<PAGE>
and any schedule attached hereto), shall be prima facie evidence of the
aggregate principal amount outstanding under this Note and interest accrued
thereon.
Any amount prepaid may be reborrowed in accordance with the terms of the
Loan Agreement.
1.2 RATE AFTER DUE DATE. To the extent permitted by applicable law,
interest on amounts due hereunder after the Due Date shall, at the option of the
Bank, be payable on demand at a rate per annum equal to the floating rate of
SECTION 2. MISCELLANEOUS.
2.1 RIGHTS CUMULATIVE; WAIVER; AMENDMENT. All rights and remedies of the
Bank are cumulative and are exclusive of any rights or remedies provided by law
or in equity or any other agreement, and may be exercised separately or
concurrently. No delay or omission on the part of the Bank in exercising any
right hereunder shall operate as a waiver of such right or of any other right
under this Note. No waiver of any right or any amendment hereto shall be
effective unless in writing and signed by the Bank nor shall a waiver on one
occasion bar or waive the exercise of any such right on any future occasion.
Each Obligor waives presentment, notice of dishonor, protest, and all other
notices in connection with the delivery, acceptance, performance, default or
enforcement of this Note or of any collateral for the Obligations, and assents
to any extensions or postponements of the time of payment and to any other
indulgences under this Note or with respect to any such collateral, to any
substitutions, exchanges or releases of any other parties or persons primarily
or secondarily liable hereunder, that from time to time may be granted by the
Bank in connection herewith.
2.2 SECURITY; SET-OFF. In addition to the security set forth in the Loan
Agreement, the undersigned grants to the Bank, as security for the full and
punctual payment and performance of the Obligations, a continuing lien on and
security interest in all securities or other property belonging to the
undersigned now or hereafter held by the Bank and in all deposits (general or
special, time or demand, provisional or final) and other sums credited by or due
from the Bank to the undersigned or subject to withdrawal by the undersigned;
and regardless of the adequacy of any collateral or other means of obtaining
repayment of the Obligations, the Bank is hereby authorized at any time and from
time to time, without notice to the undersigned (any such notice being expressly
waived by the undersigned) and to the fullest extent permitted by law, to set
off and apply such deposits and other sums against any
2
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<PAGE>
obligations of the undersigned for which the Due Date has passed; provided,
however, that such right of set off shall not apply to deposits of escrow monies
being held in designated escrow accounts on behalf of Mortgagors under Mortgage
Loans or investors in Mortgage Loans (with the capitalized terms used in the
within proviso having the meanings ascribed to them in the Loan Agreement). In
addition, upon the failure of the undersigned to pay all amounts due hereunder
after the Due Date, the Bank shall have in any jurisdiction where enforcement
hereof is sought the rights and remedies of a secured party under the Uniform
Commercial Code of Massachusetts.
2.3 OBLIGATION; OBLIGOR. As used herein, "Obligation" means any obligation
hereunder or otherwise of any Obligor to the Bank or to any of its affiliates
whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising; and "Obligor" means the undersigned, any
guarantor or any other person primarily or secondarily liable hereunder or in
respect hereof, including any person or entity who has pledged or granted to the
Bank a security interest in, or other lien on property on behalf of the
undersigned as collateral for the obligations.
2.4 TAXES. The undersigned agrees to indemnify the Bank and hold it
harmless from and against any transfer taxes documentary taxes, assessments or
charges made by any governmental authority by reason of the execution, delivery,
and performance of this Note or any collateral for the obligations.
2.5 EXPENSES. The parties hereto shall pay expenses related to this Note
in accordance with the terms and conditions of the Loan Agreement.
2.6 INFORMATION. The undersigned shall provide to Lender all information
required under the Loan Agreement.
2.7 GOVERNING LAW; CONSENT TO JURISDICTION. This Note is intended to take
effect as a sealed instrument and shall be governed by, and construed in
accordance with, the laws of The Commonwealth of Massachusetts, without regard
to its conflicts of law rules. The undersigned agrees that any suit for the
enforcement of this Note may be brought in the courts of such state or any
Federal Court sitting in such state and consents to the non-exclusive
jurisdiction of each such court and to service of process in any such suit being
made upon the undersigned by mail at the address specified below. The
undersigned hereby waives any objection that it may now or hereafter have to the
venue of any such suit or any such court or that such suit was brought in an
inconvenient court.
