<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 14, 1997
REGISTRATION NO. 333-
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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 OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</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)
------------------------
<TABLE>
<CAPTION>
COPIES OF ALL COMMUNICATIONS, INCLUDING ALL COMMUNICATIONS SENT TO
THE AGENT FOR SERVICE, SHOULD BE SENT TO:
<S> <C>
PETER S. KOLEVZON, ESQ. STEVEN R. FINLEY, ESQ.
KRAMER, LEVIN, NAFTALIS & FRANKEL GIBSON, DUNN & CRUTCHER LLP
919 THIRD AVENUE 200 PARK AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10166
(212) 715-9100 (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: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED
OFFERING MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES PRICE AGGREGATE REGISTRATION
TO BE REGISTERED AMOUNT TO BE REGISTERED(1) PER UNIT(2) OFFERING PRICE FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share............ 8,050,000 shares $18.75 $ 150,937,500 $45,739
</TABLE>
(1) Includes 1,050,000 shares which are subject to the Underwriters'
over-allotment option.
(2) Calculated in accordance with Rule 457(c) based on the average of the high
and low prices per share of the Common Stock on February 11, 1997, after
giving effect to a 100% stock dividend paid on February 13, 1997 to
stockholders of record on February 6, 1997.
------------------------
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>
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.
SUBJECT TO COMPLETION, DATED FEBRUARY 14, 1997
PROSPECTUS
7,000,000 SHARES
IMC MORTGAGE COMPANY
COMMON STOCK
[LOGO]
------------------------
Of the 7,000,000 shares of common stock (the 'Common Stock') offered hereby
(the 'Offering'), 5,600,000 shares are being offered by IMC Mortgage Company
('IMC' or the 'Company') and 1,400,000 shares are being offered by certain
stockholders of the Company (the 'Selling Stockholders'). See 'Principal and
Selling Stockholders.' The Company will not receive any of the proceeds from the
sale of shares by the Selling Stockholders. See 'Use of Proceeds.'
The Common Stock is traded on the Nasdaq National Market ('Nasdaq') under
the symbol 'IMCC.' On February , 1997, the last reported sales price as
reported by Nasdaq of the Common Stock was $ per share. See 'Price Range of
Common Stock and Dividend Policy.'
------------------------
SEE 'RISK FACTORS' COMMENCING ON PAGE 10 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF 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.
------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2) SELLING STOCKHOLDERS
<S> <C> <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 $400,000, payable by the Company,
including expenses of the Selling Stockholders. See 'Principal and Selling
Stockholders.'
(3) The Company and certain of the Selling Stockholders have granted the
Underwriters a 30-day option to purchase up to 1,050,000 additional shares
of Common Stock, at the same price and subject to the same Underwriting
Discount as set forth above, solely to cover over-allotments, if any. If the
Underwriters exercise such option in full, the Price to Public will total
$ , Underwriting Discount will total $ , Proceeds to Company
will total $ and Proceeds to Selling Stockholders will total $ .
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 , 1997 at the
offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167.
------------------------
BEAR, STEARNS & CO. INC.
J.P. MORGAN & CO.
NATWEST SECURITIES LIMITED
OPPENHEIMER & CO., INC.
, 1997
<PAGE>
<PAGE>
HEADQUARTERS AND RETAIL LOCATIONS
[map of United States showing locations of the
Company's headquarters and retail offices]
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE
WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE 'UNDERWRITING.'
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, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
FOR UNITED KINGDOM PURCHASERS: THE COMMON STOCK MAY NOT BE OFFERED OR SOLD
IN THE UNITED KINGDOM OTHER THAN TO PERSONS WHOSE ORDINARY ACTIVITIES INVOLVE
THEM IN ACQUIRING, HOLDING, MANAGING OR DISPOSING OF INVESTMENTS, WHETHER AS
PRINCIPAL OR AGENT (EXCEPT IN CIRCUMSTANCES THAT DO NOT CONSTITUTE AN OFFER TO
THE PUBLIC WITHIN THE MEANING OF THE PUBLIC OFFERS OF SECURITIES REGULATIONS
1995 OR THE FINANCIAL SERVICES ACT 1986), AND THIS PROSPECTUS MAY ONLY BE ISSUED
OR PASSED ON TO ANY PERSON IN THE UNITED KINGDOM IF THAT PERSON IS OF A KIND
DESCRIBED IN ARTICLE 11(3) OF THE FINANCIAL SERVICES ACT 1986 (INVESTMENT
ADVERTISEMENTS) (EXEMPTIONS) ORDER 1996.
2
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
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. Unless the context otherwise requires, the terms
the 'Company' and 'IMC' refer to IMC Mortgage Company, its subsidiaries,
including its wholly owned subsidiary Industry Mortgage Company, L.P. (the
'Partnership'), and their respective operations. Unless otherwise indicated, all
information in this Prospectus assumes no exercise of the Underwriters'
over-allotment option and has been adjusted to reflect a two-for-one stock split
of the Common Stock paid on February 13, 1997. This Prospectus contains
forward-looking statements which involve risks and uncertainties. Actual events
or results may differ materially as a result of various factors, including those
set forth under 'Risk Factors' and elsewhere in this Prospectus.
THE COMPANY
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 such individuals
to consolidate debt, to finance home improvements, to pay educational expenses
and for a variety of other uses. 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 originators of
non-conforming home equity loans (the 'Industry Partners') and certain members
of management. The original Industry Partners included: Approved Financial Corp.
(formerly American Industrial Loan Association) ('Approved'); Champion Mortgage
Co. Inc.; Cityscape Corp.; Equitysafe, a Rhode Island General Partnership;
Investors Mortgage, a Washington LP ('Investors Mortgage'); Mortgage America
Inc. ('Mortgage America'); Residential Money Centers; First Government Mortgage
and Investors Corp.; Investaid Corp.; and New Jersey Mortgage and Investment
Corp. In 1994, TMS Mortgage Inc., a wholly-owned subsidiary of The Money Store
Inc., ('The Money Store'), and Equity Mortgage, a Maryland LP ('Equity
Mortgage'), became Industry Partners. Branchview, Inc., a wholly-owned
subsidiary of Lakeview Savings Bank ('Lakeview'), became an Industry Partner in
1995.
IMC purchases and originates non-conforming home equity loans through a
diversified network of correspondents (which includes the Industry Partners) and
mortgage loan brokers and on a retail basis through its direct consumer lending
effort. As of December 31, 1996, IMC had a network of 374 approved
correspondents, including the Industry Partners, 1,693 approved mortgage loan
brokers and 17 Company-owned retail branches. During January and February 1997,
IMC added 49 retail branches through the acquisition of four retail
non-conforming mortgage lenders. 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 $1.77 billion
in 1993, 1994, 1995 and 1996, respectively. IMC's direct consumer lending
effort, which began in 1995, contributed approximately 1.8% and 3.8% of loan
production in 1995 and 1996, respectively. IMC is continuing to expand its
direct consumer lending by opening branch offices and expanding its use of
advertising, direct mail and other marketing strategies, as well as through
acquisitions.
As of December 31, 1996, a majority of the Industry Partners were required
to sell to IMC, on prevailing market terms and conditions, an aggregate of
$162.0 million of home equity loans per year. IMC has consistently purchased
loan production from the Industry Partners in excess of such aggregate annual
commitment. Actual sales to IMC by the Industry Partners aggregated $337.5
million for the year ended December 31, 1996. As a result of IMC's acquisition
of two of the Industry Partners (Mortgage America and Equity Mortgage) effective
January 1, 1997, the contractual annual sales commitment from the Industry
Partners was reduced by $36.0 million to $126.0 million. The two
3
<PAGE>
<PAGE>
acquired Industry Partners originated an aggregate of approximately $284 million
residential loans in 1996. These acquisitions reflect IMC's business strategy to
increase its retail loan origination channels through acquisitions of retail
non-conforming lenders. See 'Business -- Acquisitions and Strategic Alliances'
and 'Certain Relationships and Related Transactions.'
IMC sells the majority of its loans through its securitization program and
retains rights to service such loans. Through December 31, 1996, IMC had
completed eight securitizations totaling $1.4 billion of loans. The Company
earns servicing fees on a monthly basis of 0.50% per year and ancillary fees on
the loans it services in the securitization pools. As of December 31, 1995 and
1996, IMC had a servicing portfolio of $535.8 million and $2.15 billion,
respectively.
The Company's total revenues increased from $13.4 million for the nine
months ended September 30, 1995 to $45.5 million for the nine months ended
September 30, 1996, while pro forma net income increased from $2.8 million to
$11.3 million in those periods. Gain on sale of loans, net represented $10.6
million, or 78.8% of total revenues, for the nine months ended September 30,
1995 as compared to $30.6 million, or 67.2% of total revenues, for the nine
months ended September 30, 1996. Servicing income, net warehouse interest income
and other revenues in the aggregate increased from $2.8 million, or 21.2% of
total revenues, for the nine months ended September 30, 1995 to $14.9 million,
or 32.8% of total revenues, for the nine months ended September 30, 1996. IMC's
strategy is to continue to increase its servicing portfolio and portfolio of
loans held for sale in order to generate increased revenues from these two
sources.
The Company is a Florida corporation. Its principal offices are located at
3450 Buschwood Park Drive, Tampa, Florida 33618 and its telephone number is
(813) 932-2211.
BUSINESS STRATEGY
The Company utilizes the following strategies to maintain and expand its
core business:
Expansion through Acquisitions. The Company is actively pursuing a strategy
of acquiring originators of non-conforming home equity loans. IMC's acquisition
strategy focuses on entities that originate non-conforming mortgages either
directly from the consumer or through broker networks. In 1996, IMC acquired
Mortgage Central Corp. ('Equitystars,' an affiliate of Equitysafe) and in
January and February 1997 completed the acquisitions of Mortgage America,
CoreWest Banc ('CoreWest'), Equity Mortgage and American Mortgage Reduction,
Inc. ('American Reduction'). Equitystars, Mortgage America and Equity Mortgage
were Industry Partners. Management believes that the acquisition of
non-conforming home equity loan originators will benefit IMC by: (i) increasing
IMC's loan production volume by capturing all of the acquired company's
production instead of only a portion; (ii) improving IMC's profitability and
profit margins because broker and direct-to-consumer originated loans typically
result in better profit margins than loans purchased from correspondents; (iii)
adding experienced management; and (iv) broadening IMC's distribution system for
offering new products. In order to incent management of the acquired companies,
IMC typically structures its acquisitions to include an initial payment upon
closing of the transaction and to provide for contingent payments tied to future
production and profitability of the acquired company.
Expansion of Direct Consumer Lending. IMC intends to expand its direct
consumer lending efforts by opening additional branch offices which will allow
the Company to focus on developing contacts with individual borrowers, local
brokers and referral sources such as accountants, attorneys and financial
planners. Through December 31, 1996, IMC opened 17 retail branch offices. In
January and February 1997, IMC added 49 retail branches through acquisitions.
Expansion of Correspondent and Broker Networks. The Company intends to
continue to increase its loan production from correspondents and brokers by
increasing its market share through geographic expansion, tailored marketing
strategies and a continued focus on servicing smaller correspondents in regions
that historically have not been actively served by non-conforming home equity
lenders.
Broadening of Product Offerings. The Company continues to introduce new
non-conforming home equity loan products to meet the needs of its
correspondents, brokers and borrowers and to expand its
4
<PAGE>
<PAGE>
market share by attracting new customers. The Company is in the process of
introducing two such products, Home Equity Lines of Credit ('HELOCs') and
secured credit cards.
Strategic Alliances and Joint Ventures. In order to increase the Company's
volume and diversify its sources of loan originations over the long term, the
Company seeks to enter into strategic alliances with selected mortgage lenders,
pursuant to which the Company provides working capital and financing
arrangements and a commitment to purchase qualifying loans. In return, the
Company expects to receive a more predictable flow of loans and, in some cases,
an option to acquire an equity interest in the strategic partner. To date, the
Company has entered into two strategic alliances in the United States and a
joint venture in the United Kingdom.
Maintenance of Underwriting Quality and Loan Servicing. The Company's
underwriting and servicing staff have extensive experience in the non-conforming
home equity loan industry. The management of IMC believes that the depth and
experience of its underwriting and servicing staff provide the Company with the
infrastructure necessary to sustain its recent growth and maintain its
commitment to high standards in its underwriting and loan servicing. As the
Company continues to grow, it is committed to applying consistent underwriting
procedures and criteria and to attracting, training and retaining experienced
staff.
Maximize Financial Flexibility and Improve Cash Flow. The Company intends
to maximize its financial flexibility in a number of ways, including by
maintaining a significant quantity of mortgage loans held for sale on its
balance sheet. Maintenance of a substantial amount of mortgage loans held for
sale, which the Company can sell when necessary or desirable either through
securitizations or whole loans sales, permits IMC to improve management of its
cash flow by increasing its net interest income and to reduce its exposure to
the volatility of the capital markets. During 1996, the Company securitized
approximately 53% of its loan production.
RECENT DEVELOPMENTS
Acquisitions. Pursuant to its strategy to expand direct lending origination
channels through acquisitions of non-conforming home equity lenders, IMC
acquired Mortgage America, CoreWest, Equity Mortgage and American Reduction in
January and February 1997. The purchase price for each acquisition was paid in
either cash or Common Stock and most acquisitions included earn-out arrangements
that provide the sellers with additional consideration if the acquired company
reaches certain performance targets after acquisition. While the Company
believes that the acquisitions described below are important to the Company's
business strategy, none of the acquisitions individually, or in the aggregate,
represents a significant amount of revenues, income or assets in relation to the
Company. See 'Business -- Acquisitions and Strategic Alliances.'
Acquisition of Mortgage America. Effective January 1, 1997, IMC
acquired all of the assets of Mortgage America, an Industry Partner.
Mortgage America is a non-conforming lender based in Bay City, Michigan
that originates residential mortgage loans from a network of 32 retail
offices located in 29 states. Mortgage America originated over $248 million
of residential mortgage loans in 1996, including over $69 million during
the last quarter of 1996. IMC purchased $45.3 million of residential
mortgage loans from Mortgage America during 1996, including $21.1 million
during the last quarter of 1996.
Acquisition of CoreWest. Effective January 1, 1997, IMC acquired all
of the outstanding common stock of CoreWest, a non-conforming lender based
in Los Angeles, California. CoreWest, which commenced operations in early
1996, originates residential mortgage loans primarily through a network of
nine mortgage centers located in California, Colorado, Washington, Utah and
Oregon. CoreWest originated over $48 million of residential mortgage loans
in 1996, including over $22 million during the last quarter of 1996. IMC
purchased $10.3 million of residential mortgage loans from CoreWest during
1996, all of which was during the last quarter of 1996.
Acquisition of Equity Mortgage. Effective January 1, 1997, IMC
acquired all of the assets of Equity Mortgage, an Industry Partner. Equity
Mortgage is a non-conforming lender that originates residential mortgage
loans from its offices in the greater Baltimore metropolitan region,
Delaware and Pennsylvania. Equity Mortgage originated over $36 million of
residential mortgage loans in
5
<PAGE>
<PAGE>
1996, including over $11 million during the last quarter of 1996. IMC
purchased $12.5 million of residential mortgage loans from Equity Mortgage
during 1996, including $3.3 million during the last quarter of 1996.
Acquisition of American Reduction. Effective February 1, 1997, IMC
acquired all of the assets of American Reduction, a non-conforming lender
based in Owings Mills, Maryland. American Reduction originates residential
mortgage loans from its main office in Owings Mills, and four satellite
offices located in Pennsylvania. American Reduction originated over $80
million of residential mortgage loans in 1996, including over $28 million
during the last quarter of 1996. IMC did not purchase a significant amount
of residential mortgage loans from American Reduction in 1996.
Recent Securitizations. In January 1997, the Company completed a
securitization in the amount of $325 million, its ninth securitization.
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.'
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
the Company............................. 5,600,000 shares
the Selling Stockholders................ 1,400,000 shares
Common Stock to be outstanding after the
Offering(1)................................ 28,149,142 shares
Use of proceeds.............................. For general corporate purposes, including the repayment of
outstanding indebtedness, funding of loan purchases and
originations, funding of future acquisitions and expansion of
the Company's direct lending branch office network. See 'Use of
Proceeds.'
Nasdaq National Market symbol................ IMCC
</TABLE>
- ------------
(1) Excludes (a) 1,865,764 shares of Common Stock reserved for issuance upon
exercise of outstanding options and (b) any shares that may become payable
under contingent payout arrangements with respect to IMC's acquisitions of
Equitystars, Mortgage America, CoreWest and American Reduction. Includes
600,000 of the 2,700,000 shares of Common Stock reserved for issuance upon
exercise of the warrant (the 'Conti Warrant') issued to ContiFinancial
Corporation ('ContiFinancial'). See 'Management -- Stock Option Plans,'
'Business -- Acquisitions and Strategic Alliances' and 'Certain
Relationships and Related Transactions -- Agreements with
ContiFinancial -- Conti Warrant.'
6
<PAGE>
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The historical Statement of Operations and Balance Sheet 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 have been derived from, and should
be read in conjunction with, the Consolidated Financial Statements and Notes
thereto 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 nine months ended September 30, 1995 and 1996
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 periods. Operating results
for the nine months ended September 30, 1996 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1996. 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 Notes thereto.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 12, 1993)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------
1993 1994 1995
----------------- ---------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gain on sale of loans(1)(2)................................... $ 438,774 $8,583,277 $20,680,848
Additional securitization transaction expense(3).............. -- (560,137) (5,547,037)
-------- ---------- -----------
Gain on sale of loans, net................................ 438,774 8,023,140 15,133,811
-------- ---------- -----------
Warehouse interest income..................................... 97,159 2,510,062 7,884,679
Warehouse interest expense.................................... (50,709) (1,610,870) (6,006,919)
-------- ---------- -----------
Net warehouse interest income............................. 46,450 899,192 1,877,760
-------- ---------- -----------
Servicing fees................................................ -- 99,224 1,543,339
Other......................................................... 28,235 1,072,855 1,117,903
-------- ---------- -----------
Total servicing fees and other............................ 28,235 1,172,079 2,661,242
-------- ---------- -----------
Total revenues........................................ 513,459 10,094,411 19,672,813
-------- ---------- -----------
Expenses:
Compensation and benefits..................................... 507,904 3,348,236 5,139,386
Selling, general and administrative expenses(2)............... 355,526 2,000,401 3,477,677
Other......................................................... -- 14,143 297,743
Sharing of proportionate value of equity(4)................... -- 1,689,000 4,204,000
-------- ---------- -----------
Total expenses............................................ 863,430 7,051,780 13,118,806
-------- ---------- -----------
Pre-tax income (loss)............................................. (349,971) 3,042,631 6,554,007
Pro forma provision (benefit) for income taxes.................... (134,000) 1,187,000 2,522,000
-------- ---------- -----------
Pro forma net income (loss)....................................... $(215,971) $1,855,631 $ 4,032,007
-------- ---------- -----------
-------- ---------- -----------
Pro forma per share data:
Pro forma net income per share................................ $ 0.25
Weighted average number of shares outstanding................. 15,871,504
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gain on sale of loans(1)(2)................................... $13,423,973 $34,728,321
Additional securitization transaction expense(3).............. (2,855,367) (4,157,644)
----------- -----------
Gain on sale of loans, net................................ 10,568,606 30,570,677
----------- -----------
Warehouse interest income..................................... 5,224,931 22,249,234
Warehouse interest expense.................................... (4,027,307) (14,505,231)
----------- -----------
Net warehouse interest income............................. 1,197,624 7,744,003
----------- -----------
Servicing fees................................................ 855,207 4,215,381
Other......................................................... 788,441 2,977,691
----------- -----------
Total servicing fees and other............................ 1,643,648 7,193,072
----------- -----------
Total revenues........................................ 13,409,878 45,507,752
----------- -----------
Expenses:
Compensation and benefits..................................... 3,649,180 11,987,493
Selling, general and administrative expenses(2)............... 2,156,570 10,416,597
Other......................................................... 139,652 1,820,793
Sharing of proportionate value of equity(4)................... 2,916,960 2,555,000
----------- -----------
Total expenses............................................ 8,862,362 26,779,883
----------- -----------
Pre-tax income (loss)............................................. 4,547,516 18,727,869
Pro forma provision (benefit) for income taxes.................... 1,749,884 7,397,508
----------- -----------
Pro forma net income (loss)....................................... $ 2,797,632 $11,330,361
----------- -----------
----------- -----------
Pro forma per share data:
Pro forma net income per share................................ $ 0.64
Weighted average number of shares outstanding................. 17,683,600
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, 1996
----------------------------------------- --------------
1993 1994 1995 ACTUAL
---------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Mortgage loans held for sale...................................... $7,971,990 $28,995,750 $193,002,835 $ 625,872,876
Interest-only and residual certificates........................... -- 3,403,730 14,072,771 60,295,301
Warehouse finance facilities...................................... 7,212,915 27,731,859 189,819,046 595,247,351
Term debt......................................................... -- -- 11,120,642 33,555,145
Stockholders' equity.............................................. 1,449,092 5,856,011 5,608,844 82,775,806
Total assets...................................................... 8,861,144 36,641,991 354,551,434 1,295,780,386
<CAPTION>
AS ADJUSTED(5)
--------------
<S> <C>
BALANCE SHEET DATA:
Mortgage loans held for sale......................................
Interest-only and residual certificates...........................
Warehouse finance facilities......................................
Term debt.........................................................
Stockholders' equity..............................................
Total assets......................................................
</TABLE>
<TABLE>
<CAPTION>
PERIOD
FROM NINE
INCEPTION MONTHS
(AUGUST 12, 1993) YEAR ENDED ENDED
THROUGH DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------- -------------
1993 1994 1995 1995
----------------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING DATA (DOLLARS IN THOUSANDS):
Loans purchased or originated.......................................... $29,608 $282,924 $621,629 $399,042
Loans sold through securitization...................................... -- 81,637 388,363 230,000
Whole loan sales....................................................... 21,636 180,263 70,400 67,963
Serviced loan portfolio (period end)................................... -- 92,003 535,798 355,374
DELINQUENCY DATA
Total delinquencies as a percentage of loans serviced (period end)(6).. 0.00% 0.87% 3.43% 2.42%
Defaults as a percentage of loans serviced (period end)(7)............. 0.00 0.12 1.00 0.87
Net losses as a percentage of average loans serviced for period........ 0.00 0.00 0.09 0.04
<CAPTION>
1996
----------
<S> <C>
OPERATING DATA (DOLLARS IN THOUSANDS):
Loans purchased or originated.......................................... $1,146,456
Loans sold through securitization...................................... 625,000
Whole loan sales....................................................... 103,592
Serviced loan portfolio (period end)................................... 1,486,803
DELINQUENCY DATA:
Total delinquencies as a percentage of loans serviced (period end)(6).. 3.67%
Defaults as a percentage of loans serviced (period end)(7)............. 1.73
Net losses as a percentage of average loans serviced for period........ 0.08
</TABLE>
7
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<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS
------------------------------------------- ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1996 1996
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gain on sale of loans(1)(2)......................... $10,875,466 $11,315,433 $12,537,421 $34,728,321
Additional securitization transaction expense(3).... (2,828,591) (1,329,053) -- (4,157,644)
----------- ----------- ------------- -------------
Gain on sale of loans, net...................... 8,046,875 9,986,380 12,537,421 30,570,677
----------- ----------- ------------- -------------
Warehouse interest income............................... 5,160,943 6,453,721 10,634,571 22,249,234
Warehouse interest expense.............................. (3,375,244) (4,457,415) (6,672,572) (14,505,231)
----------- ----------- ------------- -------------
Net warehouse interest income................... 1,785,699 1,996,306 3,961,999 7,744,003
----------- ----------- ------------- -------------
Servicing fees.......................................... 995,439 1,466,803 1,753,139 4,215,381
Other................................................... 628,536 835,709 1,513,446 2,977,691
----------- ----------- ------------- -------------
Total revenues.................................. 11,456,549 14,285,198 19,766,005 45,507,752
----------- ----------- ------------- -------------
Expenses:
Compensation and benefits........................... 3,666,685 4,372,965 3,947,843 11,987,493
Selling, general and administrative expenses(2)..... 2,240,856 2,895,854 5,279,887 10,416,597
Other............................................... 342,534 1,005,057 473,202 1,820,793
Sharing of proportionate value of equity(4)......... 2,555,000 -- -- 2,555,000
----------- ----------- ------------- -------------
Total expenses.................................. 8,805,075 8,273,876 9,700,932 26,779,883
----------- ----------- ------------- -------------
Pre-tax income.......................................... 2,651,474 6,011,322 10,065,073 18,727,869
Pro forma provision for income taxes (actual provision
for the three months ended September 30).............. 1,026,000 2,358,522 4,012,986 7,397,508
----------- ----------- ------------- -------------
Pro forma net income (actual for the three months ended
September 30)......................................... $ 1,625,474 $ 3,652,800 $ 6,052,087 $11,330,361
----------- ----------- ------------- -------------
----------- ----------- ------------- -------------
Pro forma per share data:
Pro forma (actual for the three months ended
September 30) net income per share................ $0.10 $0.22 $0.26 $0.64
Weighted average number of shares outstanding....... 15,871,504 16,434,386 23,431,704 17,683,600
OPERATING DATA (DOLLARS IN THOUSANDS):
Loans purchased or originated........................... $ 263,987 $ 402,237 $ 480,232 $ 1,146,456
Loans sold through securitization....................... 175,000 200,000 250,000 625,000
Whole loan sales........................................ 21,272 39,140 43,180 103,592
Serviced loan portfolio (period end).................... 783,367 1,103,920 1,486,803 1,486,803
DELINQUENCY DATA:
Total delinquencies as a percentage of loans serviced
(period end)(6)....................................... 2.31% 3.06% 3.67% 3.67%
Defaults as a percentage of loans serviced (period
end)(7)............................................... 1.10 1.18 1.73 1.73
Net losses as a percentage of average loans serviced for
period................................................ 0.01 0.03 0.04 0.08
</TABLE>
- ------------
(1) Prior to June 1996, includes interest-only and residual certificates
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) Beginning January 1, 1996, the Company adopted SFAS No. 122 'Accounting for
Mortgage Servicing Rights' ('SFAS 122') which resulted in additional gain on
sale of $5.8 million and additional amortization expense of $0.7 million for
the nine months ended September 30, 1996.