2.8 SEVERABILITY; AUTHORIZATION TO COMPLETE; PARAGRAPH HEADINGS. If any
provision of this Note shall be invalid,
3
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<PAGE>
illegal or unenforceable, such provisions shall be severable from the remainder
of this Note and the validity, legality and enforceability of the remaining
provisions shall not in any way be effected or impaired thereby. The Bank is
hereby authorized, without further notice, to fill in any blank spaces on this
Note, and to date this Note as of the date funds are first advanced hereunder.
Paragraph headings are for the convenience of reference only and are not a part
of this Note and shall not affect its interpretation.
2.9 JURY WAIVER. THE BANK (BY ITS ACCEPTANCE OF THIS NOTE) AND THE
UNDERSIGNED AGREE THAT NEITHER OF THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A)
SEEK A JURY TRIAL, IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION
BASED UPON, OR ARISING OUT OF, THIS NOTE, ANY RELATED INSTRUMENTS, ANY
COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR
(B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY
TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH SHALL
BE SUBJECT TO NO EXCEPTIONS. NEITHER THE BANK NOR THE UNDERSIGNED HAS AGREED
WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT
BE FULLY ENFORCED IN ALL INSTANCES.
BORROWER:
IMC CORPORATION OF AMERICA
WITNESS:
/s/ George Freeman By: /s/ George Nicholas
- -------------------------- -----------------------
(SIGNATURE)
Name:
- -------------------------- -----------------------
(PRINT NAME)
Address: Title: Chairman and Chief
-----------------------
3450 Buschwood Park Drive Executive
- -------------------------
Tampa, FL 33618
- -------------------------
4
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<PAGE>
SCHEDULE OF PROMISSORY NOTE
$20,000,000.00 Promissory Note dated January 31, 1996, of IMC Corporation
of America payable to the order of THE FIRST NATIONAL BANK OF BOSTON.
Date Advance Payment Balance
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
5
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<PAGE>
UNLIMITED GUARANTY OF PAYMENT AND PERFORMANCE
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged. and for the purpose of seeking to induce THE FIRST
NATIONAL BANK OF BOSTON, a national banking association (hereinafter referred to
as "Lender") to extend credit or otherwise provide financial accommodations to
IMC Corporation of America, a Delaware corporation (hereinafter, with any
successor, assign, or replacement hereafter approved by the Bank, in its
discretion, referred to as "Customer"), which extension of credit and provision
of financial accommodations will be to the direct interest, advantage and
benefit of the undersigned. Industry Mortgage Company, L.P., a Delaware limited
partnership having its principal address at 3456 Buschwood Park Drive, Suite
250, Tampa, Florida 33618 (hereinafter referred to as "Guarantor"), Guarantor
does hereby agrees as follows:
1. GUARANTY OF PAYMENT PERFORMANCE. The Guarantor hereby unconditionally
guarantees to the Bank the full and punctual payment when due (whether at
maturity, by acceleration or otherwise), and the performance, of all
liabilities, agreements and other obligations of the Customer to the Bank,
whether direct or indirect, absolute or contingent, due or to become due,
secured or unsecured, now existing or hereafter arising, or acquired (whether
by way of discount, letter of credit, lease, loan, overdraft or otherwise) (the
"Obligations"). Tins Guaranty is an absolute, unconditional and continuing
guaranty of the full and punctual payment and performance of the Obligations and
not of their collectibility only, and is in no way conditioned upon any
requirement that the Bank agree to collect any of the Obligations from the
Customer or resort to any security or other means of obtaining their payment.
Should the Customer default in the payment or performance of any of the
Obligations, the obligations of the Guarantor hereunder shall become immediately
due and payable to the Bank, without demand or notice of any nature, all of
which are expressly waived by the Guarantor. Payments by the Guarantor hereunder
may be required by the Bank on any number of occasions.
2. GUARANTOR'S AGREEMENT TO PAY. The Guarantor further agrees, as the
principal obligor and not as a guarantor only, to pay to the Bank, on demand,
all costs and expenses (including court costs and legal expenses, incurred or
expended by the Bank in connection with the Obligations, this Guaranty and the
enforcement thereof, together with interest on amounts recoverable under this
Guaranty from the time such amounts become due until payment, provided that if
such interest exceeds the maximum amount permitted to be paid under applicable
law, then such interest shall be reduced to such maximum permitted amount.
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3. UNLIMITED GUARANTY. The liability of the Guarantor hereunder shall be
unlimited.
4. WAIVERS BY GUARANTOR: BANK'S FREEDOM TO ACT. The Guarantor agrees that
the Obligations will be paid and performed strictly in accordance with their
respective terms regardless of any law, regulation or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of the Bank
with respect thereto. The Guarantor waives presentment, demand, protest, notice
of acceptance, notice of Obligations incurred and all other notices of any kind,
all defenses which may be available by virtue of any valuation, stay,
moratorium law or other similar law now or hereafter in effect, any right to
require the marshalling of assets of the Customer, and all suretyship defenses
generally. Without limiting the generality, of the foregoing, the Guarantor
agrees to the provisions of any instrument evidencing, securing or otherwise
executed in connection with any Obligation and agrees that the obligations of
the Guarantor hereunder shall not be released or discharged, in whole or in
part, or otherwise affected by (i) the failure of the Bank to assert any claim
or demand or to enforce any right or remedy against the Customer: (ii) any
extensions or renewals of any Obligation: (iii) any rescissions, waivers,
amendments or modifications of any of the terms or provisions of any agreement
evidencing, securing or otherwise executed in connection with any Obligation:
(iv) the substitution or release of any entity, primarily or secondarily liable
for any Obligation (v) the adequacy of any rights the Bank may have against any
collateral or other means of obtaining repayment of the Obligations; (vi) the
impairment of any collateral securing the Obligations including without
limitation, the failure to perfect or preserve any rights the Bank might have in
such collateral or the substitution, exchange, surrender, release, loss or
destruction of any such collateral; or (vii) any other act or omission which
might in any manner or to any extent vary the risk of the Guarantor or otherwise
operate as a release or discharge of the Guarantor, all of which may be done
without notice to the Guarantor.
5. UNENFORCEABILITY OF OBLIGATIONS AGAINST CUSTOMER. If for any reason the
Customer has no legal existence or is under no legal obligation to discharge any
of the Obligations, or if any of the Obligations have become irrecoverable from
the Customer by operation of law or for any other reason, this Guaranty shall
nevertheless be binding on the Guarantor to the same extent as if the Guarantor
at all times had been the principal obligor on all such Obligations. In the
event that acceleration of the time for payment of the Obligations is stayed
upon the insolvency, bankruptcy or reorganization of the Customer, or for any
other reason, all such amounts otherwise subject to acceleration under the terms
of any agreement evidencing, securing or otherwise executed in connection with
any
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Obligation shall be immediately due and payable by the Guarantor.
6. SUBROGATION: SUBORDINATION. The Guarantor shall not exercise any rights
against the Customer arising as a result of payment by the Guarantor hereunder,
by way of subrogation or otherwise, and will not prove any claim in competition
with the Bank or its affiliates in respect of any payment hereunder in
bankruptcy or insolvency proceedings of any nature; the Guarantor will not claim
any set-off or counterclaim against the Customer in respect of any liability of
the Guarantor to the Customer; and the Guarantor waives any benefit of and any
right to participate in any collateral which may be held by the Bank or any such
affiliate. The payment of any amounts due with respect to any indebtedness of
the Customer now or hereafter held by the Guarantor is hereby subordinated to
the prior payment in full of the Obligations, provided that so long as no
default in the payment or performance of the Obligations has occurred and is
continuing, or no demand for payment of any of the Obligations has been made
that remains unsatisfied, the Customer may make, and the Guarantor may demand
and accept, any scheduled payments of principal of and interest on such
subordinated indebtedness in the amounts, at the rates and on the dates
specified in such instruments, securities or other writings as shall evidence
such subordinated indebtedness. The Guarantor agrees that after the occurrence
of any default in the payment or performance of the Obligations, the Guarantor
will not demand, sue for or otherwise attempt to collect any such indebtedness
of the Customer to the Guarantor until the Obligations shall have been paid in
full. If, notwithstanding the foregoing sentence, the Guarantor shall collect,
enforce or receive any amounts in respect of such indebtedness, such amounts
shall be collected, enforced and received by the Guarantor as trustee for the
Bank and be paid over to the Bank on account of the Obligations without
affecting in any manner the liability of the Guarantor under the other
provisions of this Guaranty.