(3) In 1994 and 1995 and the nine months ended September 30, 1996,
ContiFinancial received interest-only and residual certificates with
estimated values of $3.0 million, $25.1 million and $13.4 million in
exchange for cash payments of $2.1 million, $18.4 million and $8.6 million,
respectively. In addition, ContiFinancial paid IMC $0.4 million, $1.1
million and $0.7 million in 1994, 1995 and the nine months ended September
30, 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.'
(footnotes continued on next page)
8
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<PAGE>
(footnotes continued from previous page)
(4) Reflects expenses recorded in connection with the value sharing arrangement
with ContiFinancial (the 'Conti VSA') which terminated in March 1996. The
Company's pre-tax income before the Conti VSA for 1994 and 1995 and the nine
months ended September 30, 1996 was $4.7 million, $10.8 million and $21.3
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 5 of Notes to
Consolidated Financial Statements.
(5) Adjusted to give effect to the sale of 5,600,000 shares of Common Stock
offered by the Company hereby, assuming a public offering price of $ per
share (the closing price of the Common Stock on February , 1997). See
'Capitalization.'
(6) Represents the percentages of account balances contractually past due 30
days or more, exclusive of home equity loans in foreclosure, bankruptcy and
real estate owned.
(7) Represents the percentages of account balances of loans in foreclosure and
bankruptcy, exclusive of real estate owned.
9
<PAGE>
<PAGE>
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. This Prospectus
contains forward-looking statements which involve risks and uncertainties.
Discussions containing such forward-looking statements may be found in the
material set forth under 'Prospectus Summary,' 'Risk Factors,' 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
'Business,' as well as in the Prospectus generally. Actual events or results may
differ as a result of various factors, including, without limitation, those set
forth under 'Risk Factors' below and elsewhere in this Prospectus.
LIQUIDITY -- NEGATIVE CASH FLOW
The Company has an ongoing need for substantial capital to finance its
lending activities. This need is expected to increase as the volume of the
Company's loan purchases and originations increases. 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 nine months ended September 30, 1996, the Company operated on a negative
cash flow basis using $165.3 million and $467.1 million, respectively, more in
operations than was generated, due primarily to an increase in mortgage loans
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 the cash from its interest-only ('I/O') and residual certificates
is received by the Company over the actual life of the loans securitized.
Additionally, the Company incurs significant cash expenses in connection with
its securitization transactions. 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 existing
capital sources of the Company were to decrease significantly, or if additional
capital sources are not available to the Company when required, the rate of
growth of the Company and its results of operations and financial condition
could be materially and adversely affected.
The documents governing the Company's securitizations require the Company
to build, within each securitization trust, over-collateralization levels by
delaying distributions of amounts with respect to the Company's residual
interest and applying such amounts to reduce the principal balances of the
senior interests issued by the related trust. This reduction in the outstanding
principal balances of the senior interests issued by the trust causes the
aggregate principal amount of the loans in the related pool to exceed the
aggregate principal balance of the senior interests. 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 amounts otherwise payable to
the Company on account of its residual interests are required to be retained or
applied to reduce principal from time to time. Such retained amounts are
pre-determined by the entity providing a guarantee of the related senior
interests and are a condition to obtaining an AAA/Aaa rating on such interests.
In addition, such over-collateralization delays cash distributions that
otherwise would flow to the Company through its retained interest in the
securitization trust, thereby slowing 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 INTEREST-ONLY AND RESIDUAL CERTIFICATES
The Company sells loans through securitizations and retains a residual
interest in the loans and, on occasion, also retains an I/O certificate. The I/O
and residual certificates are initially recorded at their allocated cost based
on an estimate of the discounted present value of the cash flows that the
Company will realize from the interests. This estimate is based in turn on
certain assumptions as to the prepayment speeds (relating to the average life of
the loans sold) and credit losses of the loans sold. At September 30, 1996, the
Company had recorded I/O and residual interests in the amount of approximately
$60.3 million on its balance sheet.
10
<PAGE>
<PAGE>
The actual prepayment speeds and credit losses experienced over short
periods of time have varied from the assumptions utilized by the Company in
estimating the value of its I/O and residual certificates. To date, prepayment
speeds over short periods of time have been higher than the assumptions utilized
by the Company and credit losses over short periods of time have been lower than
the assumptions utilized by the Company. The Company has not adjusted the value
of such certificates when the actual results have differed from the assumptions
for short periods of time because the Company believes that the actual results
should, other than for short periods of time, prove to be consistent with the
Company's original assumptions.
If, however, the actual prepayment speed or credit losses of a loan
portfolio materially and adversely vary from the Company's original assumptions
over time, the Company would be required to adjust the value of the I/O and
residual certificates, and such adjustment could have a material adverse effect
on the Company's financial condition and results of operations. Higher than
anticipated rates of loan prepayments or credit losses over a substantial period
of time would require the Company to write down the value of the I/O and
residual certificates, adversely affecting earnings. There can be no assurance
that the Company's assumptions as to prepayment speeds and credit losses will
prove to be reasonable. To the Company's knowledge, there is a limited market
for the sale of I/O and residual classes of certificates and there can be no
assurance that these assets can be sold for the value reflected on the balance
sheet. See ' -- Contingent Risks.'
In June 1996, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standards No. 125 ('SFAS 125'), 'Accounting
for Transfer and Servicing of Financial Assets and Extinguishment of
Liabilities.' SFAS 125 addresses the accounting for all types of securitization
transactions, securities lending and repurchase agreements, collateralized
borrowing arrangements and other transactions involving the transfer of
financial assets. SFAS 125 is generally effective for transactions that occur
after December 31, 1996, and will be applied prospectively. SFAS 125 requires
the Company to allocate the total cost of mortgage loans sold to the mortgage
loans sold (servicing released), I/O and residual certificates and servicing
rights based on their relative values. The Company is required to assess the
retained certificates and servicing rights for impairment based upon the fair
value of those rights. The pronouncement also requires the Company to provide
additional disclosure about the retained certificates in its securitizations and
to account for these assets at fair value in accordance with SFAS No. 115,
'Accounting for Certain Investments in Debt and Equity Securities' ('SFAS 115').
The Company will apply the new rules prospectively beginning in the first
quarter of 1997. There can be no assurance that the implementation by the
Company of SFAS 125 will not reduce the Company's gain on sale of loans in the
future or otherwise adversely affect the Company's results of operations or
financial condition. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Recent Accounting Pronouncements.'
COMPETITION
As a purchaser and originator of mortgage loans, the proceeds of which are
used for a variety of purposes, including to consolidate debt, to finance home
improvements and to pay educational expenses, the Company faces intense
competition. Such competition comes primarily from other mortgage banking
companies and commercial banks, credit unions, thrift institutions, credit card
issuers and finance companies. Many of these competitors are substantially
larger and have more capital and other resources than the Company. Furthermore,
numerous large national finance companies and originators of conforming
mortgages have expanded from their conforming origination programs and have
allocated resources to the origination of non-conforming loans. In addition,
many 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 requires the Company to pay higher premiums for loans it purchases,
increases the likelihood of earlier prepayments through refinancings and could
have a material adverse effect on the Company's results of operations and
financial condition. In addition, competition could also result in the purchase
or origination of loans with lower interest rates and higher loan-to-value
ratios, which could have a material adverse effect on the Company's results of
operations and financial condition. Premiums paid to correspondents as a
percentage of loans purchased from correspondents by the Company were 4.7%,
4.2%, 5.0% and 5.8% for the three months ended March 31, June 30, September
11
<PAGE>
<PAGE>
30 and December 31, 1996, respectively. The weighted average interest rate for
loans purchased or originated by the Company decreased from 12.1% for the year
ended December 31, 1995 to 11.5% for the year ended December 31, 1996. The
combined weighted average loan-to-value ratio of loans purchased or originated
by the Company increased from 70.9% for the year ended December 31, 1995 to
72.9% for the year ended December 31, 1996. See 'Business -- Loans -- Purchases
and Originations.'
Competition takes 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 be materially and adversely affected by fluctuations in the volume and cost
of its wholesale loans resulting from competition from other purchasers of such
loans, market conditions and other factors. There can be no assurance that the
Company will be able to continue to compete effectively.
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 size of securitizations. If
securitizations do not close when expected, the Company's results of operations
would be adversely affected for that period.
DEPENDENCE ON FUNDING SOURCES
The Company funds substantially all of the cost of the loans it purchases
and originates through borrowings under warehouse facilities that are secured by
pledges of the 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 and
financing or internally generated cash, or through 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, which would 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.'
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
12
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<PAGE>
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 I/O and
residual certificates have been recorded 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 I/O and residual certificates, thereby adversely
affecting earnings.
Fluctuating interest rates also may affect the net interest income earned
by the Company. Net interest income represents 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 affect 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 intended 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.
RISKS ASSOCIATED WITH ACQUISITIONS
IMC's growth strategy includes acquisitions of existing non-conforming
lenders. IMC's approach to acquisitions encourages acquired companies to act as
independent lending units of IMC following the closing. While these operations
may have enjoyed profitability and growth prior to their acquisition by the
Company, there can be no assurance that they will continue to be profitable and
grow or that they will maintain their underwriting standards after the
acquisition is complete. Further there can be no assurance that such company's
underwriting standards will be consistent with IMC's or that there will be no
loss of key employees of the acquired company. Over the longer term, the Company
intends to assimilate the operations of the companies it acquires and to assume
certain administrative and other operating functions, but there can be no
assurance that the Company will be able to do so successfully. Future
acquisitions by the Company could result in potentially dilutive issuances of
equity securities, the incurrence of debt and contingent liabilities and
amortization expenses of additional goodwill and other intangible assets, which
could materially affect the Company's results of operations or financial
condition. There can be no assurance that the Company will be able to identify
other appropriate acquisition candidates or that any identified candidates will
be acquired. There can be no assurance that the financing necessary to complete
such acquisitions can be obtained by the Company on favorable terms, if at all.
See 'Business -- Acquisitions and Strategic Alliances.'
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, 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 and recessions.
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 that permits 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.
The Company is also dependent on other senior members of management and its
ability to retain existing and hire additional experienced personnel, especially
13
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<PAGE>
underwriting and servicing personnel. See ' -- Dependence on Funding Sources'
and 'Management -- Executive Compensation.'
DEPENDENCE ON CREDIT ENHANCEMENT
In order to gain access to the securitization market, the Company has
relied on credit enhancements provided by monoline insurance carriers to
guarantee outstanding senior interests in the related real estate mortgage
investment conduit ('REMIC') trusts 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 reduction 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
The Company commenced operations in August 1993 and has a limited operating
history. In 1996, 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.'
RISKS ASSOCIATED WITH RAPID GROWTH
The Company has expanded into new geographic regions and substantially
increased its volume of loans originated and purchased. The Company's continued
growth and expansion will place additional pressures on the Company's personnel
and systems. Any future growth may be limited by, among other things, the
Company's (i) need for continued funding sources and access to capital markets,
(ii) ability to attract and retain qualified personnel, (iii) ability to
maintain appropriate procedures, policies and systems to ensure that the
Company's loans have an acceptable level of credit risk and loss and (iv)
ability to establish new relationships and maintain existing relationships with
correspondents, brokers and borrowers in states where the Company is active and
in additional states. The Company's need for additional operating procedures,
personnel and facilities is expected to increase as a result of further growth
which the Company anticipates over the near term. The Company is assessing the
purchase of new systems and software to support its servicing operations, and
plans to continue to procure hardware and software that will require additional
corresponding investments in training and education. There can be no assurance
that the Company will successfully obtain or apply the human, operational and
financial resources needed to manage a developing and expanding business.
Failure by the Company to manage its growth effectively, or to sustain its
historical levels of performance in underwriting and loan servicing with respect
to its increased loan origination and purchase volume and its larger servicing
portfolio, 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 Operation' and 'Business -- Business
Strategy.'
RELIANCE ON THE INDUSTRY PARTNERS
The Company purchases a portion of its loans from the Industry Partners,
which accounted for 23.9% and 19.1% of total loan purchases and originations by
the Company, or $148.4 million and $337.5 million, respectively, in the years
ended December 31, 1995 and 1996. The Company had contractual annual loan sale
commitments from the majority of the Industry Partners as of December 31, 1996
aggregating $162.0 million. The contractual annual loan sales commitment was
reduced by $36.0 million to $126.0 million as a result of the acquisition of two
Industry Partners (Mortgage America and Equity Mortgage) in January and February
1997. See 'Business -- Acquisitions and Strategic Alliances.' In
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<PAGE>
1995 and 1996, a number of Industry Partners sold more loans to the Company than
they were obligated to sell. Certain of the Industry Partners could, therefore,
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. If the
Industry Partners, individually or in the aggregate, become unable to meet their
loan sale commitments or choose not to sell loans to the Company after the
expiration of their commitment, the Company's results of operations and
financial condition would be materially and adversely affected.
CONTINGENT RISKS
Although the Company sells on a nonrecourse basis substantially all loans
that it purchases and originates, 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 trust's collections in succeeding months.
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 duties, 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 assumptions used to value the
Company's I/O and residual certificates, the Company will recognize a loss. As a
result of any such loss, the Company's results of operations or financial
condition could be materially and adversely affected. See ' -- Valuation and
Potential Impairment of Interest-only and Residual Certificates.'
CONCENTRATION OF OPERATIONS IN MID-ATLANTIC REGION
For the year ended December 31, 1996, 32.7% of the aggregate principal
balance of the home equity loans purchased and originated by the Company and
31.6% of the home equity loans serviced by the Company were secured by
properties located in 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
underwriting policies and collection procedures of the Company or of entities
acquired by the Company 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 and financial condition could be materially and adversely affected.
15
<PAGE>
<PAGE>
LOSS OF SERVICING RIGHTS AND SUSPENSION OF FUTURE CASH FLOWS; DELINQUENCIES;
NEGATIVE IMPACT ON CASH FLOW
The Company is entitled to receive servicing income on the loans it has
sold servicing retained. Any loss of servicing rights could have a material
adverse effect on the Company's results of operations and financial condition.
The Company's right to service the loans sold in its securitizations can be
terminated by the monoline insurance carrier, as certificate insurer, upon the
occurrence of certain servicer termination events (as defined in the pooling and
servicing agreements, the 'Servicer Termination Events'). 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; (iii) failure of the
Company to cure any breaches of its representations and warranties which
materially and adversely affect the underlying loans; and (iv) failure to
maintain certain delinquency or loss standards. As of December 31, 1996, none of
the pools of securitized loans exceeded the foregoing delinquency standards and
no servicing rights had been terminated. However, there can be no assurance that
delinquency rates with respect to the Company's securitized loan pools will not
exceed these standards in the future and, if exceeded, that servicing rights
will not be terminated, which would have a material adverse effect on the
Company's results of operations and financial condition.
The Company's cash flow can also be adversely affected by high delinquency
and loss rates with respect to the loans in the securitization trusts.
Generally, provisions in the pooling and servicing agreement have the effect of
requiring the over-collateralization account, which is funded primarily by the
cash flow that would otherwise be distributed to the Company in respect of its
residual certificates, to be increased when the delinquency and the loss rates
exceed various specified limits.
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
non-tax deductible interest financing, could be eliminated or seriously impaired
if the mortgage interest deduction for income tax purposes is reduced or
eliminated. Accordingly, the reduction or elimination of these tax benefits
could have a material adverse effect on the demand for loans of the kind
purchased and originated by the Company and on the Company's results of
operations and financial condition.
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, the
Federal Debt Collection Practices Act, as well as other federal and state
statutes and regulations. 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 licenses or 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
16
<PAGE>
<PAGE>
action lawsuits and administrative enforcement actions. There can be no
assurance that the Company will be able to 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 or more expensive 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 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.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock may fluctuate 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 would 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
Numerous stockholders have received restricted shares of Common Stock which
are subject to certain lock-up restrictions with respect to their ability to
sell or otherwise dispose of such shares for a period of up to two years from
the date the shares were issued. 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. In addition, the
Company has provided registration rights pursuant to the Conti Warrant and with
respect to shares issued or issuable in connection with the Company's
acquisitions. Also, the Company intends to file a registration statement on Form
S-8 with respect to the Company's stock option plans. 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
'Business -- Acquisitions and Strategic Alliances' and '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
17
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<PAGE>
'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 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 even if a majority of the Company's stockholders
approves such change. See 'Management -- Terms of Directors and Officers' and
'Description of Capital Stock.'
CONTROL BY CERTAIN STOCKHOLDERS
As of January 31, 1997, management and Industry Partners and their
affiliates beneficially owned an aggregate of 65% (approximately 49% after
giving effect to the Offering) of the outstanding shares of Common Stock.
Accordingly, such persons, if they were to act in concert, presently 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. After the Offering, such
persons, if they were to act in concert, would have near majority control and
the ability substantially to influence the management of the Company. See
'Principal and Selling Stockholders.'
18
<PAGE>
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
5,600,000 shares of Common Stock offered hereby by the Company, after deduction
of the underwriting discount and estimated offering expenses payable by the
Company, are estimated to be $ million, assuming an offering price of $
per share (the closing price of the Common Stock on February , 1997). The
Company will not receive any proceeds from the sale of Common Stock by the
Selling Stockholders.
Approximately $27.0 million of the net proceeds is expected to be used to
retire or reduce certain indebtedness of the Company incurred after December 31,
1996, including: (i) repayment of up to $20.0 million to The First National Bank
of Boston ('Bank of Boston') under the Bank of Boston credit facility which will
be used for general corporate purposes, bears interest at the Bank of Boston
Base Rate (8.25% at January 31, 1997) and is payable six months after
incurrence; and (ii) repayment of up to $7.0 million to Lakeview under the
Lakeview unsecured credit facility which was used for general corporate
purposes, bears interest at a fixed rate of 10.0% per year and expires July 31,
1999. See Note 15 of Notes to Consolidated Financial Statements.
The remaining net proceeds will be used to fund future loan purchases and
originations, to support securitization transactions, to fund acquisitions of
non-conforming home equity 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 will be used to
reduce outstanding debt of the Company.
19
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<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is traded on Nasdaq under the symbol 'IMCC.' The following
table sets forth, for the periods indicated, the high and low sales price for
the Common Stock as reported on Nasdaq, and reflects a two-for-one stock split
paid on February 13, 1997 to stockholders of record on February 6, 1997.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal 1996
Second Quarter (from June 25, 1996)(1).......................................... $11.50 $ 9.38
Third Quarter................................................................... 17.44 10.75
Fourth Quarter.................................................................. 20.50 13.63
Fiscal 1997
First Quarter (through February 13, 1997)....................................... 25.30 16.38
</TABLE>
- ------------
(1) The Common Stock commenced trading on Nasdaq on June 25, 1996.
------------------------
On February , 1997, the last reported sales price of the Common Stock on
Nasdaq was $ per share. As of February 11, 1997, there were approximately
106 holders of record of the Common Stock.
As the Company intends to retain all of its future earnings to finance its
operations, the Company has not paid, and currently has no intention to pay, any
cash dividends on its Common Stock. Any decision to declare dividends in the
future will be made by the Company's Board of Directors and 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 the Common Stock.
20
<PAGE>
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996, and as adjusted as of such date to give effect to completion
of the sale of the 5,600,000 shares of Common Stock offered hereby by the
Company, assuming an offering price of $ per share (the closing price of
the Common Stock on February , 1997).
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Warehouse finance facilities..................................................... $595,247 $
-------- -----------
-------- -----------
Term debt............................................................................. $ 33,555 $
Stockholders' equity:
Preferred Stock, par value $0.01 per share; 10,000,000 shares authorized; no
shares issued and outstanding................................................... 0 0
Common Stock, par value $0.01 per share; 50,000,000 shares authorized; 19,669,666
shares issued and outstanding, actual; and 25,269,666 shares issued and
outstanding, as adjusted........................................................ 196 253
Additional paid-in capital....................................................... 76,490
Retained earnings................................................................ 6,089
-------- -----------
Total stockholders' equity.................................................. 82,775
-------- -----------
Total capitalization................................................... $116,330 $
-------- -----------
-------- -----------
</TABLE>
21
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The historical Statement of Operations and Balance Sheet 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 have been derived from, and should
be read in conjunction with, the Consolidated Financial Statements and Notes
thereto 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 nine months ended September 30, 1995 and 1996
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 periods. Operating results
for the nine months ended September 30, 1996 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1996. 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 Notes thereto.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 12, 1993)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, --------------------------
1993 1994 1995
----------------- ---------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gain on sale of loans(1)(2)................................. $ 438,774 $8,583,277 $20,680,848
Additional securitization transaction expense(3)............ -- (560,137) (5,547,037)
-------- ---------- -----------
Gain on sale of loans, net.............................. 438,774 8,023,140 15,133,811
-------- ---------- -----------
Warehouse interest income................................... 97,159 2,510,062 7,884,679
Warehouse interest expense.................................. (50,709) (1,610,870) (6,006,919)
-------- ---------- -----------
Net warehouse interest income........................... 46,450 899,192 1,877,760
-------- ---------- -----------
Servicing fees.............................................. -- 99,224 1,543,339
Other....................................................... 28,235 1,072,855 1,117,903
-------- ---------- -----------
Total servicing fees and other.......................... 28,235 1,172,079 2,661,242
-------- ---------- -----------
Total revenues...................................... 513,459 10,094,411 19,672,813
-------- ---------- -----------
Expenses:
Compensation and benefits................................... 507,904 3,348,236 5,139,386
Selling, general and administrative expenses(2)............. 355,526 2,000,401 3,477,677
Other....................................................... -- 14,143 297,743
Sharing of proportionate value of equity(4)................. -- 1,689,000 4,204,000
-------- ---------- -----------
Total expenses.......................................... 863,430 7,051,780 13,118,806
-------- ---------- -----------
Pre-tax income (loss)........................................... (349,971) 3,042,631 6,554,007
Pro forma provision (benefit) for income taxes.................. (134,000) 1,187,000 2,522,000
-------- ---------- -----------
Pro forma net income (loss)..................................... $(215,971) $1,855,631 $ 4,032,007
-------- ---------- -----------
-------- ---------- -----------
Pro forma per share data:
Pro forma net income per share.............................. $0.25
Weighted average number of shares outstanding............... 15,871,504
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gain on sale of loans(1)(2)................................. $13,423,973 $34,728,321
Additional securitization transaction expense(3)............ (2,855,367) (4,157,644)
----------- -----------
Gain on sale of loans, net.............................. 10,568,606 30,570,677
----------- -----------
Warehouse interest income................................... 5,224,931 22,249,234
Warehouse interest expense.................................. (4,027,307) (14,505,231)
----------- -----------
Net warehouse interest income........................... 1,197,624 7,744,003
----------- -----------
Servicing fees.............................................. 855,207 4,215,381
Other....................................................... 788,441 2,977,691
----------- -----------
Total servicing fees and other.......................... 1,643,648 7,193,072
----------- -----------
Total revenues...................................... 13,409,878 45,507,752
----------- -----------
Expenses:
Compensation and benefits................................... 3,649,180 11,987,493
Selling, general and administrative expenses(2)............. 2,156,570 10,416,597
Other....................................................... 139,652 1,820,793
Sharing of proportionate value of equity(4)................. 2,916,960 2,555,000
----------- -----------
Total expenses.......................................... 8,862,362 26,779,883
----------- -----------
Pre-tax income (loss)........................................... 4,547,516 18,727,869
Pro forma provision (benefit) for income taxes.................. 1,749,884 7,397,508
----------- -----------
Pro forma net income (loss)..................................... $ 2,797,632 $11,330,361
----------- -----------
----------- -----------
Pro forma per share data:
Pro forma net income per share.............................. $0.64
Weighted average number of shares outstanding............... 17,683,600
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1993 1994 1995
---------- ----------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Mortgage loans held for sale.................................................. $7,971,990 $28,995,750 $193,002,835
Interest-only and residual certificates....................................... -- 3,403,730 14,072,771
Warehouse finance facilities.................................................. 7,212,915 27,731,859 189,819,046
Term debt..................................................................... -- -- 11,120,642
Stockholders' equity.......................................................... 1,449,092 5,856,011 5,608,844
Total assets.................................................................. 8,861,144 36,641,991 354,551,434
<CAPTION>
SEPTEMBER 30,
--------------
1996
--------------
<S> <C>
BALANCE SHEET DATA:
Mortgage loans held for sale.................................................. $ 625,872,876
Interest-only and residual certificates....................................... 60,295,301
Warehouse finance facilities.................................................. 595,247,351
Term debt..................................................................... 33,555,145
Stockholders' equity.......................................................... 82,775,806
Total assets.................................................................. 1,295,780,386
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION (AUGUST YEAR ENDED
12, 1993) THROUGH DECEMBER 31,
DECEMBER 31, ---------------------
1993 1994 1995
----------------- -------- --------
<S> <C> <C> <C>
OPERATING DATA (DOLLARS IN THOUSANDS):
Loans purchased or originated.......................................... $29,608 $282,924 $621,629
Loans sold through securitization...................................... -- 81,637 388,363
Whole loan sales....................................................... 21,636 180,263 70,400
Serviced loan portfolio (period end)................................... -- 92,003 535,798
DELINQUENCY DATA:
Total delinquencies as a percentage of loans serviced (period
end)(5).............................................................. 0.00% 0.87% 3.43%
Defaults as a percentage of loans serviced (period end)(6)............. 0.00 0.12 1.00
Net losses as a percentage of average loans serviced for period........ 0.00 0.00 0.09
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1995 1996
-------- ----------
<S> <C> <C>
OPERATING DATA (DOLLARS IN THOUSANDS):
Loans purchased or originated.......................................... $399,042 $1,146,456
Loans sold through securitization...................................... 230,000 625,000
Whole loan sales....................................................... 67,963 103,592
Serviced loan portfolio (period end)................................... 355,374 1,486,803
DELINQUENCY DATA:
Total delinquencies as a percentage of loans serviced (period
end)(5).............................................................. 2.42% 3.67%
Defaults as a percentage of loans serviced (period end)(6)............. 0.87 1.73
Net losses as a percentage of average loans serviced for period........ 0.04 0.08
</TABLE>
(footnotes on next page)
22
<PAGE>
<PAGE>
(footnotes from previous page)
(1) Prior to June 1996, includes interest-only and residual certificates
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) Beginning January 1, 1996, the Company adopted SFAS 122 which resulted in
additional gain on sale of $5.8 million and additional amortization expense
of $0.7 million.
(3) In 1994 and 1995 and the nine months ended September 30, 1996,
ContiFinancial received interest-only and residual certificates with
estimated values of $3.0 million, $25.1 million and $13.4 million in
exchange for cash payments of $2.1 million, $18.4 million and $8.6 million,
respectively. In addition, ContiFinancial paid IMC $0.4 million, $1.1
million and $0.7 million in 1994, 1995 and the nine months ended September
30, 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.'
(4) Reflects expenses recorded in connection with the Conti VSA which was
terminated in March 1996. The Company's pre-tax income before the Conti VSA
for 1994 and 1995 and the nine months ended September 30, 1996 was $4.7
million, $10.8 million and $21.3 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 5 of Notes to Consolidated Financial Statements.
(5) Represents the percentages of account balances contractually past due 30
days or more, exclusive of home equity loans in foreclosure, bankruptcy and
real estate owned.
(6) Represents the percentages of account balances of loans in foreclosure and
bankruptcy, exclusive of real estate owned.
23
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis of the Company's
financial condition and results of operations contains forward-looking
statements which involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under 'Risk
Factors' and elsewhere in this Prospectus. The following discussion should be
read in conjunction with the Consolidated Financial Statements of the Company
and the Notes thereto set forth elsewhere herein.
GENERAL
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 are typically used by such individuals
to consolidate debt, to finance home improvements, to pay educational expenses
and for a variety of other uses. By focusing on individuals with impaired credit
profiles and 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.
CERTAIN ACCOUNTING CONSIDERATIONS
INTEREST-ONLY AND RESIDUAL CERTIFICATES
The Company purchases and originates loans for the purpose of sale
primarily through securitizations. In a securitization transaction, the Company
sells a pool of mortgages to a REMIC trust which simultaneously sells senior
interests to third-party investors. The Company retains the residual interests
(or a portion thereof) represented by residual class certificates and I/O
certificates. The Company retains the rights to service the pool of mortgages
owned by the REMIC. In addition, by retaining the residual class certificates,
the Company is entitled to receive the excess cash flows generated by the
securitized loans calculated as the difference between (a) the monthly interest
payments from the loans and (b) the sum of (i) pass-through interest paid to
third-party investors, (ii) trustee fees, (iii) third-party credit enhancement
fees, (iv) servicing fees and (v) anticipated loan losses. The Company's right
to receive this excess cash flow stream begins after certain over-
collateralization requirements have been met, which are specific to each
securitization and are used as a means of credit enhancement. The I/O and
residual classes of certificates are initially recorded based upon their
relative fair values as a percentage of the total cost of the securitized loans,
based upon the present value of the anticipated excess cash flows utilizing
assumptions appropriate for each securitization. These assumptions relate to the
anticipated average lives of the loans sold and anticipated loan losses. The
weighted average discount rate used to discount the cash flow for the year ended
December 31, 1995 and the nine months ended September 30, 1996, ranged from 11%
to 11.5%, and the assumed loss rate was 0.50% per year.
MORTGAGE SERVICING RIGHTS
Effective January 1, 1996, the Company adopted SFAS 122. Because SFAS 122
prohibited 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 nine months ended September 30, 1996
are not comparable to any previous period. In June 1996, the FASB released SFAS
125 which superseded SFAS 122 effective January 1, 1997.
SFAS 122 required 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 between the mortgage servicing rights and the mortgage loans. The
Company was also required to assess capitalized mortgage servicing rights for
impairment based upon the fair value of
24
<PAGE>
<PAGE>
those rights. The impact of the adoption of SFAS 122 on the Company's Statement
of Operations for the nine months ended September 30, 1996 resulted in
additional operating income of approximately $5.1 million and an additional pro
forma provision for income tax expense of approximately $2.1 million.
SFAS 125 addresses the accounting for all types of securitization
transactions, securities lending and repurchase agreements, collateralized
borrowing arrangements and other transactions involving the transfer of
financial assets. SFAS 125 distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings. SFAS 125 is generally
effective for transactions that occur after December 31, 1996, and will be
applied prospectively. SFAS 125 requires the Company to allocate the total cost
of mortgage loans sold among the mortgage loans sold (servicing released), I/O
and residual certificates and servicing rights based on their relative fair
values. The Company is required to assess the I/O and residual certificates and
servicing rights for impairment based upon the fair value of those assets. SFAS
125 also requires the Company to provide additional disclosure about the I/O and
residual certificates in its securitizations and to account for these assets
each quarterly reporting period at fair value in accordance with SFAS 115. The
Company will apply the new rules prospectively beginning January 1, 1997. The
actual effect of implementing this new statement on the Company's financial
condition and results of operations will depend on various factors determined at
the end of a reporting period, including the amount of loans purchased and
originated during the period, the level of interest rates and estimates of
future prepayment and loss rates. Accordingly, the Company cannot determine at
this time the ultimate impact on its future earnings of applying the provisions
of SFAS 125. There can be no assurance, however, that the implementation by the
Company of SFAS 125 will not reduce the Company's gain on sale of loans in the
future or otherwise adversely affect the Company's results of operations or
financial condition.
GAIN ON SALE OF LOANS, NET
Gain on sale of loans, net, which arises primarily from securitizations,
includes all related revenues and costs, including the proceeds from sales of
residual class certificates, the value of such certificates, hedging gains or
losses and underwriting fees and other related securitization expenses and fees.
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. The Company
generally sells loans in its inventory within 180 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.
TRANSACTIONS WITH CONTIFINANCIAL
ADDITIONAL SECURITIZATION TRANSACTION EXPENSE
IMC, in conjunction with the start up of its operations, maintained an
investment banking relationship with ContiFinancial from August 1993 to June
1996. As part of this relationship, ContiFinancial provided warehouse and
revolving credit facilities to IMC and acted as placement agent and underwriter
of certain of its securitizations. In addition, as part of its cash flow
management strategy, the first six securitizations were structured so that
ContiFinancial received, in exchange for cash, a portion of the I/O and 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 $4.2
million in the first nine months of 1996. ContiFinancial also has a warrant to
purchase 2.7 million shares of Common Stock (subject to certain adjustments) for
a de minimis amount. IMC continues to maintain a financing relationship with
ContiFinancial.
25
<PAGE>
<PAGE>
SHARING OF PROPORTIONATE VALUE OF EQUITY
Prior to March 26, 1996, the Company's financing and investment banking
agreements with ContiFinancial included the Conti VSA. The existence of the
Conti VSA had no cash impact on the Company, but resulted in reductions of $1.7
million, $4.2 million and $2.6 million in the Company's pre-tax income for the
years ended December 31, 1994 and 1995 and the nine months ended September 30,
1996, respectively. The Conti VSA was converted into an option entitling
ContiFinancial on exercise to approximately 18% of the equity of the Partnership
for a de minimus amount (the 'Conti Option') on March 26, 1996. Consequently,
subsequent to March 26, 1996, no liability has been reflected on the Company's
balance sheet and no expense has been reflected on the Company's income
statement with respect to the Conti VSA subsequent to that date.
The Company's pre-tax income (loss) before the Conti VSA were as follows:
<TABLE>
<CAPTION>
PERIOD NINE MONTHS
ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
------------ ------------------------- -------------------------
1993 1994 1995 1995 1996
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues................. $ 513,459 $10,094,411 $19,672,813 $13,409,878 $45,507,752
Total expenses................. 863,430 7,051,780 13,118,806 8,862,362 26,779,883
------------ ----------- ----------- ----------- -----------
Pre-tax income (loss) after
Conti VSA.................... (349,971) 3,042,631 6,554,007 4,547,516 18,727,869
Conti VSA...................... -- 1,689,000 4,204,000 2,916,960 2,555,000
------------ ----------- ----------- ----------- -----------
Pre-tax income (loss) before
Conti VSA.................... $ (349,971) $ 4,731,631 $10,758,007 $ 7,464,476 $21,282,869
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
</TABLE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
Pro forma net income for the nine months ended September 30, 1996 was $11.3
million representing an increase of $8.5 million or 305% over pro forma net
income of $2.8 million for the nine months ended September 30, 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.
The increase in pro forma net income resulted principally from increases in
net gain on sale of loans of $20.0 million or 189% to $30.6 million for the nine
months ended September 30, 1996 from $10.6 million for the nine months ended
September 30, 1995. Also contributing to the increase in pro forma net income
was a $6.5 million or 547% increase in net warehouse interest income to $7.7
million for the nine months ended September 30, 1996 from $1.2 million for the
nine months ended September 30, 1995, a $3.3 million or 393% increase in
servicing fees to $4.2 million for the nine months ended September 30, 1996 from
$0.9 million for the nine months ended September 30, 1995 and a $2.2 million or
278% increase in other revenues to $3.0 million for the nine months ended
September 30, 1996 from $0.8 million for the nine months ended September 30,
1995.
The increase in income was partially offset by a $8.4 million or 228%
increase in compensation and benefits to $12.0 million for the nine months ended
September 30, 1996 from $3.6 million for the nine months ended September 30,
1995 and a $8.2 million or 383% increase in selling, general and administrative
expenses to $10.4 million for the nine months ended September 30, 1996 from $2.2
million for the nine months ended September 30, 1995. The increase in income was
further offset by a $1.7 million or 1,204% increase in other expense to $1.8
million for the nine months ended September 30, 1996 from $0.1 million for the
nine months ended September 30, 1995. Finally, income was favorably affected by
a $0.3 million or 12% decrease in the Conti VSA to $2.6 million for the nine
months ended September 30, 1996 from $2.9 million for the months ended September
30, 1995. See ' -- Transactions with ContiFinancial -- Sharing of Proportionate
Value of Equity,' 'Certain Accounting Considerations Relating to the Conti VSA'
and Note 5 of Notes to Consolidated Financial Statements.
26
<PAGE>
<PAGE>
Income before taxes was reduced by an income tax expense of $7.4 million
for the nine months ended September 30, 1996 compared to $1.7 million for the
nine months ended September 30, 1995, representing an effective tax rate of
approximately 39%. The provision for income taxes prior to June 24, 1996 are pro
forma amounts because prior to that date the Company operated as a partnership
and did not pay income taxes.
Revenues
The following table sets forth information regarding components of the
Company's revenues for the nine months ended September 30, 1995 and 1996:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Gain on sale of loans.......................................... $13,423,973 $34,728,321
Additional securitization transaction expense.................. (2,855,367) (4,157,644)
----------- -----------
Gain on sale of loans, net..................................... 10,568,606 30,570,677
----------- -----------
Warehouse interest income...................................... 5,224,931 22,249,234
Warehouse interest expense..................................... (4,027,307) (14,505,231)
----------- -----------
Net warehouse interest income........................ 1,197,624 7,744,003
----------- -----------
Servicing fees................................................. 855,207 4,215,381
Other.......................................................... 788,441 2,977,691
----------- -----------
Total revenues............................................ $13,409,878 $45,507,752
----------- -----------
----------- -----------
</TABLE>
Gain on Sale of Loans, Net. For the nine months ended September 30, 1996,
gain on sale of loans increased to $34.7 million from $13.4 million for the nine
months ended September 30, 1995, an increase of 159%, reflecting increased loan
production and securitizations for the nine months ended September 30, 1996 and
the adoption of SFAS 122. The total volume of loans produced increased by 187%
to $1,146.5 million for the nine months ended September 30, 1996 as compared
with a total volume of $399.0 million for the nine months ended September 30,
1995. Originations by the correspondent network increased 203% to $1.04 billion
for the nine months ended September 30, 1996 from $341.9 million for the nine
months ended September 30, 1995, while production from the Company's broker
network and direct lending operations increased to $111.4 million or 95% for the
nine months ended September 30, 1996 from $57.2 million for the nine months
ended September 30, 1995. Production volume increased during the 1996 period due
to: (i) the Company's expansion program; (ii) the growth of its securitization
capability; (iii) the growth of its loan servicing capability; and (iv) the
acquisition of the assets and business of Equitystars in January 1996. For the
nine months ended September 30, 1996, the Company experienced higher gains as it
sold more loans through securitizations. Securitizations increased by $395.0
million, an increase of 172%, to $625.0 million for the nine months ended
September 30, 1996 from $230.0 million for the nine months ended September 30,
1995. The number of approved correspondents and brokers increased by 583 or 62%
to 1,529 at September 30, 1996 from 946 at September 30, 1995. Additional
securitization expense increased to $4.2 million for the nine months ended
September 30, 1996, an increase of 46%, from $2.9 million for the nine months
ended September 30, 1995. For the nine months ended September 30, 1996, gain on
sale of loans, net, increased to $30.6 million from $10.6 million for the nine
months ended September 30, 1995, an increase of 189%, reflecting increased loan
production and securitizations in the 1996 period.
Net Warehouse Interest Income. Net warehouse interest income increased to
$7.7 million for the nine months ended September 30, 1996 from $1.2 million for
the nine months ended September 30, 1995, an increase of 547%. The increase in
the 1996 period reflected higher interest income resulting from increased
mortgage loan production which was partially offset by interest costs associated
with warehouse facilities. The mortgage loans held for sale increased in the
nine months ended
27
<PAGE>
<PAGE>
September 30, 1996 from the nine months ended September 30, 1995 as the Company
increased its mortgage loan production.
Servicing Fees. Servicing fees increased to $4.2 million for the nine
months ended September 30, 1996 from $0.9 million for the nine months ended
September 30, 1995, an increase of 393%. Servicing fees for the nine months
ended September 30, 1996 were positively affected due to an increase in mortgage
loans serviced over the prior period.
Other. Other revenues, consisting principally of interest on I/O and
residual certificates, increased to $3.0 million or 278% in the nine months
ended September 30, 1996 from $0.8 million in the nine months ended September
30, 1995 as a result of increased securitization volume.
Expenses
The following table sets forth information regarding components of the
Company's expenses for the nine months ended September 30, 1995 and 1996.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
-------------------------
1995 1996
---------- -----------
<S> <C> <C>
Compensation and benefits........................................ $3,649,180 $11,987,493
Selling, general and administrative expenses..................... 2,156,570 10,416,597
Other............................................................ 139,652 1,820,793
Sharing of proportionate value of equity......................... 2,916,960 2,555,000
---------- -----------
Total expenses.............................................. $8,862,362 $26,779,883
---------- -----------
---------- -----------
</TABLE>
Compensation and benefits increased by $8.4 million or 228% to $12.0
million in the nine months ended September 30, 1996 from $3.6 million in the
nine months ended September 30, 1995, principally due to an increase in the
number of employees to service the Company's increased mortgage loan production,
the acquisition of the assets and business of Equitystars and an increase in
executive bonuses.
Selling, general and administrative expenses increased by $8.2 million or
383% to $10.4 million in the nine months ended September 30, 1996 from $2.2
million in the nine months ended September 30, 1995, principally due to an
increase in the volume of mortgage loan production and the acquisition of the
assets and business of Equitystars.
Other expenses increased to $1.8 million or 1,204% in the nine months ended
September 30, 1996 from $0.1 million in the nine months ended September 30, 1995
as a result of increased term debt borrowings.
The sharing of proportionate value of equity, representing the amount
payable under the Conti VSA, decreased to $2.6 million or 10.3% in the nine
months ended September 30, 1996 from $2.9 million in the nine months ended
September 30, 1995. The Company's obligation to make payments under the Conti
VSA terminated in March 1996.
Pro Forma Income Taxes. The effective pro forma income tax rate for the
nine months ended September 30, 1996 and the nine months ended September 30,
1995 was approximately 39%, which differed from the federal tax rate of 35%
primarily due to state income taxes. The increase in income taxes of $5.7
million or 321% to $7.4 million in the nine months ended September 30, 1996 from
$1.7 million in the nine months ended September 30, 1995 was proportionate to
the increase in pre-tax income.
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
28
<PAGE>
<PAGE>
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 the 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 a negligible amount
for the year ended December 31, 1994, a $2.5 million or 148.9% increase in the
Conti VSA 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 increased to $20.7
million for the year ended December 31, 1995 from $8.6 million for the year
ended December 31, 1994, 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 for the year ended
December 31, 1994. Originations by the correspondent network increased 132.9% to
$543.6 million for the year ended December 31, 1995 from $233.5 million for the
year ended December 31, 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 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 securitizations. Securitizations increased by $290.0 million
or 322.2% to $380.0 million for the year ended December 31, 1995 from $90.0
million for 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 $5.5
million for the year ended December 31, 1995 from $0.6 million for the year
ended December 31, 1994. For the year ended December 31, 1995, gain on sale of
loans, net, increased
29
<PAGE>
<PAGE>
to $15.1 million from $8.0 million for the year ended December 31, 1994, 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 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, 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 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 by an increase in loans serviced over the prior year.
Other. Other revenues increased by a negligible amount to $1.1 million for
the year ended December 31,1995 from $1.1 million for 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 for the year ended December 31, 1995 from $3.3 million for the year
ended December 31, 1994, principally due to an increase in the number of
employees servicing the Company's increased loan production.
Selling, general and administrative expenses increased by $1.5 million or
73.8% to $3.5 million for the year ended December 31, 1995 from $2.0 million for
the year ended December 31, 1994, principally due to an increase in the volume
of loan production.
Other expenses increased to $0.3 million for the year ended December 31,
1995 from a negligible amount for the year ended December 31, 1994 as a result
of increased loan production and securitization volume in 1995.
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
for the year ended December 31, 1995 from $1.7 million for 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 5 of 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% compared to 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 for the year ended December 31, 1995 from
$1.2 million for 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
30
<PAGE>
<PAGE>
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, DECEMBER 31,
1993 1994
------------ ------------
<S> <C> <C>
Gain on sale of loans..................................................... $438,774 $ 8,583,277
Additional securitization transaction expense............................. -- (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............................................................ -- 99,224
Other..................................................................... 28,235 1,072,855
------------ ------------
Total revenues....................................................... $513,459 $ 10,094,411
------------ ------------
------------ ------------
</TABLE>
Gain on sale of loans, net. For the year ended December 31, 1994, gain on
sale of loans increased by $8.2 million to $8.6 million from $0.4 million for
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 for the year ended December 31, 1994 from $0 for the
period ended December 31, 1993. Gain on sale of loans, net, increased by $7.6
million to $8.0 million for the year ended December 31, 1994 from $0.4 million
for the period ended December 31, 1993. See ' -- Transactions with
ContiFinancial -- Additional Securitization Transaction Expense.'
Net Warehouse Interest Income. Net warehouse interest income increased to
$0.9 million for the year ended December 31, 1994 from a negligible amount for
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.
31
<PAGE>
<PAGE>
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 for the year ended December 31, 1994 from a
negligible amount for the period ended December 31, 1993 due to increased
production and the expansion of the Company's 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, DECEMBER 31,
1993 1994
------------ ------------
<S> <C> <C>
Compensation and benefits................................................. $507,904 $3,348,236
Selling, general and administrative expenses.............................. 355,526 2,000,401
Other..................................................................... -- 14,143
Sharing of proportionate value of equity.................................. -- 1,689,000
------------ ------------
Total expenses....................................................... $863,430 $7,051,780
------------ ------------
------------ ------------
</TABLE>
Compensation and benefits increased by $2.8 million to $3.3 million for the
year ended December 31, 1994 from $0.5 million in the period ended December 31,
1993. This increase resulted from 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 for the year ended December 31, 1994 from $0.4 million for the
period ended December 31, 1993. This increase resulted from 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 for the
year ended December 31, 1994 from $0 for 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 for the
1993 period to an income tax provision in the amount of $1.2 million for the
year ended December 31, 1994 was proportionate to the change in pre-tax income.
FINANCIAL CONDITION
SEPTEMBER 30, 1996 COMPARED TO DECEMBER 31, 1995
Mortgage loans held for sale at September 30, 1996 were $625.9 million,
representing an increase of $432.9 million or 224% over mortgage loans held for
sale of $193.0 million at December 31, 1995. This increase was a result of
increased loan purchases and originations as the Company expanded into new
states and increased purchasing and origination efforts in states in which the
Company had an existing market presence. This increase was also a result of the
Company's strategy to increase its financial flexibility by increasing its
balance of loans held for sale.
I/O and residual certificates at September 30, 1996 were $60.3 million,
representing an increase of $46.2 million or 328% over I/O and residual
certificates of $14.1 million at December 31, 1995. This
32
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<PAGE>
increase was a result of the Company completing three securitizations, one in
each of the first three quarters of 1996.
Borrowings under warehouse financing facilities at September 30, 1996 were
$595.2 million, representing an increase of $405.4 million or 214% over
warehouse financing facilities of $189.8 million at December 31, 1995. This
increase was primarily a result of increased loan purchases and originations.
Term debt at September 30, 1996 was $33.6 million, representing an increase
of $22.5 million or 202% over term debt of $11.1 million at December 31, 1995.
This increase was primarily a result of financing I/O and residual certificates.
Stockholders' equity as of September 30, 1996 was $82.8 million,
representing an increase of $77.2 million or 1,376% over stockholders' equity of
$5.6 million at December 31, 1995. This increase was primarily a result of the
Company's initial public offering of 7.2 million shares of common stock for
$9.00 per share, the net proceeds of which amounted to $58.2 million, the
conversion of the Conti VSA into the Conti Option of $8.5 million, the
recognition of a deferred tax benefit of approximately $3.6 million, and net
income for the nine months ended September 30, 1996, offset by $9.8 million of
distributions to former partners of the Partnership for taxes payable by these
former partners with respect to the income of the Partnership.
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 increased its origination and purchasing efforts in states in which
the Company had an existing market presence.
I/O and residual certificates at December 31, 1995 were $14.1 million,
representing an increase of $10.7 million or 313.5% over I/O and residual
certificates of $3.4 million at December 31, 1994. This increase was the result
of the Company completing two securitizations.
Warehouse financing facilities at December 31, 1995 were $189.8 million,
representing an increase of $162.1 million or 584.5% over 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 totaled $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 the sale of loans through
securitizations, whole loan sales, loan origination fees, processing fees, net
interest income, servicing fees and borrowings under its warehouse facilities
and standby facilities to meet its working capital needs. The Company's cash
requirements include the funding of loan purchases and originations, payment of
interest expenses, funding of over-collateralization requirements for
securitizations, operating expenses, income taxes, acquisitions and capital
expenditures.
The Company has an ongoing need for substantial amounts of capital.
Adequate credit facilities and other sources of funding, including the ability
of the Company to sell loans, are essential to the continuation of the Company's
ability to purchase and originate loans. As a result of increased loan purchases
and originations and its growing securitization program, the Company has
operated, and expects to continue to operate, on a negative cash flow basis.