7. SECURITY: SET-OFF. The Guarantor grants to the Bank, as security for
the full and punctual payment and performance of the Guarantor's obligations
hereunder, a continuing lien on and security interest in all securities or other
property belonging to the Guarantor now or hereafter held by the Bank and in ail
deposits (general or special, time or demand, provisional or final) and other
sums credited by or due from the Bank to the Guarantor or subject to withdrawal
by the Guarantor; and regardless of the adequacy of any collateral or other
means of obtaining repayment of the Obligations, the Bank is hereby authorized
at any time and from time to time, without notice to the Guarantor (any such
notice being expressly waived by the Guarantor) and to the fullest extent
permitted by law, to set off and apply such deposits and other sums against the
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obligations of the Guarantor under this Guaranty, whether or not the Bank shall
have made any demand under this Guaranty and although such obligations may be
contingent or unmatured.
8. FURTHER ASSURANCES. The Guarantor agrees that the Guarantor will, from
time to time at the request of the Bank, provide to the Bank such financial
information as the Bank may request, including personal financial statements (on
such forms as the Bank may prescribe) and federal and state income tax returns
and such other information relating to the business and affairs of the Guarantor
as the Bank may reasonably request. The Guarantor also agrees, upon demand after
any change in the condition or affairs (financial or otherwise) of the Guarantor
deemed by the Bank to be adverse and material, to secure the payment and
performance of its obligations hereunder by delivering, assigning or
transferring to the Bank or granting the Bank a security interest in additional
collateral of a value and character satisfactory to the Bank, and authorizes the
Bank to file any financing statement deemed by the Bank to be necessary or
desirable to perfect any security interest granted by the Guarantor to the Bank,
and as agent for the Guarantor, to sign the name of the Guarantor thereto. The
Guarantor also agrees to do all such things and execute all such documents,
including financing statements, as the Bank may consider necessary or desirable
to give full effect to this Guaranty and to perfect and preserve the rights and
powers of the Bank hereunder.
9. TERMINATION; REINSTATEMENT. This Guaranty shall remain in full force
and effect until the Bank is given written notice of the Guarantor's intention
to discontinue this Guaranty, notwithstanding any intermediate or temporary
payment or settlement of the whole or any part of the Obligations. No such
notice shall be effective unless received and acknowledged by an officer of the
Bank at its head office or at the branch of the Bank where this Guaranty is
given. No such notice shall affect any rights of the Bank or of any affiliate
hereunder, including, without limitation, the rights set forth in Sections 4 and
6, with respect to Obligations incurred prior to the receipt of such notice or
Obligations incurred pursuant to any contract or commitment in existence prior
to such receipt, and all checks, drafts, notes, instruments (negotiable or
otherwise) and writings made by or for the account of the Customer and drawn on
the Bank or any of its agents purporting to be dated on or before the date of
receipt of such notice, although presented to and paid or accepted by the Bank
after that date, shall form part of the Obligations. This Guaranty shall
continue to be effective or be reinstated, notwithstanding any such notice, if
at any time any payment made or value received with respect to an Obligation is
rescinded or must otherwise be returned by the Bank upon the insolvency,
bankruptcy or reorganization of the Customer, or
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otherwise, all as though such payment had not been made or
value received.
10. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding upon the
Guarantor, its successors and assigns, and shall inure to the benefit of and be
enforceable by the Bank and its successors, transferees and assigns. Without
limiting the generality of the foregoing sentence, the Bank may assign or
otherwise transfer any agreement or any note held by it evidencing, securing or
otherwise executed in connection with the Obligations, or sell participations in
any interest therein, to any other person or entity; and such other person or
entity shall thereupon become vested, to the extent set forth in the agreement
evidencing such assignment, transfer or participation, with all the rights in
respect thereof granted to the Bank herein.
11. AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of
this Guaranty nor consent to any departure by the Guarantor therefrom shall be
effective unless the same shall be in writing and signed by the Bank. No failure
on the part of the Bank to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right.