During the nine months ended September 30, 1996, the Company used cash flow for
operating activities of $467.1 million, an increase of $371.4 million, or 388%,
over cash flows used for operating activities of $95.7 million during the nine
months ended September 30, 1995. During the nine months ended September 30,
1996, the Company
33
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received cash flows from financing activities of $474.9 million, an increase of
$379.7 million, or 399% over cash flows received from financing activities of
$95.2 million during the nine months ended September 30, 1995. The cash flows
used for operating activities related primarily to mortgage loans purchased or
originated and cash flows received from financing activities related primarily
to funding the mortgage loans purchased or originated and net proceeds from the
Company's initial public offering of 7.2 million shares in June 1996.
The Company's sale of loans through securitizations has resulted in an
increase in the amount of gain on sale recognized by the Company. The
recognition of this gain on sale results in significant costs being incurred
upon closing of a securitization transaction. The Company does not, however,
receive the cash representing the gain until later periods when the related
loans are repaid or otherwise collected. During the nine months ended September
30, 1996, the Company received cash of approximately $4.2 million related to I/O
and residual certificates. The Company borrows funds on a short-term basis to
support the accumulation of loans prior to sale. These short-term borrowings are
made under warehouse lines of credit with various lenders.
At September 30, 1996, the Company had available warehouse lines of credit
totaling $823.1 million for financing the acquisition of mortgage loans held for
sale, $595.2 million of which was outstanding at September 30, 1996. Of the
warehouse lines of credit available at September 30, 1996, the full amount
matures within one year. Interest rates on these facilities fluctuate, but
ranged from 6.29% to 7.00% as of September 30, 1996. Outstanding borrowings
under these lines of credit are collateralized by all of the Company's mortgage
loans held for sale, warehouse financing due from stockholders, and servicing
rights on approximately $150 million in mortgage loans held for sale. Upon the
sale of these loans and repayment of warehouse financing due from stockholders,
the related amounts outstanding under the warehouse lines of credit will be
repaid.
At September 30, 1996, the Company also had term loans outstanding of $33.6
million which expire through January 2000. Outstanding borrowings under these
facilities are secured by I/O and residual certificates and accrue interest at
rates ranging from 6.70% to 8.13%.
In December 1996, the Company executed an agreement with Bank of Boston
pursuant to which Bank of Boston will provide a $25 million one year revolving
credit facility subject to the following sublimits and terms: (i) $5 million
warehouse line of credit due June 30, 1998, (ii) $25 million to finance
interest-only and residual certificates, to be repaid according to a repayment
schedule calculated by Bank of Boston with a maximum amortization period after
the revolving period of three years; and (iii) $20 million for acquisitions or
bridge financing due within six months from the initial borrowing date of each
takedown of the bridge financing, but in no event later than June 30, 1998. No
amounts were outstanding under this facility at January 31, 1997, but it is
anticipated that amounts up to $20.0 million may be borrowed for an acquisition
or on a bridge basis.
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 with Bank of Boston also contain certain financial covenants requiring
the maintenance of certain debt-to-equity or debt-to-net worth ratios,
restricting distributions on equity 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 within the next 12 months. Management believes the
Company is in compliance with all such covenants under these agreements.
The Company's current warehouse and other credit facilities generally are
subject to one-year terms. Certain agreements have automatic renewal features
subject to the absence of defaults and the right of the lender to terminate the
facility on notice to the Company. 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 obtain additional credit lines.
Funds available under the Company's current warehouse and other credit
facilities and the net proceeds from the Offering are expected to be sufficient
to fund the Company's liquidity requirements, including the implementation of
its business strategy, through December 1997. However, the Company
34
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<PAGE>
has substantial capital requirements and it anticipates that it may need to
arrange for additional external cash resources in 1998 through additional
financings or offerings. See 'Risk Factors.'
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 executes the sale of the treasury
securities with large, reputable securities firms 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 I/O and residual certificates. 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 I/O and residual certificates.
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 many of its competitors.
INFLATION
Inflation historically 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.
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 I/O
and residual certificates 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 I/O and residual
certificates which would have a material adverse effect on the Company's results
of operations and financial condition. Fluctuating interest rates also may
affect the net interest income earned by the Company 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 term rates.
35
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RECENT EVENTS AND ACQUISITIONS
Pursuant to the Company's acquisition strategy, in January and February
1997 IMC acquired the outstanding stock of CoreWest and all of the assets of
American Reduction, Equity Mortgage and Mortgage America. During 1996, IMC
acquired all of the assets of Equitystars and also formed a joint venture in the
United Kingdom. Several acquisitions include earn-out arrangements that provide
the sellers with additional consideration if the acquired company reaches
certain performance targets after the acquisition. Any such contingent payments
will result in an increase in the amount of goodwill recorded on IMC's balance
sheet related to each acquisition. Goodwill represents the excess of cost over
fair market value of the net tangible assets acquired in each acquisition and is
amortized through periodic charges to earnings for up to 30 years. See
'Business -- Acquisitions and Strategic Alliances.'
CHANGE IN INDEPENDENT ACCOUNTANT
TERMINATION OF INDEPENDENT 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. The decision to terminate D&T was approved by
the Board of Directors of the general partner of the Partnership.
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 or for the fiscal year ended December 31, 1994, or in any
subsequent interim period through the date of their termination 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.
ENGAGEMENT OF INDEPENDENT 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, and for
the years ended December 31, 1994 and 1995.
36
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<PAGE>
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 such individuals
to consolidate debt, to finance home improvements, to pay educational expenses
and for a variety of other uses. 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 purchases and originates non-conforming home equity loans through a
diversified network of correspondents (which includes the Industry Partners) and
mortgage loan brokers and on a retail basis through its direct consumer lending
effort. As of December 31, 1996, IMC had a network of 374 approved
correspondents, including the Industry Partners, 1,693 approved mortgage loan
brokers and 17 Company-owned retail branches. During January and February 1997,
IMC added 49 retail branches through the acquisition of four retail
non-conforming mortgage lenders. 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 $1.77 billion
in 1993, 1994, 1995 and 1996, respectively. IMC's network of correspondents
accounted for 82.5%, 87.5% and 89.4% of IMC's loan production in 1994, 1995 and
1996, respectively. Through its network of mortgage brokers, IMC generated
17.5%, 10.7% and 6.8% of its loan production in 1994, 1995 and 1996,
respectively. IMC's direct consumer lending effort, which began in 1995,
contributed approximately 1.8% and 3.8% of loan production in 1995 and 1996,
respectively. IMC is continuing to expand its direct consumer lending by opening
branch offices and expanding its use of advertising, direct mail and other
marketing strategies, and through strategic acquisitions.
As of December 31, 1996, a majority of the Industry Partners were required
to sell to IMC, on prevailing market terms and conditions, an aggregate of
$162.0 million of home equity loans per year. IMC has consistently purchased
loan production from the Industry Partners in excess of such aggregate annual
commitment. Actual sales to IMC by the Industry Partners aggregated $337.5
million for the year ended December 31, 1996. As a result of IMC's acquisition
of two of the Industry Partners (Mortgage America and Equity Mortgage) in
January and February 1997, the contractual annual sales commitment from the
Industry Partners was reduced by $36.0 million to $126.0 million. The two
acquired Industry Partners originated an aggregate of approximately $284 million
residential loans in 1996. These acquisitions reflect IMC's business strategy to
increase its retail loan origination channels through acquisitions of retail
non-conforming lenders.
IMC sells the majority of its loans through its securitization program and
retains rights to service such loans. Through December 31, 1996, IMC had
completed eight securitizations totaling $1.4 billion of loans. The Company
earns servicing fees on a monthly basis at a rate of 0.50% per year and
ancillary fees on the loans it services in the securitization pools. As of
December 31, 1995 and 1996, IMC had a servicing portfolio of $535.8 million and
$2.15 billion, respectively.
The Company's total revenues increased from $13.4 million for the nine
months ended September 30, 1995 to $45.5 million for the nine months ended
September 30, 1996, while pro forma net income increased from $2.8 million to
$11.3 million in those periods. Gain on sale of loans, net, represented $10.6
million, or 78.8% of total revenues, for the nine months ended September 30,
1995 as compared to $30.6 million, or 67.2% of total revenues, for the nine
months ended September 30, 1996. Servicing income, net warehouse interest income
and other revenues in the aggregate increased from $2.8 million, or 21.2% of
total revenues, for the nine months ended September 30, 1995 to $14.9 million,
or 32.8% of total revenues, for the nine months ended September 30, 1996. IMC's
strategy is to continue to increase its servicing portfolio and portfolio of
loans held for sale in order to generate increased revenues from these two
sources.
37
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BUSINESS STRATEGY
The Company utilizes the following strategies to maintain and expand its
core business:
EXPANSION THROUGH ACQUISITIONS
The Company is actively pursuing a strategy of acquiring originators of
non-conforming home equity loans. IMC's acquisition strategy focuses on entities
that originate non-conforming mortgages either directly from the consumer or
through broker networks. In 1996, IMC acquired Equitystars and in January and
February 1997 completed the acquisitions of Mortgage America, CoreWest, Equity
Mortgage and American Reduction. Equitystars, Mortgage America and Equity
Mortgage were Industry Partners. Management believes that the acquisition of
non-conforming home equity loan originators will benefit IMC by: (i) increasing
IMC's loan production volume by capturing all of the acquired company's
production instead of only a portion; (ii) improving IMC's profitability and
profit margins because broker and direct-to-consumer originated loans typically
result in better profit margins than loans purchased from correspondents; (iii)
adding experienced management; and (iv) broadening IMC's distribution system for
offering new products. In order to incent management of the acquired companies,
IMC typically structures its acquisitions to include an initial payment upon
closing of the transaction and to provide for contingent payments tied to future
production and profitability of the acquired company.
EXPANSION OF DIRECT CONSUMER LENDING
IMC intends to continue to expand its direct consumer lending efforts by
opening additional branch offices which will allow IMC to focus on developing
contacts with individual borrowers, local brokers and referral sources such as
accountants, attorneys and financial planners. Through December 31, 1996, IMC
opened 17 retail branch offices. In January and February 1997, IMC added 49
retail branches through acquisitions. 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 Company's 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 high startup costs for office equipment, furniture and
leasehold improvements and allows IMC to exit the market easily if the office
does not meet expectations.
EXPANSION OF CORRESPONDENT AND BROKER NETWORKS
The Company intends to continue to increase loan production from
correspondents and brokers by increasing its market share through geographic
expansion, tailored marketing strategies and a continued focus on servicing
smaller correspondents in regions that historically have not been actively
served by non-conforming home equity lenders. IMC believes that providing
attractive products and responsive service in conjunction with consistent
underwriting and competitive prices strengthens its relationships with
correspondents and brokers.
BROADENING OF PRODUCT OFFERINGS
The Company continues to introduce new non-conforming home equity loan
products to meet the needs of its correspondents, brokers and borrowers and to
expand its market share to new customers. The Company is in the process of
introducing two such products, HELOCs and secured credit cards. See ' -- New
Products and Services.'
STRATEGIC ALLIANCES AND JOINT VENTURES
In order to increase the Company's volume and diversify its sources of loan
originations over the long term, the Company seeks to enter into strategic
alliances with selected mortgage lenders, pursuant
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to which the Company provides working capital and financing arrangements and a
commitment to purchase qualifying loans. In return, the Company expects to
receive a more predictable flow of loans and, in some cases, an option to
acquire an equity interest in the strategic partner. To date, the Company has
entered into two strategic alliances in the United States and a joint venture
in the United Kingdom.
MAINTENANCE OF UNDERWRITING QUALITY AND LOAN SERVICING
The Company's underwriting and servicing staff have extensive experience in
the non-conforming home equity loan industry. The management of IMC believes
that the depth and experience of its underwriting and servicing staff provide
the Company with the infrastructure necessary to sustain its recent growth and
maintain its commitment to high standards in its underwriting and loan
servicing. As the Company continues to grow, it is committed to applying
consistent underwriting procedures and criteria and to attracting, training and
retaining experienced staff.
MAXIMIZE FINANCIAL CASH FLOW AND IMPROVE CASH FLOW
The Company intends to maximize its financial flexibility in a number of
ways, including by maintaining a significant quantity of mortgage loans held for
sale on its balance sheet. Maintenance of a substantial amount of mortgage loans
held for sale, which the Company can sell when necessary or desirable either
through securitizations or whole loans sales, permits IMC to improve management
of its cash flow by increasing its net interest income and to reduce its
exposure to the volatility of the capital markets. During 1996, the Company
securitized approximately 53% of its loan production.
LOANS
OVERVIEW
IMC's consumer finance activities consist primarily of purchasing,
originating, selling and servicing mortgage loans. The vast majority of these
loans are non-conforming mortgage loans that 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 securitization or on a whole loan basis directly to institutional
purchasers. IMC retains the right to service the loans that it securitizes and
may or may not release the right to service the loans it sells through whole
loan sales.
LOAN PURCHASES AND ORIGINATIONS
As of December 31, 1996, IMC purchased and originated loans in 48 states
and the District of Columbia through its networks of 374 approved correspondents
and 1,693 approved brokers and through its 17 retail branch offices.
Additionally, 49 new retail branches were added through acquisitions in January
and February of 1997.
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The following table shows channels of loan purchases and originations for the
periods shown:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 12, 1993) YEAR ENDED DECEMBER 31,
THROUGH DECEMBER 31, ----------------------------------
1993 1994 1995 1996
----------------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Correspondent(1):
Principal balance.................................. $28,008 $233,460 $543,635 $1,582,048
Average principal balance per loan................. 66 66 62 66
Weighted average loan-to-value ratio(2)............ 66.6% 69.2% 70.6% 72.8%
Weighted average interest rate..................... 10.2% 11.2% 12.1% 11.5%
Broker:
Principal balance.................................. $ 1,600 $ 49,376 $ 66,584 $ 120,700
Average principal balance per loan................. 55 56 47 54
Weighted average loan-to-value ratio(2)............ 70.9% 71.8% 72.6% 73.4%
Weighted average interest rate..................... 11.2% 12.0% 12.0% 11.5%
Direct consumer loan originations:
Principal balance.................................. $ -- $ 88 $ 11,410 $ 67,564
Average principal balance per loan................. -- 88 49 58
Weighted average loan-to-value ratio(2)............ 0.0% 80.0% 72.6% 72.5%
Weighted average interest rate..................... 0.0% 11.3% 11.7% 10.7%
Total loan purchases and originations:
Principal balance.................................. $29,608 $282,924 $621,629 $1,770,312
Average principal balance per loan................. 65 64 60 65
Weighted average loan-to-value ratio(2)............ 66.8% 69.7% 70.9% 72.9%
Weighted average interest rate..................... 10.3% 11.4% 12.1% 11.5%
</TABLE>
- ------------
(1) Includes purchases from the Industry Partners with principal balances of
$14.3 million, or 48.3% of total purchases and originations, for the period
ended December 31, 1993, $116.0 million, or 41.0% 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 $337.5 million, or 19.1% of total purchases and originations, for the
year ended December 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.
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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, JUNE 30, SEPTEMBER 30,
1995 1995 1995 1995 1996 1996 1996
--------- -------- ------------- ------------ --------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Correspondent(1):
Principal balance.............. $103,296 $104,727 $ 133,857 $201,755 $236,537 $370,359 $ 428,136
Average principal balance per
loan......................... 66 58 60 64 65 66 67
Weighted average loan-to-value
ratio(2)..................... 69.7% 70.1% 70.8% 71.2% 71.2% 71.9% 72.3%
Weighted average interest
rate......................... 12.5% 12.6% 12.1% 11.8% 11.5% 11.4% 11.6%
Broker:
Principal balance.............. $ 14,948 $ 17,327 $ 17,297 $ 17,012 $ 21,079 $ 25,098 $ 30,625
Average principal balance per
loan......................... 52 46 45 48 54 53 53
Weighted average loan-to-value
ratio(2)..................... 72.7% 72.5% 72.7% 72.6% 74.6% 72.8% 74.3%
Weighted average average
interest rate................ 12.5% 12.3% 11.8% 11.2% 11.2% 11.6% 11.8%
Direct consumer loan originations:
Principal balance.............. $ 1,141 $ 2,613 $ 3,836 $ 3,820 $ 6,371 $ 6,780 $ 21,471
Average principal balance per
loan......................... 52 47 49 50 48 52 59
Weighted average loan-to-value
ratio(2)..................... 73.8% 70.0% 73.3% 73.2% 73.9% 73.7% 71.3%
Weighted average interest
rate......................... 12.4% 11.9% 11.6% 11.4% 11.1% 11.0% 11.0%
Total loan purchases and
originations:
Principal balance.............. $119,385 $124,667 $ 154,990 $222,587 $263,987 $402,237 $ 480,232
Average principal balance per
loan......................... 64 56 57 62 64 64 66
Weighted average loan-to-value
ratio(2)..................... 70.1% 70.5% 71.0% 71.4% 71.5% 72.0% 72.2%
Weighted average interest
rate......................... 12.5% 12.5% 12.0% 11.8% 11.4% 11.4% 11.4%
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Correspondent(1):
Principal balance.............. $547,016
Average principal balance per
loan......................... 66
Weighted average loan-to-value
ratio(2)..................... 74.7%
Weighted average interest
rate......................... 11.6%
Broker:
Principal balance.............. $ 43,898
Average principal balance per
loan......................... 54
Weighted average loan-to-value
ratio(2)..................... 73.1%
Weighted average average
interest rate................ 11.4%
Direct consumer loan originations:
Principal balance.............. $ 32,942
Average principal balance per
loan......................... 63
Weighted average loan-to-value
ratio(2)..................... 72.8%
Weighted average interest
rate......................... 10.4%
Total loan purchases and
originations:
Principal balance.............. $623,856
Average principal balance per
loan......................... 65
Weighted average loan-to-value
ratio(2)..................... 74.4%
Weighted average interest
rate......................... 11.6%
</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 $337.5 million, or 19.1% of total
purchases and originations, for the year ended December 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.
------------------------
The following table shows lien position, weighted average interest rates
and loan-to-value ratios for the periods shown.
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION YEAR ENDED
(AUGUST 12, 1993) DECEMBER 31,
THROUGH ------------------------
DECEMBER 31, 1993 1994 1995 1996
--------------------- ---- ---- ----
<S> <C> <C> <C> <C>
First mortgages:
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 loan-to-value ratio(1).................... 67.3 69.8 70.7 72.6
Second mortgages:
Percentage of total purchases and originations............. 11.7% 17.6% 23.0% 9.7%
Weighted average interest rate............................. 11.1 11.7 12.4 12.2
Weighted average loan-to-value ratio(1).................... 61.9 68.8 71.7 75.6
</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.
41
<PAGE>
<PAGE>
Correspondents. The majority of IMC's loan volume is purchased through
correspondents. For the year ended December 31, 1996, $1.6 billion or 89.4% of
IMC's total loan purchases and originations were purchased through the mortgage
correspondent network as compared with $543.6 million or 87.5% of IMC's total
loan purchases and originations for the year ended December 31, 1995. For the
year ended December 31, 1994, $233.5 million or 82.5% of IMC's total loan
purchases and originations were so acquired. The Industry Partners contributed
$337.5 million or 19.1% of IMC's total loan purchases and originations for the
year ended December 31, 1996, $148.4 million or 23.9% of such purchases and
originations for the year ended December 31, 1995, $116.0 million or 41.0% of
such purchases and originations for the year ended December 31, 1994 and $14.3
million or 48.3% of such purchases and originations for the period ended
December 31, 1993. The largest correspondent contributed 7.1% and 9.7% of total
loan production in 1994 and 1995, respectively. In 1996, GMAC and its
wholly-owned subsidiary Residential Funding Corp. contributed 14.3% of IMC's
total loan production. No other correspondent contributed 10% or more of IMC's
loan purchases and originations in 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 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 yet 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
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 years ended December 31, 1995 and 1996, IMC originated
$66.6 million, or 10.7% of the total, and $120.7 million, or 6.8% of the total,
respectively, of the loans it purchased and originated 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 obtained
by a broker from a prospective borrower and grant or deny preliminary approval
of the application generally within one business day. In the case of an
application denial, IMC will make all reasonable attempts to ensure 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. IMC believes that consistent underwriting, quick
response times and personal service are critical to successfully originating
loans through brokers.
Direct Consumer Loans. For the years ended December 31, 1995 and 1996, IMC
originated $11.4 million, or 1.8% of the total, and $67.6 million, or 3.8% of
the total, respectively, of loans it purchased
42
<PAGE>
<PAGE>
and originated directly to borrowers through its retail branch offices. As of
December 31, 1996, IMC had 17 retail branch offices located in Arizona,
Arkansas, California, Colorado, Florida, Iowa, Kansas, Kentucky, Massachusetts,
Missouri, Nebraska, New Mexico, Oklahoma, Oregon and Wisconsin. 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 Company's 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 high startup costs for office equipment, furniture and leasehold
improvements and allows IMC to exit the market easily if the office does not
meet expectations. 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 or other centralized underwriting locations. 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 increased loan production. Negative
pre-testing results could limit expansion into new locations, but should also
limit the size of potential losses. IMC plans to continue to open new branch
offices nationwide 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 to be less than $50,000 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.
Since January 1, 1997, IMC added 49 new retail branches through the
acquisitions of American Reduction, Equity Mortgage, CoreWest and Mortgage
America. These acquired branches are located in Arizona, California, Colorado,
Delaware, Florida, Georgia, Illinois, Indiana, Maryland, Michigan, Minnesota,
Missouri, New Jersey, North Carolina, Ohio, Oregon, Pennsylvania, South
Carolina, Tennessee, Utah, Washington and West Virginia.
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, the borrower usually has 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 14.0% and 7.6%, respectively, of such volume
for the year ended December 31, 1996. IMC intends to expand and geographically
diversify its loan purchase and origination activities through acquisitions,
strategic alliances, continued correspondent expansion, expansion of its
nationwide retail branch office network, the Preferred Partners Program and
opportunities outside the United States. See ' -- New Products and
Services -- Preferred Partners Program.'
43
<PAGE>
<PAGE>
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,
THROUGH --------------------
DECEMBER 31, 1993 1994 1995 1996
----------------- ---- ---- ----
<S> <C> <C> <C> <C>
States(1):
New York................................................. 17.5% 11.7% 12.4% 14.0%
Michigan................................................. 10.0 7.3 8.8 7.8
New Jersey............................................... 4.0 6.6 9.9 7.6
Maryland................................................. 14.4 18.6 12.8 7.3
Florida.................................................. 1.8 4.2 6.2 6.7
Georgia.................................................. 5.6 3.2 3.5 5.2
Illinois................................................. 0.1 2.0 3.0 4.3
Ohio..................................................... 4.5 4.9 4.7 4.3
Pennsylvania............................................. 3.3 5.3 4.3 3.8
Virginia................................................. 2.0 5.4 3.8 3.0
California............................................... -- -- 0.3 3.0
All other states......................................... 36.8 30.8 30.3 33.0
</TABLE>
- ------------
(1) States are listed in order of percentage of loan purchases and originations
for the year ended December 31, 1996.
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 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 experienced underwriters based in its Florida,
Pennsylvania, New Jersey, Ohio, California, Michigan, Maryland 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,
44
<PAGE>
<PAGE>
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 underwriters to
scrutinize an 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 type of 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 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.
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.
45
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
'A' RISK 'B' RISK 'C' RISK 'D' RISK
-------- -------- -------- --------
<S> <C> <C> <C> <C>
General repayment............................ Has repaid Has generally May have May have
installment or repaid experienced experienced
revolving debt installment or significant past significant past
revolving credit credit problems credit problems
Existing mortgage loans...................... Current at Current at May not be Must be paid in
application time application time current at full from loan
and a maximum of and a maximum of application time proceeds and no
two 30-day late three 30-day and a maximum of more than 149
payments in the late payments in four 30-day late days delinquent
last 12 months the last 12 payments and one at closing and
months 60-day late an explanation
payment in the is required
last 12 months
Non-mortgage credit.......................... Minor derogatory Some prior Significant Significant
items allowed defaults allowed prior prior defaults
with a letter of but major credit delinquencies may have
explanation; no or installment may have occurred, but
open collection debt paid as occurred, but must demonstrate
accounts or agreed may major credit or an ability to
charge-offs, offset some installment debt maintain
judgements or delinquency; paid as agreed regularity in
liens open may offset some payment of
charge-offs, delinquency credit
judgments or obligations in
liens are the future
permitted on a
case-by-case
basis
Bankruptcy filings........................... Discharged more Discharged more Discharged more Discharged prior
than four years than two years than one year to closing
prior to closing prior to closing prior to closing
and credit and credit and credit
reestablished reestablished reestablished
Debt service-to-income ratio................. Generally 45% or Generally 45% or Generally 50% or Generally 50% or
less less less less
Maximum loan-to-value ratio:
Owner-occupied............................... Generally 80% Generally 80% Generally 75% Generally 65%
(or 90%*) for a (or 85%*) for a (or 80% for (or 70% for
one- to two- one- to two- first liens*) first liens*)
family family residence for a one- to for a one- to
residence; 75% two- family four- family
for a residence; 65% residence; 60%
condominium for a for a three- to
condominium; 60% four-family
for a three-to residence or
four-family condominium
residence
Non-owner-occupied........................... Generally 70% Generally 70% Generally 60% Generally 55%
for a one- to for a one- to for a one- to for a one- to
four-family two-family two-family four-family
residence residence residence residence
</TABLE>
- ------------
* On an exception 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.
46
<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,
---------------------------------------------------------------------------------------------------
1994 1995 1996
----------------------------- ----------------------------- -------------------------------
WEIGHTED WEIGHTED WEIGHTED
BORROWER % OF AVERAGE % OF AVERAGE % OF AVERAGE
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% $ 883,179 49.9% 10.9%
'B' Risk......... 74,527 26.3 11.6 177,149 28.5 12.0 442,629 25.0 11.5
'C' Risk......... 38,022 13.5 13.0 125,811 20.2 13.0 338,330 19.1 12.3
'D' Risk......... 14,646 5.2 14.4 42,549 6.9 14.4 106,259 6.0 13.6
-------- ----- -------- ----- ---------- -----
Total....... $282,924 100.0% $621,629 100.0% $1,770,397 100.0%
-------- ----- -------- ----- ---------- -----
-------- ----- -------- ----- ---------- -----
</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, 1995 and 1996, IMC sold $261.9 million,
$458.8 million and $1.06 billion of loan production, respectively.
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)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, ------------------------------------------------------------
1993 1994 1995 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>
Securitizations............... $ -- 0.0% $ 81,637 31.2% $388,363 84.7% $ 935,000 87.9%
Whole loan sales.............. 21,636 100.0 180,263 68.8 70,400 15.3 128,868 12.1%
------- ----- -------- ----- -------- ----- ---------- -----
Total loan sales......... $21,636 100.0% $261,900 100.0% $458,763 100.0% $1,063,868 100.0%
------- ----- -------- ----- -------- ----- ---------- -----
------- ----- -------- ----- -------- ----- ---------- -----
</TABLE>
Securitizations. Through December 31, 1996, the Company completed eight
securitizations totaling $1.4 billion. The securities sold in each
securitization, which were enhanced by an insurance policy, received a credit
rating of AAA by Standard and Poor's and Aaa by Moody's.
During the year ended December 31, 1996, IMC sold $935.0 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. 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.
Of IMC's eight securitizations through December 31, 1996, five were public
offerings and three were private offerings. When IMC securitizes loans, it sells
a portfolio of loans to a REMIC that issues classes of certificates representing
undivided ownership interests in the REMIC. 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
a portfolio of loans is sold through a securitization. In its capacity as
servicer for each securitization, the Company collects and remits principal and
interest
47
<PAGE>
<PAGE>
payments to the appropriate REMIC, 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 of the REMIC.
Each REMIC is supported by an insurance policy 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 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 certificate holders of the senior
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
Company's residual class certificate. If payment defaults exceed the amount of
over-collateralization, the insurance policy maintained by the REMIC will pay
any further losses experienced by certificate holders of the senior interests in
the REMIC.
As part of IMC's cash flow management strategy, the first six
securitizations were structured so that ContiFinancial received a portion of the
I/O and residual interest in the related REMIC. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Transactions with
ContiFinancial.'
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 68.8%, 15.3% and 12.1% of total loan sales for the
years ended December 31, 1994, 1995 and 1996, respectively. Upon the sale of a
loan portfolio, IMC generally receives a premium, representing a value 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 a loan in the event that its
representations and warranties with respect to such loans prove to be
inaccurate. 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 more than one year. For the years ended December 31, 1994,
1995 and 1996, IMC was required to rebate $287,347, $167,951, and $99,578,
respectively, in premiums when certain loans were prepaid during the 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, 1995 and 1996, premium rebates due to IMC were $89,113, $1.4 million
and $2.9 million, respectively.
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 of the loans it sold in 1995 and to 90.5% or $963.2 million of the loans
it sold in 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 payment dates.
48
<PAGE>
<PAGE>
As of December 31, 1996, IMC was servicing loans representing an aggregate
of $2.15 billion. Revenues generated from loan servicing amounted to 7.8% and
9.3% of IMC's total revenues for the nine months ended September 30, 1995 and
1996, respectively. IMC anticipates that loan servicing will contribute a larger
portion of total revenues in future periods. Management believes that the
Company's loan servicing provides a consistent 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 address delinquency problems quickly and,
when necessary, to act to preserve equity before a property goes into
foreclosure. IMC believes that these policies, combined with the experience
level of independent appraisers engaged by IMC, help to reduce the incidence of
charge-offs on 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 respect to 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 occurs.
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.
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, $535.8 million and $2.15 billion at December 31, 1993, 1994, 1995
and 1996, respectively.
49
<PAGE>
<PAGE>
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 DECEMBER 31,
------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Delinquency percentages(1):
30-59 days.................................................... 0.72% 2.54% 3.01%
60-89 days.................................................... 0.15 0.59 1.01
90+ days...................................................... 0.00 0.30 1.28
---- ---- ----
Total delinquency........................................ 0.87% 3.43% 5.30%
---- ---- ----
Default percentages(2):
Foreclosure................................................... 0.00% 0.75% 0.94%
Bankruptcy.................................................... 0.12 0.25 0.53
---- ---- ----
Total default............................................ 0.12% 1.00% 1.47%
---- ---- ----
Total delinquency and default...................................... 0.99% 4.43% 6.77%
---- ---- ----
---- ---- ----
</TABLE>
- ------------
(1) Represents the percentages of account balances contractually past due,
exclusive of home equity loans in foreclosure, bankruptcy and real estate
owned.
(2) Represents the percentages of account balances on loans in foreclosure and
bankruptcy, exclusive of real estate owned.
50
<PAGE>
<PAGE>
The following table provides certain delinquency and default experience as
a percentage of outstanding principal balance for each of the Company's
securitization trusts completed through December 31, 1996, prior to any
potential recoveries:
DELINQUENCY AND DEFAULTS FOR THE COMPANY'S SECURITIZATIONS(1)(2)
<TABLE>
<CAPTION>
1994-1 1995-1 1995-2
-------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1996:
Delinquency:
30-59 days................................... $ 1,316,812 2.07% $2,286,637 2.80% $ 1,028,339 0.99%
60-89 days................................... 273,899 0.43 242,681 0.30 580,192 0.56
90 days and over............................. 38,834 0.06 190,960 0.23 119,429 0.11
----------- ---- ---------- ---- ----------- ----
Total....................................... $ 1,629,545 2.56% $2,720,278 3.33% $ 1,727,960 1.66%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
Total defaults............................... $ 2,128,767 3.35% $1,967,810 2.41% $ 2,642,563 2.54%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
As of June 30, 1996:
Delinquency:
30-59 days................................... $ 1,001,798 1.74% $1,678,736 2.33% $ 3,232,465 3.37%
60-89 days................................... 386,579 0.67 238,285 0.33 800,972 0.84
90 days and over............................. 120,648 0.21 147,389 0.20 2,122 0.00
----------- ---- ---------- ---- ----------- ----
Total....................................... $ 1,509,025 2.62% $2,064,410 2.86% $ 4,035,559 4.21%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
Total defaults............................... $ 1,611,169 2.80% $1,920,443 2.67% $ 3,053,366 3.19%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
As of September 30, 1996:
Delinquency:
30-59 days................................... $ 2,131,473 4.01% $1,602,212 2.45% $ 2,541,594 2.96%
60-89 days................................... 299,147 0.56 321,059 0.49 1,150,718 1.34
90 days and over............................. 222,911 0.42 141,310 0.22 466,260 0.54
----------- ---- ---------- ---- ----------- ----
Total....................................... $ 2,653,531 4.99% $2,064,582 3.16% $ 4,158,572 4.84%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
Total defaults............................... $ 2,287,599 4.31% $1,961,704 3.00% $ 4,115,802 4.79%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
As of December 31, 1996:
Delinquency:
30-59 days................................... $ 2,615,101 5.42% $1,351,891 2.30% $ 3,314,742 4.31%
60-89 days................................... 461,981 0.96 562,719 0.96 849,593 1.10
90 days and over............................. 264,199 0.55 103,720 0.18 1,527,337 1.99
----------- ---- ---------- ---- ----------- ----
Total..................................... $ 3,341,281 6.93% $2,018,330 3.44% $ 5,691,672 7.40%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
Total defaults............................... $ 2,568,471 5.32% $2,229,011 3.80% $ 3,597,044 4.68%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
<CAPTION>
1996-1 1996-2 1996-3
-------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1996:
Delinquency:
30-59 days................................... $ 3,462,018 2.04%
60-89 days................................... 628,949 0.37
90 days and over............................. 533,810 0.31
----------- ----
Total....................................... $ 4,624,777 2.72%
----------- ----
----------- ----
Total defaults............................... $ 484,716 0.29%
----------- ----
----------- ----
As of June 30, 1996:
Delinquency:
30-59 days................................... $ 3,544,403 2.20% $4,045,730 2.09%
60-89 days................................... 1,090,040 0.68 916,283 0.47
90 days and over............................. 641,525 0.40 843,325 0.44
----------- ---- ---------- ----
Total....................................... $ 5,275,968 3.28% $5,805,338 3.00%
----------- ---- ---------- ----
----------- ---- ---------- ----
Total defaults............................... $ 1,710,018 1.06% $ 470,978 0.24%
----------- ---- ---------- ----
----------- ---- ---------- ----
As of September 30, 1996:
Delinquency:
30-59 days................................... $ 5,206,575 3.44% $3,598,472 1.96% $ 6,948,738 2.88%
60-89 days................................... 1,665,750 1.10 1,451,115 0.79 3,222,051 1.34
90 days and over............................. 852,773 0.56 1,222,661 0.67 1,670,647 0.69
----------- ---- ---------- ---- ----------- ----
Total....................................... $ 7,725,098 5.10% $6,272,248 3.41% $11,841,436 4.91%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
Total defaults............................... $ 2,671,238 1.76% $4,286,773 2.33% $ 1,693,101 0.70%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
As of December 31, 1996:
Delinquency:
30-59 days................................... $ 8,386,098 6.10% $3,661,557 2.17% $ 3,324,516 1.46%
60-89 days................................... 2,462,853 1.79 1,635,260 0.97 3,404,998 1.50
90 days and over............................. 2,820,700 2.05 1,823,195 1.08 5,651,334 2.48
----------- ---- ---------- ---- ----------- ----
Total....................................... $13,669,651 9.94% $7,120,012 4.22% $12,380,848 5.44%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
Total defaults............................... $ 2,723,282 1.98% $4,665,216 2.76% $ 3,175,997 1.39%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
<PAGE>
<CAPTION>
1995-3
--------------------
<S> <C> <C>
As of March 31, 1996:
Delinquency:
30-59 days................................... $ 2,451,357 1.74%
60-89 days................................... 102,685 0.07
90 days and over............................. 358,533 0.26
----------- ----
Total....................................... $ 2,912,575 2.07%
----------- ----
----------- ----
Total defaults............................... $ 1,665,789 1.19%
----------- ----
----------- ----
As of June 30, 1996:
Delinquency:
30-59 days................................... $ 5,086,087 3.86%
60-89 days................................... 505,242 0.38
90 days and over............................. 477,597 0.36
----------- ----
Total....................................... $ 6,068,926 4.60%
----------- ----
----------- ----
Total defaults............................... $ 2,703,193 2.05%
----------- ----
----------- ----
As of September 30, 1996:
Delinquency:
30-59 days................................... $ 999,636 0.85%
60-89 days................................... 664,704 0.55
90 days and over............................. 340,822 0.29
----------- ----
Total....................................... $ 1,985,162 1.69%
----------- ----
----------- ----
Total defaults............................... $ 3,072,556 2.62%
----------- ----
----------- ----
As of December 31, 1996:
Delinquency:
30-59 days................................... $ 5,797,400 5.44%
60-89 days................................... 899,318 0.84
90 days and over............................. 702,633 0.66
----------- ----
Total..................................... $ 7,399,351 6.94%
----------- ----
----------- ----
Total defaults............................... $ 3,319,749 3.11%
----------- ----
----------- ----
1996-4
--------------------
<S> <C> <C>
As of March 31, 1996:
Delinquency:
30-59 days...................................
60-89 days...................................
90 days and over.............................
Total.......................................
Total defaults...............................
As of June 30, 1996:
Delinquency:
30-59 days...................................
60-89 days...................................
90 days and over.............................
Total.......................................
Total defaults...............................
As of September 30, 1996:
Delinquency:
30-59 days...................................
60-89 days...................................
90 days and over.............................
Total.......................................
Total defaults...............................
As of December 31, 1996:
Delinquency:
30-59 days................................... $ 6,440,166 2.17%
60-89 days................................... 2,481,880 0.84
90 days and over............................. 4,942,472 1.67
----------- ----
Total....................................... $13,864,518 4.68%
----------- ----
----------- ----
Total defaults............................... $ 629,253 0.21%
----------- ----
----------- ----
</TABLE>
(footnotes on next page)
51
<PAGE>
<PAGE>
(footnotes from previous page)
(1) Delinquency is the dollar value of account balances contractually past due,
excluding loans in foreclosure, bankruptcy and real estate owned.
(2) Defaults are the dollar value of account balances contractually past due on
loans in foreclosure and bankruptcy, exclusive of real estate owned.
------------------------
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, 1995 and 1996.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1994 1995 1996
------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Average amount outstanding(1)........................................... $52,709 $294,252 $1,207,172
Losses(2)............................................................... -- 279 1,580
Losses as a percentage of average amount outstanding.................... 0.00% 0.09% 0.13%
</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. During 1996, IMC marketed its direct consumer
lending services through 17 branch offices. IMC added 49 branches through
acquisitions in January and February 1997 and intends to continue to open new
retail branches during 1997. 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, and
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 Company's 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 high startup costs for office equipment, furniture and leasehold
improvement and allows IMC to exit the market easily if the office does not meet
expectations. The branch office network is used for marketing to and meeting
with IMC's local borrowers and brokers.
52
<PAGE>
<PAGE>
ACQUISITIONS AND STRATEGIC ALLIANCES
The Company is actively pursuing a strategy of acquiring originators of
non-conforming home equity loans. IMC's acquisition strategy focuses on entities
that originate non-conforming mortgages either directly from the consumer or
through broker networks. In 1996, IMC acquired Equitystars and in January and
February 1997 completed the acquisitions of Mortgage America, CoreWest, Equity
Mortgage and American Reduction. Equitystars, Mortgage America and Equity
Mortgage were Industry Partners. Management believes that the acquisitions of
these and similar non-conforming home equity loan originators will benefit IMC
by: (i) increasing IMC's loan production volume by capturing all of the acquired
company's production instead of only a portion; (ii) improving IMC's
profitability and profit margins because broker and direct-to-consumer
originated loans typically result in better profit margins than loans purchased
from correspondents; (iii) adding experienced management; and (iv) broadening
IMC's distribution system for offering new products. In order to incent
management of the acquired companies, IMC typically structures its acquisitions
to include an initial payment upon closing of the transaction and to provide for
contingent payments tied to future production and profitability of the acquired
company.
IMC believes that by using a 'family of companies' approach to potential
acquisitions it is able to differentiate itself from other potential acquirers
competing for acquisitions of non-conforming mortgage lenders. Under this
approach, IMC seeks to derive the benefit of the entrepreneurial energies and
organizational and marketing skills already developed by existing companies by
allowing those companies to operate after acquisition by the Company as
relatively independent lending units. IMC believes this approach appeals to
owners of certain existing companies who see a number of benefits from IMC's
concept, including: (i) the benefit of being allowed to continue to run their
companies as subsidiaries or independent divisions of IMC after acquisition;
(ii) the assurance that the previous owner controls the employees of the
acquired company following the acquisition; and (iii) the benefit of financial
support from IMC, which provides warehouse and working capital lines as needed
on an agreed business plan, thereby allowing the former owners to concentrate on
growing their business and obtaining efficient execution of the loan marketing
process.
Pursuant to this strategy, IMC has acquired during January and February
1997 the outstanding common stock of CoreWest and all of the assets of American
Reduction, Equity Mortgage, and Mortgage America. During 1996, IMC acquired all
of the assets of Equitystars and also formed a joint venture in the United
Kingdom. Each of the foregoing acquisitions will be accounted for under the
purchase method of accounting. Most acquisitions include earn-out arrangements
that provide the sellers with additional consideration if the acquired company
reaches certain performance targets after the acquisition. Any such contingent
payments will result in an increase in the amount of goodwill recorded on IMC's
balance sheet related to such acquisition. Goodwill represents the excess of
cost over fair market value of the net tangible assets acquired and is amortized
through periodic charges to earnings for up to 30 years.
53
<PAGE>
<PAGE>
The Company's acquisitions are summarized in the table below:
<TABLE>
<CAPTION>
AMERICAN
EQUITYSTARS MORTGAGE AMERICA COREWEST EQUITY MORTGAGE REDUCTION
---------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Industry Partner..... Yes Yes No Yes No
Effective date of
acquisition........ 1/1/96 1/1/97 1/1/97 1/1/97 2/1/97
Initial purchase
price:
Common Stock..... 239,666 shares 1,790,000 shares 488,404 shares -- --
Cash............. -- -- -- $150,000 in $9,150,000
excess of net
assets
Approximate 1996
originations....... $100 million $248 million $48 million $36 million $80 million
1996 originations
purchased by IMC... N/A $45 million $10 million $12 million $2 million
Headquarters......... Providence, RI Bay City, MI Los Angeles, CA Baltimore, MD Owings Mills, MD
Retail branch
offices............ 2 32 9 3 5
Primary states of
operations......... CT, ME, MA, NH, AZ, AK, CO, DE, CA, CO, OR, UT, DE, DC, GA, MD, MD, PA
NY, RI FL, GA, IL, IA, WA PA, VA
IN, KS, KY, MD,
MI, MN, MO, NJ,
NC, OH, OK, PA,
SC, TN, TX, VT,
VA, WA, WV, WI,
WY
</TABLE>
ACQUISITION OF EQUITYSTARS
Effective January 1, 1996, IMC acquired all of the assets of Equitystars,
one of the Industry Partners. Equitystars is a non-conforming lender that
purchases and originates residential mortgage loans in Rhode Island, New York,
Connecticut, Massachusetts, Maine and New Hampshire.
The purchase price for all of the assets of Equitystars consisted of a $2.0
million base payment in the form of 239,666 shares of Common Stock, and up to an
aggregate of $2.55 million of contingent payments, to be paid over two years
based on a formula keyed to the performance of the non-conforming and conforming
mortgage loan business of Equitystars during the two years subsequent to
closing.
ACQUISITION OF MORTGAGE AMERICA
Effective January 1, 1997, IMC acquired all of the assets of Mortgage
America, an Industry Partner. Mortgage America is a non-conforming lender based
in Bay City, Michigan that originates residential mortgage loans from a network
of 32 retail offices located in 29 states. Mortgage America originated over $248
million of residential mortgage loans in 1996, including over $69 million during
the last quarter of 1996. IMC purchased $45.3 million of residential mortgage
loans from Mortgage America during 1996, including $21.1 million during the last
quarter of 1996.
The purchase price for all of the assets of Mortgage America was an initial
payment of 1,790,000 shares of Common Stock and assumption of a stock option
plan which could result in issuance of an additional 334,596 shares of Common
Stock and a contingent payment of up to 2,770,000 additional shares of Common
Stock at the end of three years based on the growth and profitability of
Mortgage America during that period.
ACQUISITION OF COREWEST
Effective January 1, 1997, IMC acquired all of the outstanding common stock
of CoreWest, a non-conforming lender based in Los Angeles, California. CoreWest,
which commenced operations in early 1996, originates residential mortgage loans
primarily through a network of nine mortgage centers located in California,
Colorado, Washington, Utah and Oregon. CoreWest originated over $48 million of
residential mortgage loans in 1996, including over $22 million during the last
quarter of 1996. IMC
54
<PAGE>
<PAGE>
purchased $10.3 million of residential mortgage loans from CoreWest during 1996,
all of which was during the last quarter of 1996.
The purchase price for all of the outstanding common stock of CoreWest was
an initial payment of 488,404 shares of Common Stock and a contingent payment of
additional shares of Common Stock at the end of a two year period based on the
profitability of CoreWest during that period. There is no cap on the number of
shares which may be required to be issued as the contingent payment.
ACQUISITION OF EQUITY MORTGAGE
Effective January 1, 1997, IMC acquired all of the assets of Equity
Mortgage, an Industry Partner. Equity Mortgage is a non-conforming lender that
originates residential mortgage loans from its offices in the greater Baltimore
metropolitan region, Delaware and Pennsylvania. Equity Mortgage originated
approximately $36 million of residential mortgage loans in 1996, including over
$11 million during the last quarter of 1996. IMC purchased $12.5 million of
residential mortgage loans from Equity Mortgage during 1996, including $3.3
million during the last quarter of 1996.
The purchase price for Equity Mortgage was a cash payment of $150,000 in
excess of its net assets. In connection with the acquisition, the Company
entered into a four year employment agreement with the former owner of Equity
Mortgage, Mr. Mark Greenberg, pursuant to which the Company is obligated to pay
Mr. Greenberg 1.5% of the principal amount of non-conforming loans originated by
the Equity Mortgage division of the Company during such four years, up to a
maximum amount that does not exceed the net income of the division.
ACQUISITION OF AMERICAN REDUCTION
Effective February 1, 1997, IMC acquired all of the assets of American
Reduction, a non-conforming lender based in Owings Mills, Maryland. American
Reduction originates residential mortgage loans from its main office in Owings
Mills, and four satellite offices located in Pennsylvania. American Reduction
originated over $80 million of residential mortgage loans in 1996, including
over $28 million during the last quarter of 1996. IMC did not purchase a
significant amount of residential mortgage loans from American Reduction in
1996.
The purchase price for all of the assets of American Reduction was an
initial payment of $9.15 million and a cash contingent payment based on a
multiple of the average after-tax earnings of American Reduction for the two
year period ending December 31, 1999. At the Company's election, the contingent
payment may be made in shares of Common Stock.
STRATEGIC ALLIANCES
In order to increase the Company's volume and diversify its sources of loan
originations, the Company seeks to enter into strategic alliances with selected
mortgage lenders, pursuant to which the Company provides working capital and
financing arrangements and a commitment to purchase qualifying loans. In return,
the Company expects to receive a more predictable flow of loans and, in some
cases, an option or obligation to acquire an equity interest in the related
strategic participant. To date, the Company has completed two strategic
alliances.
UK JOINT VENTURE
In April 1996, the Company formed Preferred Mortgages, a UK joint venture.
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 explore
opportunities 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 has a `L'47.5
million (approximately $76 million as of January 31, 1997) line of credit from
National Westminster Bank, Plc for the purchase and origination of mortgage
loans (the 'NatWest Facility'), and FSA has provided an insurance policy as
credit enhancement for the NatWest Facility. Preferred Mortgages is currently
originating loans at a
55
<PAGE>
<PAGE>
rate of approximately `L'1.2 million, (or $1.9 million, as of January 31, 1997)
per month. Additionally, IMC intends to explore opportunities to serve
underserved nonconforming segments of the home equity loan markets in other
locations outside the United States.
NEW PRODUCTS AND SERVICES
SECURED CREDIT CARDS
In late 1996, IMC, through its wholly owned subsidiary, IMC Credit Card,
Inc. ('IMCCI'), entered into a joint venture (the 'Credit Card Joint Venture')
with Lakeview Credit Card Services, Inc. ('Lakeview Credit'), a wholly owned
subsidiary of Lakeview, the parent of one of the Industry Partners. The Credit
Card Joint Venture is owned 50% by IMCCI and 50% by Lakeview Credit. If a
customer wishes to borrow an amount less than that permitted by the Company's
underwriting guidelines, the Company will offer the borrower an opportunity to
borrow an additional amount up to the limit permitted by underwriting guidelines
and use the excess proceeds as collateral for a secured credit card. Those
excess proceeds are deposited in an interest-bearing account at Lakeview and are
used as collateral for a secured credit card issued by IMCCI.
HOME EQUITY LINE OF CREDIT ('HELOC')
In late 1996, IMC introduced the HELOC product, which enables 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 increases 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 developed the methodology to
facilitate the HELOC program through an agreement with a large commercial bank.
This new product offers the convenience of a revolving mortgage credit line to
the non-conforming borrower. IMC offers HELOCs to borrowers using the same
general underwriting criteria IMC uses for its non-conforming lending business.
PREFERRED PARTNERS PROGRAM
As originally conceived, the Preferred Partners Program was for the benefit
of mortgage companies attempting to diversify their product offering and enter
the non-conforming loan business. Now, however, the Preferred Partners Program
has expanded to encompass a diverse group of projects with a common goal: to
introduce certain entities not previously involved in non-conforming lending to
the business. The entities taking part in the Preferred Partners Program now
include credit unions, banks and brokerage houses. Under the program, IMC acts
as a consultant in certain aspects of the non-conforming loan business,
including marketing, regulatory compliance, underwriting, risk-adjusted pricing,
processing, funding, servicing and selling loans. Working with the companies
either on-site or out of IMC's offices, IMC helps the entities develop new
product lines that they would not typically underwrite on their own. In return,
IMC anticipates receiving a part of the production generated by the entity. To
date, the Preferred Partners Program has not generated a significant amount of
loan production for the Company.