12. NOTICES. All notices and other communications called for hereunder
shall be made in writing and, unless otherwise specifically provided herein,
shall be deemed to have been duly made or given when delivered by hand or mailed
first class mail postage prepaid or, in the case of telegraphic or telexed
notice, when transmitted, answer back received, addressed as follows: if to the
Guarantor, at the address set forth beneath its signature hereto, and if to the
Bank, at 100 Federal Street, Boston, Massachusetts 02110, Attention: Paul
Chmielinski, or at such address as either party may designate in writing.
13. GOVERNING LAW; CONSENT TO JURISDICTION. This Guaranty is intended to
take effect as a sealed instrument and shall be governed by, and construed in
accordance with, the laws of The Commonwealth of Massachusetts. The Guarantor
agrees that any suit for the enforcement of this Guaranty may be brought in the
courts of The Commonwealth of Massachusetts or any Federal Court sitting therein
and consents to the non-exclusive jurisdiction of such court and to service of
process in any such suit being made upon the Guarantor by mail at the address
specified in Section 12 hereof. The Guarantor hereby waives any objection that
it may now or hereafter have to the venue of any such suit or any such court or
that such suit was brought in an inconvenient court.
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14. MISCELLANEOUS. This Guaranty constitutes the entire agreement of the
Guarantor with respect to the matters set forth herein. The rights and remedies
herein provided are cumulative and not exclusive of any remedies provided by law
or any other agreement, and this Guaranty shall be in addition to any other
guaranty of the Obligations. The invalidity or unenforceability of any one or
more sections of this Guaranty shall not affect the validity or enforceability
of its remaining provisions. Captions are for the ease of reference only and
shall not affect the meaning of the relevant provisions. The meanings of all
defined terms used in this Guaranty shall be equally applicable to the singular
and plural forms of the terms defined.
15. JURY WAIVER. THE BANK (BY ITS ACCEPTANCE HEREOF) AND THE GUARANTOR
AGREE THAT NEITHER OF THEM, INCLUDING ANY ASSIGNEE OR SUCCESSOR SHALL SEEK A
JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, OR ANY OTHER LITIGATION
PROCEDURE BASED UPON OR ARISING OUT OF, THIS GUARANTY, ANY RELATED INSTRUMENTS,
ANY COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM.
NEITHER THE BANK NOR THE GUARANTOR SHALL SEEK TO CONSOLIDATE ANY SUCH ACTION
WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.
THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE BANK AND THE
GUARANTOR AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NEITHER THE
BANK NOR THE GUARANTOR HAS AGREED WITH OR REPRESENTED TO THE OTHER THAT THE
PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty under seal on the
31st day of January, 1996.
INDUSTRY MORTGAGE COMPANY,
L.P.
BY: INDUSTRY MORTGAGE
CORPORATION,
Its Managing General
Partner
By: /s/ George Nicholas
----------------------------
Name: George Nicholas
---------------------------
Title: Chairman and Chief
Executive Officer
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FINANCING STATEMENT
UNIFORM COMMERCIAL CODE FORM UCC-1 (REV. 1993)
Debtor: IMC Corporation of America
3450 Bushwood Park Drive, Suite 250
Tampa, FL 33618
Secured Party: The First National Bank of Boston
100 Federal Street
Boston, MA 02110
This Financing Statement
covers the following
types or items of
property: All Mortgage Loans, Mortgages,
Mortgage Notes and other documents
and property deposited with or
possessed by or for the account of
Secured Party, or held for delivery
to Secured Party, and all proceeds
thereof, and all other property and
proceeds thereof described in the
attached Rider.
x - Products of collateral are also covered.
x - Proceeds of collateral are also covered.
x - Florida Documentary Stamp Tax is not required.
Number of additional sheets presented: 1
Signature of Debtor: IMC Corporation of America
George Nicholas
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SCHEDULE A
Capacity as Secured Party
The First National Bank of Boston (the "Lender") is the "Secured Party" in
its capacity as Lender under a certain Loan and Security Agreement dated March
18, 1994, as from time to time amended, restated, renewed, extended, increased
or reduced (the "Agreement"), to which the Lender and IMC Corporation of America
(the "Borrower") are parties.