COMPETITION
As a purchaser and originator of mortgage loans the proceeds of which are
used for a variety of purposes, including to consolidate debt, to finance home
improvements and to pay educational expenses, the Company faces intense
competition primarily from other mortgage banking companies and commercial
banks, credit unions, thrift institutions, credit card issuers and finance
companies. Many of these competitors are substantially larger and have more
capital and other resources than the Company. Furthermore, numerous large
national finance companies and originators of conforming mortgages have expanded
from their conforming origination programs and have allocated resources to the
origination of non-conforming loans. In addition, many 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 requires the Company to
pay higher premiums for loans it purchases, increases the likelihood of
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earlier prepayments through refinancings and could have a material adverse
effect on the Company's results of operations and financial condition. In
addition, competition could also result in the purchase or origination of loans
with lower interest rates and higher loan-to-value ratios, which could have a
material adverse effect on the Company's results of operations and financial
condition. Premiums paid to correspondents as a percentage of loans purchased
from correspondents by the Company were 4.7%, 4.2%, 5.0% and 5.8% for the three
months ended March 31, June 30, September 30 and December 31, 1996,
respectively. The weighted average interest rate for loans purchased or
originated by the Company decreased from 12.1% for the year ended December 31,
1995 to 11.5% for the year ended December 31, 1996. The combined weighted
average loan-to-value ratio of loans purchased or originated by the Company
increased from 70.9% for the year ended December 31, 1995 to 72.9% for the year
ended December 31, 1996.
Competition takes 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 into this market, including at least one quasi-governmental agency,
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.
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,
selling 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, however, 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
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IMC could be required to investigate and clean up hazardous or toxic substances
or chemical releases at such properties after acquisition by IMC, and could 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 December 31, 1996, IMC had a total of 380 employees, 198 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. As a result of its recent acquisitions, since December 31,
1996 IMC has added in excess of 500 employees. IMC believes that it will be
necessary to continue to increase its staff to support its growth.
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 $331,000. The
lease expires in August 1998 and the Company intends to vacate these premises
when its new corporate headquarters are ready for occupation.
In January 1997, the Company purchased a 60,000 square foot building in
Tampa, Florida which will serve as the Company's corporate headquarters after
renovations are completed later in 1997. The purchase price for the building was
$2.6 million, and the Company anticipates spending at least an additional $2.2
million to renovate the space prior to occupation.
IMC maintains full-service offices in Ft. Washington, Pennsylvania;
Cincinnati, Ohio; Cherry Hill, New Jersey; Lincoln, Rhode Island; Bellevue,
Washington; Roselle, Illinois; Baltimore, Maryland; Los Angeles, California; and
Bay City, Michigan. The Company also maintains short-term leases for retail
branch offices in executive spaces in 66 locations throughout the United States.
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.
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MANAGEMENT
DIRECTORS AND OFFICERS
The directors and executive officers of IMC and their ages as of January
31, 1997 and positions are:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------------------ ---- ---------------------------------------------------------------
<S> <C> <C>
George Nicholas........................... 54 Chairman of the Board of Directors, Chief Executive Officer and
Assistant Secretary, Member of the Compensation and Executive
Committees
Thomas G. Middleton....................... 50 Director, President, Chief Operating Officer and Assistant
Secretary, Member of the Compensation and Executive
Committees
Stuart D. Marvin.......................... 37 Chief Financial Officer
Joseph P. Goryeb.......................... 66 Director, Member of the Audit and Option Committees
Mitchell W. Legler........................ 54 Director, Member of the Compensation and Audit Committees
Allen D. Wykle............................ 50 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 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 led 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 of Shawmut National Corporation and from
February 1991 until April 1992, Mr. Middleton was Managing Director of SAG
Financial Inc. Mr. Middleton served as Executive Vice President and Chief Credit
Officer of Equimark Corp. from June 1987 until February 1991.
Stuart D. Marvin joined the Company as its Chief Financial Officer on
August 1, 1996. Mr. Marvin is a certified public accountant and was most
recently a partner in the Jacksonville, Ft. Lauderdale and Miami, Florida
offices of Coopers & Lybrand L.L.P. Mr. Marvin has over 12 years of public
accounting experience with Coopers & Lybrand L.L.P. and Arthur Young & Company.
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. 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.
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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 Approved
Financial Corp. (formerly 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 remodeling 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 consists of such number of persons as shall be fixed by the Board of
Directors from time to time by resolution and is 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. Mr. Legler serves
until the 1997 annual meeting of stockholders. Messrs. Wykle and Goryeb serve
until the 1998 annual meeting of stockholders. Messrs. Nicholson and Middleton
serve until the 1999 annual meeting of stockholders. 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 shall be filled by the Board of Directors, with the
director so elected to serve until the next annual meeting of stockholders. 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 by the Board of Directors 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 makes recommendations concerning the engagement of
independent public accountants, reviews with the independent public accountants
the plans and results of the audit engagement, approves professional services
provided by the independent public accountants, reviews the independence of the
independent public accountants, considers the range of audit and non-audit fees
and reviews the adequacy of the Company's internal accounting controls.
Compensation Committee. The Compensation Committee consists of Messrs.
Nicholas, Middleton and Legler. The Compensation Committee determines the
compensation of the Company's executive officers.
Option Committee. The Option Committee consists of Messrs. Goryeb and Wykle
and has authority to administer the Company's stock option plans and to grant
options thereunder.
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 12,932 shares
of Common Stock pursuant to the Directors' Plan. See ' -- Stock Option
Plans -- Directors' Plan.' The Company pays non-employee directors $6,000 per
year plus $2,500 for each meeting attended. All directors 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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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
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. Messrs. Nicholas, Middleton and
Legler serve on the Compensation Committee and Messrs. Nicholas and Middleton
are executive officers of the Company.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid and accrued during fiscal 1996 to the Company's Chief Executive Officer and
the other executive officers of the Company whose compensation exceeded $100,000
for that year (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................. 1996 $475,000 $1,425,000 $ 4,750 --
Thomas G. Middleton, President, Chief
Operating Officer....................... 1996 380,000 1,140,000 9,500 --
Stuart D. Marvin, Chief Financial
Officer(3).............................. 1996 111,677 93,750 -- 120,000
</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.
(3) Represents compensation from commencement of employment on August 1, 1996,
and includes reimbursement of $17,927 for relocation costs to Tampa,
Florida.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the stock option grants
made to Stuart D. Marvin, the only Named Executive Officer to receive stock
options during the year ended December 31, 1996. No stock appreciation rights
were granted 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(2)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ----------------------------------------------
NAME GRANTED FISCAL YEAR PRICE(1) DATE 0% 5%
- --------------------- ---------- ------------- --------- ---------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Stuart D. Marvin..... 120,000 31.6% $8.00 8/1/01 $ 480,000 $ 1,385,608
<CAPTION>
NAME 10%
- --------------------- ----------------------
<S> <C>
Stuart D. Marvin..... $ 2,774,989
</TABLE>
- ------------
(1) 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.
(2) 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
(footnotes continued on next page)
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(footnotes continued from previous page)
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 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 at December 31,
1996. No options or stock appreciation rights were exercised during 1996 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 OPTIONS AT
FISCAL YEAR END FISCAL YEAR END(1)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
George Nicholas...................................... 452,586 113,146 $ 6,517,238 $1,629,302
Thomas G. Middleton.................................. 226,292 56,574 3,258,605 814,666
Stuart D. Marvin..................................... 10,000 110,000 87,500 962,500
</TABLE>
- ------------
(1) Based on the closing price of $16.75 per share, adjusted for the two-for-one
stock split, of the Common Stock on Nasdaq on December 31, 1996, the last
trading day of the Company's fiscal year.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with George Nicholas, its Chairman
and Chief Executive Officer, Thomas G. Middleton, its President and Chief
Operating Officer, and Stuart D. Marvin, its Chief Financial Officer
('Employment Agreements').
Mr. Nicholas' current Employment Agreement commenced on January 1, 1996 and
terminates on December 31, 2001 (subject to automatic five-year extensions,
unless either the Company or Mr. Nicholas gives a notice of termination six
months prior to the extension). The Employment Agreement provides for an annual
salary of $475,000, plus an increase each year equal to the greater of (i) the
change in the cost of living in 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 per share of 10% or more in that year. 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 per share exceeds 10% up to a maximum of 300% of his base salary. For
example, if the increase in net income per share 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 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 by Mr. Nicholas after a material
breach by the Company, and (v) voluntary termination after a 'change of control'
(defined as any (A) acquisition of 25% or more of the voting power or equity of
the Company, (B) change in a majority of the members of the Board excluding any
change 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
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Agreement, or (ii) an amount equal to 150% of the highest annualized
compensation earned by him during the preceding three years. 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
his 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 or otherwise
materially breaches the Employment Agreement. The Employment Agreement also
provides that the Company shall indemnify Mr. Nicholas for any and all
liabilities to which he may be subject as a result of his services to the
Company.
Mr. Middleton's Employment Agreement commenced on January 1, 1996 and
contains terms that 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.
Mr. Marvin's Employment Agreement commenced on August 1, 1996 and extends
until December 31, 1999. The terms of the Employment Agreement provide for an
annual salary of $225,000 commencing August 1, 1996, plus an increase each
calendar year equal to the greater of (i) the change in the cost of living in
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 per share
of 10% or greater. In addition, the Employment Agreement provides for a payment
of a bonus equal to 5% of the base salary of the relevant year for each one
percent by which the increase in net income per share exceeds 10% up to a
maximum of 100% of his base salary.
STOCK OPTION PLANS
On December 11, 1995, the Partnership approved the Partnership Option Plan.
In April 1996, in anticipation of the Company's initial public offering, 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'). All options
granted under the Partnership Option Plan were 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 equity 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 1,915,454 shares and 130,000 shares, respectively.
Pursuant to the acquisition of Mortgage America in January 1997, the
Company assumed the stock options issued under the Mortgage America Stock Option
Plan. The holders of such options have the right to purchase up to 334,596
shares of Common Stock at an exercise price of $4.19 per share. Such options are
immediately exercisable and expire on December 30, 2006.
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.
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
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in 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.
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 Common Stock as of the date of each grant. The Committee is authorized to
grant appreciation rights to participants in lieu of options.
Upon completion of the Company's initial public offering, the Company
assumed, subject to vesting, options exercisable into 1,616,000 shares of Common
Stock at an exercise price of $2.35 per share. Sixty percent of these options
vested upon their grant on December 11, 1995, 20% vested on the first
anniversary of the grant date and the remaining 20% will vest on the second
anniversary of the grant date.
During 1996, the Committee granted options to new employees, existing
employees and advisors exercisable into an aggregate of 360,302 shares of Common
Stock. These options vest over two- to five-year periods from the date of grant
and are exercisable at prices ranging from $8.00 per share to $16.00 per share.
All of these options expire ten years after the date of grant. As of December
31, 1996, the Company had granted options to purchase an aggregate of 1,531,168
shares of Common Stock under the Incentive Plan.
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 Participant is
terminated by the Company without cause. Additionally, all unvested options will
vest upon the occurrence of a change of control. 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 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 substantially all 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 Incentive 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.
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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 12,932
shares of Common Stock at an exercise price of $2.35 per share. Any other person
who becomes an outside director will receive on the date of election to the
Board, options to purchase 12,932 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 each of the first and second anniversaries of
the date of grant. 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.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of January 31, 1997, and as adjusted to reflect
the sale of the shares of Common Stock offered hereby, of: (i) each person known
by the Company to own beneficially five percent or more of the outstanding
Common Stock immediately prior to the Offering; (ii) each of the Selling
Stockholders; (iii) each of the Company's directors; (iv) each of the Named
Executive Officers; and (v) all directors and executive officers of the Company
as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BEING OWNED AFTER
THE OFFERING OFFERED(1) THE OFFERING(1)
----------------------- ------------ -----------------------
PERCENT OF PERCENT OF
NAME OF BENEFICIAL OWNER NUMBER CLASS NUMBER CLASS
- ------------------------------------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
ContiTrade Services Corporation(2) .............. 2,700,000 10.95% 600,000 2,100,000 6.94%
277 Park Avenue
New York, New York 10172
Branchview, Inc.(3) ............................. 1,661,856 7.57 -- 1,661,856 5.90
989 McBride Avenue
West Patterson, New Jersey 07424
Approved Financial Corp. ........................ 1,205,018 5.49 -- 1,205,018 4.28
3420 Holland Road, Suite 107
Virginia Beach, Virginia 23452
George Nicholas(4) .............................. 1,543,496 6.89 -- 1,543,496 5.40
3450 Buschwood Park Drive
Tampa, Florida 33618
Thomas G. Middleton(5) .......................... 440,767 1.99 -- 440,767 1.55
3450 Buschwood Park Drive
Tampa, Florida 33618
Stuart D. Marvin(6) ............................. 16,000 * -- 16,000 *
3450 Buschwood Park Drive
Tampa, Florida 33618
Joseph P. Goryeb(7)(8) .......................... 1,183,460 5.39 -- 1,183,460 4.20
Waterview Corporate Centre
20 Waterview Boulevard
Parsippany, New Jersey 07054-1267
Allen D. Wykle(7)(9) ............................ 21,456 * -- 21,456 *
3420 Holland Road
Virginia Beach, Virginia 23452
Mitchell W. Legler(7)(10) ....................... 90,062 * -- 90,062 *
Independent Drive, Suite 3104
Jacksonville, Florida 32202
Thomas P. LaPorte Trust(11) ..................... 1,229,274 5.60 152,284 1,076,990 3.83
2230 Groveland
Bay City, MI 48708
Mary M. Reid Trust(11) .......................... 1,229,270 5.60 152,284 1,076,986 3.83
2230 Groveland
Bay City, MI 48708
Selling Employees
David MacDonald................................ 546,826 2.49 55,914 490,912 1.74
Glenn Tourtellot............................... 17,980 * 17,980 -- --
Mike Derderian 17,980 * 17,980 -- --
Douglas Brown.................................. 17,980 * 17,980 -- --
Andrew MacDonald............................... 55,914 * 55,914 -- --
Ronald Staake.................................. 153,854 * 20,000 133,854 *
Timothy Charles Hayes.......................... 153,854 * 20,000 133,854 *
</TABLE>
(table continued on next page)
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<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BEING OWNED AFTER
THE OFFERING OFFERED(1) THE OFFERING(1)
----------------------- ------------- -----------------------
PERCENT OF PERCENT OF
NAME OF BENEFICIAL OWNER NUMBER CLASS NUMBER CLASS
- ------------------------------------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Mark Bishop.................................... 51,692 * 15,202 36,490 *
Steven M. Curry................................ 32,968 * 8,236 24,732 *
Norman Steeg................................... 16,264 * 4,048 12,216 *
Brian Levine................................... 51,692 * 15,202 36,490 *
Jon Maddox..................................... 23,200 * 5,600 17,600 *
Industry Partners................................ 241,376
All directors and executive officers as a group
(6 persons)(12)................................ 3,295,241 14.50% -- 3,295,241 11.39%
</TABLE>
- ------------
* Represents less than one percent.
(1) Assumes no exercise of the Underwriters' over-allotment option. See Notes
(3)(4)(8) and (9).
(2) Consists of 2,700,000 shares of Common Stock issuable upon the exercise of
the Conti Warrant, which is currently exercisable for a de minimus amount.
(3) Excludes 110,000 registered shares purchased by shareholders of Branchview,
Inc. in the Company's intial public offering. In the event that the
Underwriters' over-allotment option is exercised in full, Branchview, Inc.
may sell up to shares of Common Stock and would then own
shares of Common Stock upon the completion of the Offering or %
of the then outstanding Common Stock.
(4) Includes 452,586 shares of Common Stock issuable upon the exercise of
options under the Incentive Plan. In the event that the Underwriters'
over-allotment option is exercised in full, George Nicholas may sell up to
shares of Common Stock and would then own shares of
Common Stock upon the completion of the Offering or % of the then
outstanding Common Stock.
(5) Includes 226,293 shares of Common Stock issuable upon the exercise of
options under the Incentive Plan.
(6) Includes 16,000 shares of Common Stock issuable upon the exercise of
options under the Incentive Plan.
(7) Includes 10,346 shares of Common Stock issuable upon the exercise of
options under the Directors' Plan.
(8) Includes 1,145,338 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. In the event that the Underwriters' over-allotment option
is exercised in full, JRJ Associates, Inc. may sell up to shares
of Common Stock and would then own shares of Common Stock upon
the completion of the Offering or % of the then outstanding Common Stock.
(9) Excludes 1,199,768 shares of Common Stock and 5,250 shares of Common Stock
issuable upon the exercise of options under the Incentive Plan owned by
Approved. Mr. Wykle, who owns 32% of the voting stock of Approved, has
voting, but not investment, control of the Common Stock owned by Approved.
Mr. Wykle disclaims beneficial ownership of the shares of Common Stock
owned by Approved and issuable upon the exercise of such options. In the
event that the Underwriters' over-allotment option is exercised in full,
Approved may sell up to shares of Common Stock and would then own
shares of Common Stock upon the completion of the Offering or %
of the then outstanding Common Stock.
(footnotes continued on next page)
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(footnotes continued from previous page)
(10) Includes 48,940 shares of Common Stock issuable upon the exercise of
options under the Incentive Plan, 27,776 shares held by Mr. Legler jointly
with his spouse and 3,000 shares held in his IRA.
(11) Includes 4,282 shares of Common Stock issuable upon the exercise of options
issued to Mortgage America under the Incentive Plan. Thomas P. LaPorte and
Mary M. Reid are husband and wife and have voting and investment control of
Mortgage America. Each acts as co-trustee of the trust.
(12) See Notes (1) and (4)-(10).
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.
AGREEMENTS WITH CONTIFINANCIAL
Warehouse Facility. The Company and ContiFinancial are party to the Amended
and Restated Loan and Security 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 and expires on August 31, 1997. Amounts
outstanding under the Warehouse Facility bear interest at a rate of LIBOR plus
1.5% per year. During 1994, 1995 and 1996, the Company made interest payments
under the Warehouse Facility of $0.5 million, $5.1 million and $6.0 million,
respectively.
Standby Agreement. The Company and ContiFinancial are party to a Standby
Agreement through which the Company funds the income taxes payable as a result
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. The Company has borrowed the full $15.0 million available under the
Standby Agreement. During 1994, 1995 and 1996, the Company made interest
payments to ContiFinancial under the Standby Agreement of $0, $0.2 million and
$1.4 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 underwriting of
securitizations and whole loan acquisitions or dispositions of the Company's
mortgage loans (the 'Mortgage Transaction'). 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, to ContiFinancial for
services as Mortgage Banker in 1994, 1995 and the nine months ended September
30, 1996, respectively.
Conti Warrant. In August 1993, the Company entered into the 1993 Agreement
with ContiFinancial which provided IMC with the $15.0 million Standby Agreement
to fund retention of I/O and residual
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classes of certificates 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. Prior to the Company's initial
public offering in June 1996, the Conti Option was converted into the Conti
Warrant. The Conti Warrant grants ContiFinancial certain registration rights.
The Conti Warrant is exercisable for 2.7 million shares (after giving effect to
ContiFinancial's sale in June 1996 of 10% of its interest in the Conti Warrant)
of Common Stock for a de minimus amount, subject to adjustment if the Company
issues Common Stock below fair market value and certain anti-dilution
adjustments.
ADDITIONAL SECURITIZATION TRANSACTION EXPENSE
Through June 1996, the Company had an I/O and residual certificate sharing
arrangement with ContiFinancial in connection with its securitizations pursuant
to which the Company arranged 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 and 25% of the residual interests
(valued at $3.9 million) in the Company's 1996-2 securitization in exchange for
$2.5 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.
GENERAL COUNSEL
The Company paid $230,000 in legal fees in 1996 to Mr. Legler who acted as
general counsel for the Company through his professional association, Mitchell
W. Legler, P.A. The Company has an arrangement with Mitchell W. Legler, P.A.
pursuant to which it pays that firm $17,500 per month for Mr. Legler's services
as general counsel.
In addition, Mitchell W. Legler, P.A. earns a contingent cash fee for
acting in the primary role in identifying potential acquisition candidates and
in analyzing, negotiating and closing acquisitions of other non-conforming
lenders and strategic alliances with other non-conforming lenders. The
contingent fees are determined based on a percentage of the expected increase in
IMC's earnings per share
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resulting from an acquisition or strategic alliance based on the first year
following the closing of the acquisition and based on the first three years
following the closing of a strategic alliance. Fifty percent of contingent fee
as to acquisitions is paid following the closing and the remainder is paid at
the end of the first year based on actual results achieved. The contingent fee
as to strategic alliances is paid at the end of the first three years following
closing based on actual results. No fee is due to Mitchell W. Legler, P.A. for
unsuccessful acquisition or strategic alliance efforts.
As a result of this contingent fee arrangement, Mitchell W. Legler, P.A.
received fees in the aggregate of $468,167 in connection with the acquisitions
of CoreWest, Mortgage America, American Reduction and Equity Mortgage. The
balance of the fees, if any, due as a result of those acquisitions will be paid
in 1998.
In addition, on December 11, 1995, Mr. Legler was granted options to
purchase 42,026 shares of Common Stock at an exercise price of $2.35 per share
pursuant to the Incentive Plan for advisory services to the Company and options
to purchase 12,932 shares of Common Stock at an exercise price of $2.35 per
share pursuant to the Directors' Plan and options to purchase 20,000 shares of
Common Stock at an exercise price of $8.00 per share pursuant to the Incentive
Plan.
TAX DISTRIBUTIONS
Under the terms of the partnership agreement governing the Partnership, the
Company was 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 ('Tax
Distributions'). Tax Distributions to partners in 1996 related to partnership
income prior to June 24, 1996, the effective date of the exchange of the
partnership interests for Common Stock of the Company, and included $790,281 to
George Nicholas, $898,703 to Mortgage America, $898,703 to JRJ Associates, Inc.,
$898,703 to Branchview, $898,703 to Approved and $898,703 to Cityscape Corp.
TRANSACTIONS WITH INDUSTRY PARTNERS
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 more mortgage loans than required under
their commitments, the Company created an incentive option plan for Industry
Partners (the 'Industry Partners' Incentive Plan'). Under that Plan, options
exercisable for five years after grant to acquire a total of 20,000 shares of
Common Stock at $9.00 per share were awarded to Industry Partners for the
quarter ending September 30, 1996. The 20,000 options were allocated among those
Industry Partners that doubled their commitments, pro rata, to the extent the
Industry Partners exceeded that doubled commitment for the quarter. The plan was
amended and for each quarter beginning December 31, 1996, Industry Partners that
doubled their commitments will be eligible to receive on a pro rata basis fully
paid shares of Common Stock equal to $150,000 divided by the market price of the
Common Stock at the end of each quarter. The fully paid shares of Common Stock
will be issued among those Industry Partners that doubled their commitments, pro
rata, to the extent the Industry Partner exceeded its doubled commitment for the
quarter. The Industry Partners Incentive Plan continues through the quarter
ended June 30, 2000.
LAKEVIEW
The Company entered into the Lakeview Facility in January 1996 with
Lakeview, an affiliate of Branchview, Inc., one of the Industry Partners. The
Company repaid all outstanding amounts under the Lakeview Facility with a
portion of the proceeds of the Company's initial public offering in June 1996.
The Company has re-borrowed approximately $5 million under the Lakeview
Facility, effective in January 1997. In 1996, IMC, through its wholly owned
subsidiary, IMCCI, entered into the Credit Card Joint Venture with Lakeview
Credit. The Credit Card Joint Venture is owned 50% by IMCCI and 50% by Lakeview
Credit. See 'Business -- New Products and Services -- Secured Credit Cards.'
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JRJ ASSOCIATES INC.
JRJ Associates Inc. sold loans in the aggregate amount of $24.9 million to
the Company during 1996 and has agreed to sell $24.0 million in loans to the
Company in 1997. 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. contributed $420,000 to the Company in lieu of additional
loan sales in satisfaction of its aggregate loan sale commitments for 1996 and
will contribute $360,000 in satisfaction of its commitments for 1997.
MORTGAGE AMERICA
Effective January 1, 1997, IMC acquired all of the assets of Mortgage
America, one of the Industry Partners. IMC purchased $45.3 million of
residential mortgage loans from Mortgage America during 1996. The purchase price
for all of the assets of Mortgage America was an initial payment of 1,790,000
shares of Common Stock and assumption of a stock option plan which could result
in issuance of an additional 334,596 shares of Common Stock and a contingent
payment of up to 2,770,000 additional shares of Common Stock at the end of three
years based on the growth and profitability of Mortgage America during that
period.
EQUITY MORTGAGE
Effective January 1, 1997, IMC acquired all of the assets of Equity
Mortgage, one of the Industry Partners. IMC purchased $12.5 million of
residential mortgage loans from Equity Mortgage during 1996. The purchase price
for Equity Mortgage was a cash payment of $150,000 in excess of its net assets.
In connection with the acquisition, the Company entered into a four year
employment agreement with the former owner of Equity Mortgage, Mr. Mark
Greenberg, pursuant to which the Company is obligated to pay Mr. Greenberg 1.5%
of the principal amount of non-conforming loans originated by the Equity
Mortgage division of the Company during such four years, up to a maximum amount
that does not exceed the net income of the division.
INVESTORS MORTGAGE
Investors Mortgage sold loans in the aggregate amount of $12.1 million to
IMC during 1996. Investors Mortgage has agreed to sell $12.0 million in loans to
the Company in 1997.
APPROVED FINANCIAL CORP.
Approved, formerly American Industrial Loan Association, sold loans in the
aggregate amount of $100.1 million to IMC during 1996 and has agreed to sell $24
million in loans to IMC in 1997. Mr. Wykle, a member of the Board of Directors
of IMC, is Chairman and Chief Executive Officer of Approved. In January 1996,
IMC and Approved entered into a warehouse financing facility pursuant to which
IMC committed to lend Approved $8.0 million secured by mortgage loans.
Borrowings under the facility bear interest at a rate of LIBOR plus 1.75%, and
Approved paid IMC $137,189 in interest payments during 1996.
CERTAIN ACCOUNTING CONSIDERATIONS RELATING TO THE CONTI VSA
BACKGROUND
IMC was initially formed as Industry Mortgage Company, L.P., a Delaware
limited partnership (the 'Partnership') with Industry Mortgage Corporation (an
entity owned by George Nicholas) as general partner and various of the Industry
Partners and certain employees as limited partners. In June 1996, in preparation
for the Company's initial public offering, the partnership interests of all
limited partners and Mr. Nicholas' ownership interest in the general partner
were all exchanged for Common Stock resulting in the Partnership being wholly
owned by IMC.
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As originally conceived by the founders of IMC, the common 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.
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 shares
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 the Conti 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 Industry Partners of their partnership
interests in the Partnership for Common Stock, the Conti Option automatically
converted into the Conti Warrant exercisable for 3.0 million shares of the
Common Stock (subject to certain adjustments). The Conti Warrant does not
contain any put feature permitting ContiFinancial to require the Company to pay
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.
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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 the 1993 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.
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 was 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. Neither the Conti Option nor the Conti Warrant affects earnings of the
Company after March 26, 1996.
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<PAGE>
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'). As of February 11,
1997, there were no shares of Preferred Stock outstanding and there were
21,949,142 shares of Common Stock outstanding held by 106 holders of record.
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.
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 'Price Range of Common Stock and 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 non-assessable.
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 and 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 tend to 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. The Florida Business Corporation Act (the 'Florida Act') 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 approve the granting of voting rights as to the shares acquired in the
control share acquisition in the manner provided in the Florida Act. A control
share acquisition is defined as an acquisition that immediately thereafter
entitles the acquiring party to vote in the election of directors within any 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; or (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 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 majority of disinterested directors before the
person becomes
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an interested stockholder; (ii) the interested stockholder has been the
beneficial owner of at least 80% of the Company's outstanding voting shares for
at least five years; (iii) the interested stockholder is the beneficial owner of
at least 90% of the outstanding voting shares, exclusive of shares acquired from
the corporation in a transaction not approved by a majority of the disinterested
directors of the corporation; or (iv) 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 the corporation and an officer or director. See
'Management -- Employment Agreements.' 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.
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
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90% of the Company's outstanding voting shares. This provision may only be
amended 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 only be called by 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 a 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 and
Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding an
aggregate of 28,149,142 shares of Common Stock. Of these shares, 13,330,000
shares 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.
The remaining 18,310,922 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 (subject to certain exceptions provided by Rule
701 under the Securities Act with respect to approximately 780,700 of such
shares issuable upon the exercise of vested options granted under the Incentive
Plan or the Directors' Plan). 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, or
approximately 281,491 shares immediately after the Offering, excluding the
exercise of any options and 2.1 million shares issuable 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 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 intends to file a
registration statement on Form S-8 under the Securities Act to register the
2,045,454 shares of Common Stock reserved for issuance under the Incentive Plan
and the Directors' Plan
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(whether or not such options have been granted or vested). As a result, any
shares issued upon exercise of stock options granted under such plans will be
available, subject to the referenced lock-up agreements and special rules for
affiliates, for resale in the public market after the effective date of such
registration statement.
The Conti Warrant provides for certain rights to register shares issued
upon exercise of such warrant in a secondary offering by the Company and, after
December 31, 1998, certain demand registration rights with respect to such
shares.
In connection with the acquisition of Equitystars, Mortgage America and
CoreWest, the persons who received Common Stock in the tax-free exchange entered
into registration rights agreements (the 'Registration Agreements') with IMC
relating to such Common Stock (the 'Registrable Securities') Pursuant to the
Registration Agreements, IMC agreed to afford an opportunity to register a
portion of the Registrable Securities in any secondary offering being undertaken
by IMC, subject, however, to rights of other holders of unregistered Common
Stock to participate on a pro-rata basis and further subject to a priority in
favor of IMC in the event that it is not practicable to register all securities
sought to be registered.
In addition, the Registration Agreements provide certain demand
registration rights with respect to the Registrable Securities, subject to the
right of IMC to delay the registration in certain circumstances. In the case of
Mortgage America, the demand registration rights permit registration of the
lesser of 15% of the Registrable Securities and Registrable Securities with a
market value of $7.5 million on or before September 30, 1997, and, to the extent
not previously registered, registration of Registrable Securities with a market
value of $5.5 million with respect to two holders by June 29, 1997. Fifty
percent of the Registrable Securities delivered in payment of the future
contingent payment of the purchase price are to be registered when issued in
early 2000.
In the case of CoreWest, the demand registration rights permit registration
of the lesser of approximately 25% of the Registrable Securities in each of 1997
and 1998 (plus, in 1998, any unregistered Registrable Securities that were
permitted to be registered in 1997), except that IMC is required to register
only 15% of the Registrable Securities held by management of CoreWest unless
CoreWest has then achieved a certain portion of its business plan. The
Registrable Securities delivered in payment of the future contingent payment of
the purchase price are to be registered when issued in early 1999.
In the case of Equitystars, all 239,999 shares are presently subject to
demand registration rights.
The expenses of any required registrations are to be paid by IMC, but the
holders of the Registrable Securities are required to pay any related
underwriting commissions.
The Company has 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 90 days after the completion of the Offering, without the prior
written consent of Bear, Stearns & Co. Inc., subject to certain limited
exceptions. Certain officers and directors of the Company and the Selling
Stockholders have agreed with the Underwriters that they will not, without the
prior written consent of Bear, Stearns & Co. Inc., offer, sell, contract to sell
or otherwise dispose of any shares of Common Stock or securities convertible
into or exchangeable for Common Stock, for a period of 90 days after the
completion of the Offering, subject to certain limited exceptions. See
'Underwriting.'
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UNDERWRITING
The Underwriters named below, for whom Bear, Stearns & Co. Inc., J.P.
Morgan Securities Inc., NatWest Securities Limited 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 and the Selling Stockholders 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 OF
UNDERWRITER COMMON STOCK
- ------------------------------------------------------------------------------ ------------
<S> <C>
Bear, Stearns & Co. Inc. .....................................................
J.P. Morgan Securities Inc. ..................................................
NatWest Securities Limited....................................................
Oppenheimer & Co., Inc. ......................................................
------------
Total.................................................................... 7,000,000
------------
------------
</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 $ per share to certain other
dealers. After the 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 & Co. Inc. and its affiliates, Bear Stearns Mortgage Capital
Corporation and Bear, Stearns International Limited, provide the Company a $30.0
million credit facility which extends through October 23, 1997, and is
collateralized by the I/O and residual certificates owned by the Company from
the 1996-4 and 1997-1 securitizations. In addition, Bear, Stearns & Co. Inc. has
acted as lead manager for six of the Company's securitizations. Bear Stearns
Home Equity Trust 1996-1, an affiliate of Bear, Stearns & Co. Inc., provides the
Company with a $400.0 million warehouse borrowing facility which extends through
March 1997.
NatWest Securities Limited ('NatWest'), a United Kingdom broker-dealer and
a member of the Securities and Futures Authority Limited, has agreed that, as
part of the distribution of the Common Stock offered hereby and subject to
certain exceptions, it will not offer or sell any Common Stock within the United
States, its territories or possessions or to persons who are citizens thereof or
residents therein. The Underwriting Agreement does not limit the sale of the
Common Stock offered hereby outside of the United States.
NatWest has also represented and agreed that (i) it has not offered or sold
and will not offer or sell any Common Stock to persons in the United Kingdom
prior to admission of the Common Stock to listing in accordance with Part IV of
the Financial Services Act 1986 (the 'Act') except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purpose of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995 or the Act, (ii) it has complied and will
comply with all applicable provisions of the Act with respect to anything done
by it in relation to the Common Stock in, from or otherwise involving the United
Kingdom and (iii) it has only issued or passed on, and will only issue or pass
on, in the United Kingdom any document received by it in connection with the
issue of the Common Stock, other than any document which consists of or any part
of listing particulars, supplementary listing particulars or any other document
required or permitted to be published by listing rules under Part IV of the Act,
to a person who is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a
person to whom the document may otherwise lawfully be issued or passed on.
National Westminster Bank Plc, the parent of NatWest, provides the Company
with a $20.0 million credit facility collateralized by the I/O and residual
certificates owned by the Company from the 1996-2
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and 1996-3 securitizations. National Westminster Bank Plc intends to assign this
facility to Greenwich Capital Markets, Inc., a wholly owned subsidiary of
National Westminster Bank Plc. National Westminster Bank Plc also provides the
Company with a $100.0 million warehouse borrowing facility which extends through
February 28, 1997. The Company and Greenwich Capital Financial Products, Inc., a
wholly owned subsidiary of National Westminster Bank Plc, are currently in
negotiations to renew this facility. In addition, National Westminster Bank Plc
provides a `L'47.5 million (approximately $76 million as of January 31, 1997)
credit facility, which extends through May 1999, to a special purpose vehicle
which has an agreement with Preferred Mortgages, the Company's UK joint venture,
to purchase Preferred Mortgages' loans. In addition, NatWest Capital Markets
Limited, an affiliate of NatWest, has acted as co-manager for the Company's
1995-3 and 1996-3 securitizations.
The Company and certain of the Selling Stockholders have granted a 30-day
option to the Underwriters to purchase up to a maximum of 1,050,000 additional
shares of Common Stock to cover over-allotments, if any, at the same price per
share as the initial 7,000,000 shares to be purchased by the Underwriters. To
the extent the Underwriters 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.
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 90 days after the completion of the Offering, without the
prior written consent of Bear, Stearns & Co. Inc., subject to certain limited
exceptions. The executive officers and directors of the Company and the Selling
Stockholders have agreed with the Underwriters that they will not, without the
prior written consent of Bear, Stearns & Co. Inc., offer, sell, contract to sell
or otherwise dispose of any shares of Common Stock or securities convertible
into or exchangeable for Common Stock for a period of 90 days after the
completion of the Offering, subject to certain limited exceptions. See 'Shares
Eligible for Future Sale.'
In connection with the Offering, certain Underwriters and selling group
members (and any of their affiliated purchasers) who are qualified registered
market makers on the Nasdaq National Market may engage in passive market making
transactions in the Common Stock on the Nasdaq National Market in accordance
with Rule 10b-6A under the Exchange Act during the two business day period
before commencement of offers or sales of the Common Stock in the Offering. The
passive market making transactions must comply with the applicable volume and
price limits and be identified as such. In general, a passive market maker may
display its bid at a price not in excess of the highest independent bid for the
security, and, if all independent bids are lowered below the passive market
maker's bid, then such bid must be lowered when certain purchase limits are
exceeded.
LEGAL MATTERS
The legality of the Common Stock being offered hereby will be passed upon
for the Company by Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New
York, New York 10022, 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 and 1995, 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, 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.
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ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
'Commission') a Registration Statement on Form S-1 under the Securities Act,
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 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.
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files 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 to
make available to its stockholders upon request quarterly reports containing
unaudited condensed financial statements for each of the first three quarters of
each fiscal year.
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IMC MORTGAGE COMPANY AND SUBSIDIARIES
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 September 30, 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 nine months ended September 30,
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 nine months ended
September 30, 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 nine months ended September 30,
1996................................................................................................. F-6
Notes to Consolidated Financial Statements............................................................ F-7
</TABLE>
F-1
<PAGE>
<PAGE>
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 and 1995, 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. 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, and 1995, 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, in conformity with generally accepted accounting
principles.
/S/ COOPERS & LYBRAND L.L.P.
Tampa, Florida
May 21, 1996, except for Note 1 and
the 24th and 25th paragraphs of Note
4, as to which the date is June 24,
1996 and except for the last paragraph
of Note 15, as to which the date is
February 13, 1997.
F-2
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
1994 1995 1996
----------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................................. $ 3,091,180 $ 5,133,718 $ 9,555,558
Securities purchased under agreements to resell....................... -- 138,058,262 573,850,000
Accrued interest receivable........................................... 218,717 1,872,129 5,822,041
Accounts receivable................................................... 295,003 1,179,907 5,643,901
Mortgage loans held for sale.......................................... 28,995,750 193,002,835 625,872,876
Interest-only and residual certificates............................... 3,403,730 14,072,771 60,295,031
Warehouse financing due from correspondents (Note 11)................. 57,000 53,200 2,720,628
Furniture, fixtures and equipment -- net.............................. 431,750 679,950 1,351,120
Capitalized mortgage servicing rights................................. -- -- 5,125,253
Investment in joint venture........................................... -- -- 1,955,163
Goodwill.............................................................. -- -- 1,776,920
Other assets.......................................................... 148,861 498,662 1,811,895
----------- ------------ --------------
Total....................................................... $36,641,991 $354,551,434 $1,295,780,386
----------- ------------ --------------
----------- ------------ --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Warehouse finance facilities..................................... $27,731,859 $189,819,046 $ 595,247,351
Term debt........................................................ -- 11,120,642 33,555,145
Accrued and other liabilities.................................... 405,945 547,707 6,544,555
Accrued interest payable......................................... 508,576 1,055,550 2,889,998
Securities sold but not yet purchased............................ -- 139,200,000 574,767,531
Amounts payable to stockholders for taxes (Note 2)............... -- 1,306,645 --
Deferred income.................................................. 450,600 -- --
Accrual for sharing of proportionate value of equity (Note 5).... 1,689,000 5,893,000 --
----------- ------------ --------------
Total liabilities........................................... 30,785,980 348,942,590 1,213,004,580
----------- ------------ --------------
Commitments (Note 14)
Stockholders' equity:
Preferred stock, par value $.01 per share; 10,000,000 shares
authorized; none issued and outstanding........................ -- -- --
Common stock, par value $.01 per share; 50,000,000 authorized;
12,000,000 and 19,669,666 shares issued and outstanding........ 60,000 60,000 196,696
Additional paid-in capital....................................... 3,824,601 3,844,601 76,489,738
Retained earnings (deficit)...................................... 1,971,410 1,704,243 6,089,372
----------- ------------ --------------
Total stockholders' equity.................................. 5,856,011 5,608,844 82,775,806
----------- ------------ --------------
Total....................................................... $36,641,991 $354,551,434 $1,295,780,386
----------- ------------ --------------
----------- ------------ --------------
</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 PERIOD
AUGUST 12, 1993 FOR THE
(INCEPTION) FOR THE YEAR NINE MONTHS ENDED
THROUGH ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------- -------------------------
1993 1994 1995 1995 1996
--------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Gain on sales of loans............ $ 438,774 $ 8,583,277 $20,680,848 $13,423,973 $34,728,321
Additional securitization
transaction expense (Note 5).... -- (560,137) (5,547,037) (2,855,367) (4,157,644)
--------------- ----------- ----------- ----------- -----------
Net gain on sale of loans.... 438,774 8,023,140 15,133,811 10,568,606 30,570,677
--------------- ----------- ----------- ----------- -----------
Warehouse interest income......... 97,159 2,510,062 7,884,679 5,224,931 22,249,234
Warehouse interest expense........ (50,709) (1,610,870) (6,006,919) (4,027,307) (14,505,231)
--------------- ----------- ----------- ----------- -----------
Net warehouse interest
income..................... 46,450 899,192 1,877,760 1,197,624 7,744,003
--------------- ----------- ----------- ----------- -----------
Servicing fees.................... -- 99,224 1,543,339 855,207 4,215,381
Other............................. 28,235 1,072,855 1,117,903 788,441 2,977,691
--------------- ----------- ----------- ----------- -----------
Total servicing fees and
other...................... 28,235 1,172,079 2,661,242 1,643,648 7,193,072
--------------- ----------- ----------- ----------- -----------
Total revenues............... 513,459 10,094,411 19,672,813 13,409,878 45,507,752
--------------- ----------- ----------- ----------- -----------
Expenses:
Compensation and benefits......... 507,904 3,348,236 5,139,386 3,649,180 11,987,493
Selling, general and
administrative expenses......... 355,526 2,000,401 3,477,677 2,156,570 10,416,597
Other............................. -- 14,143 297,743 139,652 1,820,793
Sharing of proportionate value of
equity (Note 5)................. -- 1,689,000 4,204,000 2,916,960 2,555,000
--------------- ----------- ----------- ----------- -----------
Total expenses............... 863,430 7,051,780 13,118,806 8,862,362 26,779,883
--------------- ----------- ----------- ----------- -----------
Income before income taxes........ (349,971) 3,042,631 6,554,007 4,547,516 18,727,869
Non-recurring benefit associated
with the Conversion of
Partnership to C Corporation.... -- -- -- -- 3,600,000
Provision for income taxes........ -- -- -- -- (3,975,701)
--------------- ----------- ----------- ----------- -----------
Net income (loss)...................... $(349,971) $ 3,042,631 $ 6,554,007 $ 4,547,516 $18,352,168
--------------- ----------- ----------- ----------- -----------
--------------- ----------- ----------- ----------- -----------
Unaudited Pro Forma Data (giving effect
to provision for income taxes):
Income before provision for income
taxes........................... $ 6,554,007 $18,727,869
Pro forma provision for income
taxes (Note 4).................. 2,522,000 7,397,508
----------- -----------
Pro forma net income.............. $ 4,032,007 $11,330,361
----------- -----------
----------- -----------
Pro forma net income per common
share........................... $ 0.25 $ 0.64
Weighted average number of shares
outstanding..................... 15,871,504 17,683,600
</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 $ -- $ 870,000
Cash contributions....................... -- -- 696,488 -- 696,488
Contributions in foregone premiums....... -- -- 232,575 -- 232,575
Net loss................................. -- -- -- (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....................... -- -- 1,554,959 -- 1,554,959
Contributions in foregone premiums....... -- -- 530,579 -- 530,579
Net income............................... -- -- -- 3,042,631 3,042,631
Distributions for taxes (Note 3)......... -- -- -- (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............ -- -- 20,000 -- 20,000
Net income............................... -- -- -- 6,554,007 6,554,007
Distributions for taxes (Note 3)......... -- -- -- (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 5)............................... -- -- 8,448,000 -- 8,448,000
Common stock issued in public offering
(unaudited)............................ 3,565,000 35,650 58,292,450 -- 58,328,100
Reclassification of partnership earnings
(unaudited)............................ -- -- 4,124,456 (4,124,456) --
Conversion of convertible preferred stock
(unaudited)............................ 119,833 1,198 2,004,802 -- 2,006,000
Stock options exercised (unaudited)...... 150,000 1,500 (1,500) -- --
Preferred stock dividends (unaudited).... -- -- (78,703) -- (78,703)
Issuance of stock options (unaudited).... -- -- (46,020) -- (46,020)
Net income (unaudited)................... -- -- -- 18,352,168 18,352,168
Distributions for taxes (Note 3)
(unaudited)............................ -- -- -- (9,842,583) (9,842,583)
Two-for-one stock split (Note 15)........ 9,834,833 98,348 (98,348) -- --
---------- -------- ----------- ----------- -----------
Stockholders' equity at September 30,
1996 (unaudited)....................... 19,669,666 $196,696 $76,489,738 $ 6,089,372 $82,775,806
---------- -------- ----------- ----------- -----------
---------- -------- ----------- ----------- -----------
</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
NINE MONTHS
ENDED
SEPTEMBER 30,
FOR THE PERIOD -------------
AUGUST 12, 1993
(INCEPTION) FOR THE YEAR ENDED 1995
THROUGH DECEMBER 31, -------------
DECEMBER 31, -----------------------------
1993 1994 1995 (UNAUDITED)
--------------- ------------- -------------
<S> <C> <C> <C> <C>
Operating activities:
Net income (loss)................................................. $ (349,971) $ 3,042,631 $ 6,554,007 $ 4,547,516
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Sharing of proportionate value of equity........................ -- 1,689,000 4,204,000 2,916,960
Foregone premiums............................................... 232,575 530,579 -- --
Depreciation and amortization................................... 17,651 98,285 163,798 98,896
Deferred hedge.................................................. -- -- (1,141,738) --
Capitalized mortgage servicing rights........................... -- -- -- --
Net loss in joint venture....................................... -- -- -- --
Non-recurring benefit associated with the conversion of
Partnership to C Corporation.................................. -- -- -- --
Deferred taxes.................................................. -- -- -- --
Net change in operating assets and liabilities, net of effects
from purchase of Mortgage Central Corp.:
Increase in mortgage loans held for sale........................ (7,971,990) (21,023,760) (162,865,347) (101,078,757)
Decrease (increase) in securities purchased under agreement to
resell and securities sold but not yet purchased.............. -- -- 1,141,738 --
Increase in organization costs.................................. (104,330) -- -- --
Increase in accrued interest receivable on mortgage loans held
for sale...................................................... (43,247) (175,470) (1,653,412) (778,394)
Decrease (increase) in warehouse financing due from
stockholders.................................................. -- -- 3,800 57,000
Increase in interest-only and residual certificates............. -- (2,953,130) (10,669,041) (3,926,068)
(Increase) decrease in other assets............................. (87,663) 13,338 (370,667) (164,904)
Increase in accounts receivable................................. (2,950) (292,053) (884,904) 33,212
Increase (decrease) in accrued interest payable................. 21,748 486,828 546,974 (174,758)
Increase (decrease) in deferred income.......................... -- -- (450,600) (450,600)
Increase in a liabilities....................................... 108,871 185,596 141,762 3,177,560
--------------- ------------- ------------- -------------
Net cash used in operating activities....................... (8,179,306) (18,398,156) (165,279,630) (95,742,337)
--------------- ------------- ------------- -------------
Investing activities:
Investment in joint venture..................................... $ -- $ -- $ -- $ --
Purchase of furniture, fixtures and equipment................... (225,427) (292,809) (391,132) (265,918)
--------------- ------------- ------------- -------------
Net cash used in investing activities....................... (225,427) (292,809) (391,132) (265,918)
--------------- ------------- ------------- -------------
Financing activities:
Issuance of common stock........................................ $ -- $ -- $ -- $ --
Contributions from stockholders................................. 1,566,488 1,554,959 20,000 20,000
Distributions to stockholders for taxes......................... -- (721,250) (5,514,529) (6,825,473)
Borrowings -- warehouse......................................... 28,803,402 288,530,292 711,907,906 378,583,626
Borrowings -- term debt......................................... -- -- 11,120,642 4,496,694
Repayments of borrowings -- warehouse........................... (21,538,670) (268,008,343) (549,820,719) (281,106,979)
Repayments of borrowings -- term debt........................... -- -- -- --
--------------- ------------- ------------- -------------
Net cash provided by financing activities................... 8,831,220 21,355,658 167,713,300 95,167,868
--------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents................ 426,487 2,664,693 2,042,538 (840,387)
Cash and cash equivalents, beginning of period...................... -- 426,487 3,091,180 3,091,180
--------------- ------------- ------------- -------------
Cash and cash equivalents, end of period............................ $ 426,487 $ 3,091,180 $ 5,133,718 $ 2,250,793
--------------- ------------- ------------- -------------
--------------- ------------- ------------- -------------
Supplemental disclosure cash flow information:
Cash paid during the year for interest.......................... $ 30,424 $ 1,364,920 $ 5,459,945 $ 3,539,719
--------------- ------------- ------------- -------------
--------------- ------------- ------------- -------------
Supplemental disclosure of noncash financing and investing
activities:
Contributed capital via foregone premiums (Note 2).............. $ 232,575 $ 530,579 $ -- $ --
--------------- ------------- ------------- -------------
--------------- ------------- ------------- -------------
Acquisition of assets of Mortgage Central Corp. (Note 5)........ $ -- $ -- $ -- $ --
--------------- ------------- ------------- -------------
--------------- ------------- ------------- -------------
Amounts payable to stockholders for taxes (Note 2).............. $ -- $ -- $ 1,306,645 $ 1,306,645
--------------- ------------- ------------- -------------
--------------- ------------- ------------- -------------
Issuance of options to ContiFinancial........................... $ -- $ -- $ -- $ --
--------------- ------------- ------------- -------------
--------------- ------------- ------------- -------------
<CAPTION>
1996
---------------
<S> <C>
Operating activities:
Net income (loss)................................................. $ 18,352,168
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Sharing of proportionate value of equity........................ 2,555,000
Foregone premiums............................................... --
Depreciation and amortization................................... 926,201
Deferred hedge.................................................. --
Capitalized mortgage servicing rights........................... (5,780,936)
Net loss in joint venture....................................... 635,848
Non-recurring benefit associated with the conversion of
Partnership to C Corporation.................................. (3,600,000)
Deferred taxes.................................................. 3,600,000
Net change in operating assets and liabilities, net of effects
from purchase of Mortgage Central Corp.:
Increase in mortgage loans held for sale........................ (432,632,747)
Decrease (increase) in securities purchased under agreement to
resell and securities sold but not yet purchased.............. (224,207)
Increase in organization costs.................................. --
Increase in accrued interest receivable on mortgage loans held
for sale...................................................... (3,949,912)
Decrease (increase) in warehouse financing due from
stockholders.................................................. (2,667,428)
Increase in interest-only and residual certificates............. (46,222,260)
(Increase) decrease in other assets............................. (1,427,635)
Increase in accounts receivable................................. (4,463,994)
Increase (decrease) in accrued interest payable................. 1,834,448
Increase (decrease) in deferred income.......................... --
Increase in a liabilities....................................... 5,939,922
---------------
Net cash used in operating activities....................... (467,125,532)
---------------
Investing activities:
Investment in joint venture..................................... $ (2,591,011)
Purchase of furniture, fixtures and equipment................... (778,574)
---------------
Net cash used in investing activities....................... (3,369,585)
---------------
Financing activities:
Issuance of common stock........................................ $ 58,203,377
Contributions from stockholders................................. --
Distributions to stockholders for taxes......................... (11,149,228)
Borrowings -- warehouse......................................... 1,124,609,329
Borrowings -- term debt......................................... 38,570,409
Repayments of borrowings -- warehouse........................... (719,181,024)
Repayments of borrowings -- term debt........................... (16,135,906)
---------------
Net cash provided by financing activities................... 474,916,957
---------------
Net increase (decrease) in cash and cash equivalents................ 4,421,840
Cash and cash equivalents, beginning of period...................... 5,133,718
---------------
Cash and cash equivalents, end of period............................ $ 9,555,558
---------------
---------------
Supplemental disclosure cash flow information:
Cash paid during the year for interest.......................... $ 14,491,576
---------------
---------------
Supplemental disclosure of noncash financing and investing
activities:
Contributed capital via foregone premiums (Note 2).............. $ --
---------------
---------------
Acquisition of assets of Mortgage Central Corp. (Note 5)........ $ 2,006,000
---------------
---------------
Amounts payable to stockholders for taxes (Note 2).............. $ --
---------------
---------------
Issuance of options to ContiFinancial........................... $ 8,448,000
---------------
---------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
FOR THE PERIOD FROM AUGUST 12, 1993 (INCEPTION) TO DECEMBER 31, 1993
(UNAUDITED FOR SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND 1996)
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 was 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 owned 100% of the common stock of its subsidiaries, IMC
Corporation of America and IMC Securities, Inc. Until June 24, 1996, the
Partnership also owned the controlling interest in IMC Mortgage Company.