Collateral
(a) All Mortgage Loans, Mortgages and Mortgage Notes and other documents
and property as shall be deposited with or held by Lender or its designated
custodian pursuant to the Agreement, whether or not the same shall be determined
to be Eligible Collateral for purposes of the Agreement;
(b) All payments and prepayments of principal, interest, penalties and
other income due or to become due (other than amounts received by Borrower for
the purpose of payment of real property taxes, assessments and insurance
premiums pursuant to the terms of Mortgage Notes) on all Mortgage Loans,
Mortgages and Mortgage Notes referred to in Paragraph (a) above, and all
proceeds thereof, all the right, title and interest of every nature whatsoever
of Borrower in and to the same and all property used in connection therewith
(subject to Borrower's right under the Agreement to collect certain payments so
long as no Event of Default shall have occurred and be continuing) including,
without limitation, the following:
(i) All rights, liens and security interest existing with respect
to, or as security for, all such Mortgage Loans;
(ii) All hazard insurance policies, title insurance policies or
condemnation proceeds with respect to each such Mortgage Loan;
(iii) All insurance and guaranties provided by the FHA or VA, as the
case may be, with respect to each such Mortgage Loan; and
(iv) All private mortgage insurance policies with respect to each
such Mortgage Loan.
(c) All files, surveys, certificates, correspondence, appraisals, computer
programs, tapes, discs, cards, accounting records and other records and data of
Borrower related to the Mortgage Loans referred to in Paragraph (a) above; and
(d) All products and proceeds of any of the property described in the
foregoing Paragraphs (a), (b) and (c) (including, without limitation, cash
proceeds and any other type of property, but excluding any interest of the
Debtor in the residual portion and in the interest-only portion of any
mortgage-backed security issued in respect of a pool which includes a Mortgage
Loan which is no longer included as Eligible Collateral (as defined in the
Agreement)) and any other property or documents relating to any of the
foregoing.
Copies of the Agreement referred to herein are on file with the Lender.
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OFFICER'S CERTIFICATE
The undersigned, Chairman and Chief Executive Officer of INDUSTRY MORTGAGE
CORPORATION ("General Partner"), a Delaware corporation and the general partner
of INDUSTRY MORTGAGE COMPANY, L.P., a Delaware limited partnership (the
"Company"), and as Chairman and Chief Executive Officer of IMC CORPORATION OF
AMERICA, a Delaware corporation and subsidiary of the company ("IMC America")
pursuant to the Fifth Amendment to Loan and Security Agreement executed by
Company and by IMC America as borrower in favor of The First National Bank of
Boston ("Lender") dated in January, 1996 (the "Loan Agreements"), does hereby
certify to Lender, as follows:
1. Attached hereto as Exhibits A-1 and A-2 are true and complete copies of
IMC America's Articles of Incorporation and Bylaws, respectively, as in
effect on the date hereof.
2. The following named persons (i) are officers of the General Partner and of
the Partnership and of IMC America, (ii) are authorized to sign on the
Company's and on IMC America's behalf, (iii) now hold the title set forth
opposite their respective names, and (iv) the signature set forth opposite
their respective names are the true and genuine signatures of such
officers:
Name Officer(s) Signature
---- ---------- ---------
George Nicholas Chairman, Secretary and CEO /s/ George Nicholas
-----------------------
Thomas G. Middleton President and COO /s/ Thomas G. Middleton
-----------------------
George Freeman Chief Financial Officer /s/ George Freeman
-----------------------
Timothy Griffin Vice President /s/ Timothy Griffin
-----------------------
Susan McCarthy Vice President /s/ Susan McCarthy
-----------------------
Phyllis Blair Vice President /s/ Phyllis Blair
-----------------------
3. Attached hereto as Exhibit B-1 and B-2, respectively, are true copies of
resolutions duly adopted by the General Partner and IMC America, both on
January 31, 1996. Each such resolution has not been amended, modified or
rescinded and is still in full force and effect.
IN WITNESS WHEREOF, of the undersigned has executed this Officers'
Certificate as of the 31st day of January, 1996.
/s/ George Nicholas
--------------------------------
GEORGE NICHOLAS, Chairman and Chief
Executive Officer of Industry Mortgage
Corporation, general partner of
industry Mortgage Company, L.P.
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
IMC MORTGAGE COMPANY
We consent to the inclusion in this Registration Statement on Form S-1 of
our report dated May 21, 1996 on our audits of the consolidated financial
statements of IMC Mortgage Company and Subsidiaries. We also consent to the
reference to our firm under the caption 'Experts.'
COOPERS & LYBRAND L.L.P.
Jacksonville, Florida
June 7, 1996
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