In June 1996, the Limited Partners exchanged their limited partnership
interest and the sole shareholder of the General Partner exchanged the voting
common stock of the General Partner for the voting common shares (the 'exchange'
or 'recapitalization') of IMC Mortgage Company. The exchange was consummated on
an historical cost basis as all entities were under common control. Accordingly,
since June 1996, IMC Mortgage Company (the 'Company') has owned 100% of the
limited partnership interests in the Partnership and 100% of the general
partnership interest in the Partnership. At the time of the exchange, the
retained earnings previously reflected by the Partnership were transferred to
additional paid-in capital.
The accompanying consolidated financial statements include the accounts of
the Company, the Partnership, IMC Corporation of America and IMC Securities,
Inc., after giving effect to the exchange as if it had occurred at inception.
All intercompany transactions have been eliminated in the accompanying
consolidated financial statements.
2. NATURE OF BUSINESS
The Company purchases and originates mortgages made to borrowers who may
not otherwise qualify for conventional loans for the purpose of securitization
and sale. The Company securitizes these mortgages on a non-recourse basis into
the form of a Real Estate Mortgage Investment Conduit ('REMIC'). A significant
portion of the mortgages are sold on a servicing retained basis.
3. 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 September
30, 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 September 30, 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 nine months
F-7
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
FOR THE PERIOD FROM AUGUST 12, 1993 (INCEPTION) TO DECEMBER 31, 1993
(UNAUDITED FOR SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND 1996)
ended September 30, 1996, approximated $14,314,000, $115,976,000, $148,420,000
and $221,393,000, respectively.
INCOME TAXES
All the tax effects of the Partnership's income or loss were passed through
to the partners individually, therefore, no Federal income taxes were payable by
the Partnership. State and Federal income taxes related to the Partnership's
corporate subsidiaries were not material.
Under the terms of the partnership agreement, the Company was 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 $9,842,583 for the years ended December 31,
1994, 1995 and the nine months ended September 30, 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 received the accrued
amount plus 10% interest per annum. The amount payable to stockholders for taxes
(including interest) at December 31, 1994 and 1995 and September 30, 1996 was
$0, $1,306,645 and $0, respectively.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL STATEMENTS
The consolidated financial statements as of September 30, 1996 (unaudited)
and for the nine months ended September 30, 1995 and 1996 (unaudited) 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 nine months ended September 30, 1996 are not necessarily
indicative of the results for a full year. Certain information and footnote
disclosures as of September 30, 1995 and for the nine months ended September 30,
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 $9,555,558 at December 31, 1994 and 1995
and September 30, 1996, respectively.
INTEREST-ONLY AND RESIDUAL CERTIFICATES
The Company originates and purchases mortgages for the purpose of
securitization and whole loan sale. The Company securitizes these mortgages on a
non-recourse basis 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 interest-only and residual securities.
The amount of senior classes of REMICs outstanding at December 31, 1994 and 1995
and September 30, 1996 was $89,103,000, $418,251,000 and $901,443,000,
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 nine
F-8
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
FOR THE PERIOD FROM AUGUST 12, 1993 (INCEPTION) TO DECEMBER 31, 1993
(UNAUDITED FOR SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND 1996)
months ended September 30, 1996, the Company securitized $625 million of loans
through three REMICs.
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 ranged
from 11% to 11.5%, 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 with the provisions of SFAS
115, the Company classifies interest-only and residual certificates 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'), superseded in June 1996 by SFAS No. 125
'Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities' ('SFAS 125'), which is effective in January 1997. The SFAS's
require that upon sale or securitization of mortgages, companies capitalize the
cost associated with the right to service mortgage loans based on their relative
fair values. The Company determines fair value based on the present value of
estimated net future cash flows related to servicing income. The cost allocated
to the servicing rights is amortized in proportion to and over the period of
estimated net future servicing fee income. Under SFAS 122, the Company
capitalized and amortized approximately $5,781,000 and $656,000, respectively,
of capitalized mortgage servicing rights, resulting in additional operating
income of $5,125,000 for the nine months ended September 30, 1996.
Prior to the adoption of SFAS 122, servicing rights acquired through loan
origination activities were recorded in the period the loans were serviced.
At September 30, 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
F-9
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
FOR THE PERIOD FROM AUGUST 12, 1993 (INCEPTION) TO DECEMBER 31, 1993
(UNAUDITED FOR SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND 1996)
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.
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 and 1995 and September 30, 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 interest-only and residual certificates is recorded
as earned, which is the recognition of the increased time value of such
discounted interest 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 interest-only and residual
certificates and earnings on deposits.
F-10
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
FOR THE PERIOD FROM AUGUST 12, 1993 (INCEPTION) TO DECEMBER 31, 1993
(UNAUDITED FOR SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND 1996)
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 $52,400 for the nine months ended
September 30, 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 and 1995 and September 30, 1996, accumulated amortization was $29,450,
$50,316 and $65,967, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards No. 123, 'Accounting for Stock-Based
Compensation' ('SFAS 123'). This standard establishes a fair value method for
accounting for stock-based compensation plans, either through recognition or
disclosure. The Company intends to adopt this standard by disclosing in the
footnotes on an annual basis the pro forma net income and pro forma earnings per
share amounts assuming the fair value method was adopted. The adoption of this
standard is not anticipated to have a material impact on results of operations,
financial position or cash flows. Also, in June 1996, the FASB issued Statement
of Financial Accounting Standards No. 125, 'Accounting for Transfer and
Servicing of Financial Assets and Extinguishment of Liabilities' (SFAS 125),
which is effective for transactions that occur after December 31, 1996, and will
be applied prospectively. SFAS 125 requires the Company to allocate the total
cost of mortgage loans sold to the mortgage loans sold (servicing released), I/O
and residual certificates and servicing rights based on their relative values.
The Company will apply the new rules prospectively beginning in the first
quarter of 1997. The actual effect of implementing this new statement on the
Company's financial condition and results of operations will depend on various
factors determined at the end of a reporting period, including the amount of
originated and purchased production, the level of interest rates and market
estimates of future prepayment and loss rates. Accordingly, the Company can not
determine at this time the ultimate impact on its future earnings of applying
the provision of the statement.
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.
F-11
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
FOR THE PERIOD FROM AUGUST 12, 1993 (INCEPTION) TO DECEMBER 31, 1993
(UNAUDITED FOR SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND 1996)
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
became a wholly owned subsidiary of the Company after the plan of exchange
described in Note 1 was consummated. The Partnership made no provision for
income taxes since the Partnership's income or losses were passed through to the
partners individually.
The Partnership became subject to income taxes as of June 24, 1996, the
effective date of the exchange described in Note 1. The pro forma data included
in the consolidated statements of operations of the Company includes a pro forma
provision for income taxes to indicate what these taxes would have been had the
exchange occurred in prior years. Also, a non-recurring benefit, reflecting the
tax effect of the temporary differences between the Partnership's financial
statement and tax bases of certain assets and liabilities on June 24, 1996
became a net asset of the Company with a corresponding non-recurring benefit
being reflected in the consolidating statement of operations. Deferred taxes
relate primarily to mark-to-market adjustments recognized for tax purposes under
IRS Section 475, accrued contingent fees and REMIC income recognition.
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.
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Pro forma current:
Federal............................................................................. $ 3,904,000
State............................................................................... 649,000
------------
4,553,000
------------
Pro forma deferred:
Federal............................................................................. (1,843,000)
State............................................................................... (188,000)
------------
(2,031,000)
------------
Pro forma provision for income taxes..................................................... $ 2,522,000
------------
------------
</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 had it been subject to federal and state income
taxes.
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31,
1995
------------
<S> <C>
Income tax at federal statutory rate..................................................... $2,272,000
State taxes, net of federal benefit................................................. 232,000
Nondeductible expenses.............................................................. 18,000
------------
Pro forma provision for income taxes..................................................... $2,522,000
------------
------------
</TABLE>
F-12
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
FOR THE PERIOD FROM AUGUST 12, 1993 (INCEPTION) TO DECEMBER 31, 1993
(UNAUDITED FOR SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND 1996)
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 $9 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. Weighted average number of shares outstanding is comprised of the
following:
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Weighted average number of common shares outstanding..................... 12,000,000 14,743,166
Additional shares deemed outstanding:
Cheap stock......................................................... 3,871,504 2,933,624
Employee stock options.............................................. -- 6,810
------------ -------------
Weighted average number of common shares and common share equivalents.... 15,871,504 17,683,600
------------ -------------
------------ -------------
</TABLE>
5. 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 nine months ended September 30, 1996, the
securitizations were structured so that ContiFinancial received, in exchange for
cash of $2,109,011, $18,424,827 and $8,632,647, respectively, interest-only and
residual certificates with estimated values of $3,035,000, $25,054,000 and
$13,444,000, respectively. In addition, ContiFinancial paid $365,852, $1,082,136
and $653,709 in expenses related to securitizations in 1994, 1995 and the nine
months ended September 30, 1996, respectively. The difference between the
estimated value of the interest-only and residual certificates provided to
ContiFinancial and the total amount of cash received and expenses paid by
ContiFinancial amounts to $560,137, $5,547,037 and $4,157,644 in 1994, 1995 and
the nine months ended September 30, 1996, respectively, and has been recorded as
additional securitization transaction expense.
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
F-13
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
FOR THE PERIOD FROM AUGUST 12, 1993 (INCEPTION) TO DECEMBER 31, 1993
(UNAUDITED FOR SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND 1996)
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 was converted into a warrant exercisable for a de minimus amount
for 3,000,000 shares of the Company's common stock on June 24, 1996, the
effective date of the exchange described in Note 1. The warrant contains normal
anti-dilution provisions. ContiFinancial has certain rights to join in
registration of additional shares 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 reclassified 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 nine months ended
September 30, 1996 representing the excess of the estimated fair value of the
option at the date of grant over the amount accrued at December 31, 1995
pursuant to the 1995 Agreement.
6. 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
F-14
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
FOR THE PERIOD FROM AUGUST 12, 1993 (INCEPTION) TO DECEMBER 31, 1993
(UNAUDITED FOR SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND 1996)
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 had 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 was converted into common shares
of the Company upon closing of the initial public offering in June 1996.
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 Equitystars 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 $16,794,000 for the nine months ended September 30,
1995. Consolidated income would not have been materially different from the
reported amount for the nine months ended September 30, 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.
7. 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 is
accounted for under the equity method and through September 30, 1996 was not
material in relation to the financial position or results of operations of the
Company.
8. COLLATERALIZED OBLIGATIONS
<TABLE>
<CAPTION>
BALANCE OUTSTANDING
TOTAL -------------------------------------------
AVAILABLE AT DECEMBER 31,
SEPTEMBER 30, --------------------------- SEPTEMBER 30,
1996 1994 1995 1996
-------------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Warehouse finance facilities..................... $823,125,180 $27,731,859 $114,820,450 $595,247,350
Warehouse finance facilities -- under Repurchase
Agreement...................................... -- -- 74,998,596 --
-------------- ----------- ------------ ------------
823,125,180 27,731,859 189,819,046 595,247,350
Term debt........................................ 42,255,855 -- 11,120,642 33,555,145
-------------- ----------- ------------ ------------
$865,381,035 $27,731,859 $200,939,688 $628,802,495
-------------- ----------- ------------ ------------
-------------- ----------- ------------ ------------
</TABLE>
WAREHOUSE FINANCE FACILITIES
The Company has available numerous lines of credit totaling $823,125,180
(of which $125,000,000 was through ContiFinancial) at September 30, 1996 for
financing the acquisition of mortgage loans held
F-15
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
FOR THE PERIOD FROM AUGUST 12, 1993 (INCEPTION) TO DECEMBER 31, 1993
(UNAUDITED FOR SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND 1996)
for sale. Of the total available, $823,125,180 matures within 1 year. Interest
rates ranged from 6.3% to 8.2% as of September 30, 1996. Outstanding borrowing
under these lines of credit are collateralized by mortgage loans held for sale
and warehouse financing due from correspondents at September 30, 1996. Upon the
sale of these loans and repayment of warehouse financing due from
correspondents, the borrowings under these lines will be repaid.
REPURCHASE AGREEMENT
At December 31, 1995, the Company had sold mortgage loans with a principal
balance of $74,998,596 to ContiFinancial under a repurchase agreement in
exchange for a premium of $4,687,412, 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 September 30, 1996. Outstanding borrowings under this line are
accruing interest, based on LIBOR plus 1.70%, which was 7.1% at September 30,
1996, and are collateralized by the Company's interest in the interest-only and
residual certificates. This agreement terminates in January, 2000.
The Company also has available a $20,000,000 credit facility which matures
in August 1999 and bears interest at 2.75% per annum in excess of LIBOR. At
September 30, 1996, $11,299,291 was outstanding under this credit facility.
The Company borrowed $7,255,855 under one-year agreements bearing interest
at 1.25% per annum in excess of LIBOR to finance certain interest-only and
residual certificates which were collateralized by those interest-only and
residual certificates.
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. Capital expenditures are
limited by certain agreements. Management believes they are in compliance with
all such covenants of these agreements.
9. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Prepaid expenses...................................... $ 21,742 $214,206 $ 860,013
Real estate owned..................................... -- 141,840 642,469
Organization costs, net............................... 74,880 54,014 38,364
Other assets.......................................... 52,239 88,602 271,049
-------- -------- -------------
$148,861 $498,662 $ 1,811,895
-------- -------- -------------
-------- -------- -------------
</TABLE>
10. SERVICING PORTFOLIO
The total servicing portfolio of loans was approximately $92,003,000,
$535,798,000 and $1,486,803,000 at December 31, 1994 and 1995 and September 30,
1996, respectively. The Company did not service any loans at December 31, 1993.
F-16
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
FOR THE PERIOD FROM AUGUST 12, 1993 (INCEPTION) TO DECEMBER 31, 1993
(UNAUDITED FOR SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND 1996)
11. 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 and $918,000
at December 31, 1995 and September 30, 1996, respectively. 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 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 is 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 $648,631,000
at December 31, 1994 and 1995 and September 30, 1996, respectively.
Interest-only and Residual Certificates: The fair value is determined
by discounting the estimated cash flow over the life of the certificate
using prepayment, default, and interest rate assumptions that market
participants would use for similar financial instruments subject to
F-17
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
FOR THE PERIOD FROM AUGUST 12, 1993 (INCEPTION) TO DECEMBER 31, 1993
(UNAUDITED FOR SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND 1996)
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.
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 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 and 1995 and September 30, 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 $130,080,000, 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 interest-only and residual certificates. 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
F-18
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
FOR THE PERIOD FROM AUGUST 12, 1993 (INCEPTION) TO DECEMBER 31, 1993
(UNAUDITED FOR SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND 1996)
equivalents with what management believes to be high-quality financial
institutions and thereby limits its exposure to credit risk. As of December 31,
1994 and 1995 and September 30, 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 correspondents warehouse financing which
bear interest at LIBOR and LIBOR plus 1.75%. As of September 30, 1996 the
Company had $9,000,000 of committed warehousing available to these
correspondents, of which $2,720,628, was drawn down. Interest income on these
warehouse financing facilities approximated $108,000 for the nine months ended
September 30, 1996. The warehouse commitments are for terms of less than one
year. Assets from the correspondents remain in the warehouse for a period of 30
days at which point they are purchased by the Company or sold by the
correspondents to another investor. There were $57,000 and $53,200 outstanding
as of December 31, 1994 and 1995, respectively, under warehouse facilities, due
from correspondents.
12. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1994 1995 1996
-------- --------- -------------
<S> <C> <C> <C>
Computer systems..................................... $304,827 $ 523,150 $ 922,872
Office equipment..................................... 104,059 174,107 382,375
Furniture............................................ 96,037 196,283 433,730
Leasehold improvements............................... 8,553 11,068 22,108
Other................................................ 3,487 3,487 3,487
-------- --------- -------------
Total...................................... 516,963 908,095 1,764,572
Less accumulated depreciation........................ (85,213) (228,145) (413,452)
-------- --------- -------------
Furniture, fixtures and equipment, net............... $431,750 $ 679,950 $ 1,351,120
-------- --------- -------------
-------- --------- -------------
</TABLE>
Depreciation expense was $9,033, $76,662, $142,932 and $202,966 for 1993,
1994, 1995 and the nine months ended September 30, 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 $203,025 for the
year ended 1995 and the nine months ended September 30, 1996, respectively.
KEY EMPLOYEE AND ADVISOR OPTIONS
On December 11, 1995, the Company adopted the Industry Mortgage Company
1995 Incentive 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. All of those options were granted on December 11, 1995
at an
F-19
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
FOR THE PERIOD FROM AUGUST 12, 1993 (INCEPTION) TO DECEMBER 31, 1993
(UNAUDITED FOR SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND 1996)
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.
In April 1996, the Company adopted the Company Incentive Plan and the
Directors Stock Option Plan. All options granted under the 1995 Incentive Plan
were assumed by the Company pursuant to the Company Incentive Plan and the
Directors Stock Option Plan. The aggregate equity interest in the Company
available under the Company Incentive Plan and the Director Stock Option Plan is
not to exceed 12% of all equity interests in the Company. At September 30, 1996,
the Company had granted options to employees and advisors which, if exercised,
could aggregate a 7.8% interest in the Company.
14. COMMITMENTS
OPERATING LEASES
The Company leases office space in various cities under operating lease
agreements. The lease agreements require monthly rent of approximately $50,000
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
$422,676 in 1993, 1994, 1995 and the nine months ended September 30, 1996.
Future minimum lease payments under noncancellable lease agreements at
September 30, 1996 are as follows:
<TABLE>
<CAPTION>
OPERATING
YEARS ENDING DECEMBER 31, LEASES
- -------------------------------------------------------------------------------- ----------
<S> <C>
1997............................................................................ 931,715
1998............................................................................ 748,739
1999............................................................................ 369,530
----------
$2,049,984
----------
----------
</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.
15. SUBSEQUENT EVENTS (UNAUDITED)
ACQUISITION OF AMERICAN MORTGAGE
Effective February 1, 1997, the Company acquired all of the assets of
American Mortgage Reduction, Inc. ('American Reduction'), a non-conforming
mortgage lender based in Owings Mills, Maryland. The purchase price for all of
the assets of American Reduction was an initial payment of
F-20
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
FOR THE PERIOD FROM AUGUST 12, 1993 (INCEPTION) TO DECEMBER 31, 1993
(UNAUDITED FOR SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND 1996)
$9,150,000 and a contingent payment based on the average after-tax earnings of
American Reduction for the two year period ending December 31, 1999.
ACQUISITION OF EQUITY MORTGAGE
Effective February 1, 1997, the Company acquired all of the assets of
Equity Mortgage Co., Inc. ('Equity Mortgage'), a non-conforming mortgage lender
based in Baltimore, Maryland, for a cash payment of $150,000 in excess of the
net assets of Equity Mortgage.
ACQUISITION OF MORTGAGE AMERICA
Effective January 1, 1997, the Company acquired all of the assets of
Mortgage America, Inc. ('Mortgage America'), a non-conforming mortgage lender
based in Bay City, Michigan. The purchase price for all of the assets of
Mortgage America was an initial payment of 1,790,000 shares of common stock of
the Company and assumption of a stock option plan which could result in issuance
of an additional 334,596 shares of IMC stock and a contingent payment of up to
2,770,000 additional shares of the Company's common stock at the end of three
years based on the future growth and profitability of Mortgage America. The
acquisition has been accounted for by the purchase method of accounting.
ACQUISITION OF COREWEST
Effective January 1, 1997, the Company acquired all of the outstanding
common stock of CoreWest Banc ('CoreWest'), a non-conforming lender based in Los
Angeles, California. The purchase price for all of the outstanding common stock
of CoreWest was an initial payment of 488,404 shares of common stock of the
Company and a contingent payment of additional shares of the Company's common
stock at the end of a two year period based on the future profitability of
CoreWest. The acquisition has been accounted for by the purchase method of
accounting.
RECENT SECURITIZATIONS
In October 1996 and January 1997, the Company completed its eighth and
ninth securitizations in the aggregate amount of $310 million and $325 million,
respectively. The securities sold in the securitizations were rated AAA/Aaa and
were sold in public offerings.
FINANCING FACILITIES
In December 1996, the Company executed an agreement with the Bank of Boston
whereby Bank of Boston will provide a $25 million one year revolving credit
facility subject to the following sublimits and terms: (i) $5 million warehouse
line of credit due six months after the revolving period, (ii) $25 million to
finance interest-only and residual certificates, to be repaid according to a
repayment schedule calculated by Bank of Boston with a maximum amortization
period after the revolving period of three years; and (iii) $20 million for
acquisitions or bridge financing due within six months from the initial
borrowing date of each takedown of the bridge financing, but in no event later
than June 30, 1998.
STOCK SPLIT
On January 27, 1997, the Board of Directors declared a two-for-one split of
common stock payable to stockholders of record as of February 6, 1997. A total
of $98,348 was transferred from additional paid-in-capital to the stated value
of common stock in connection with the stock split. This transaction has been
recorded herein in the interim period ended September 30, 1996. The par value of
the common stock remains unchanged. All share and per share amounts have been
restated retroactively herein to reflect the stock split except with respect to
periods presented in the consolidated statements of stockholders' equity prior
to September 30, 1996.
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................................... 10
Use of Proceeds................................ 19
Price Range of Common Stock and Dividend
Policy....................................... 20
Capitalization................................. 21
Selected Consolidated Financial Data........... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 24
Business....................................... 37
Management..................................... 59
Principal and Selling Stockholders............. 66
Certain Relationships and Related
Transactions................................. 68
Certain Accounting Considerations Relating to
the Conti VSA................................ 71
Description of Capital Stock................... 74
Shares Eligible For Future Sale................ 76
Underwriting................................... 78
Legal Matters.................................. 79
Experts........................................ 79
Additional Information......................... 80
Index to Consolidated Financial Statements..... F-1
</TABLE>
7,000,000 SHARES
IMC MORTGAGE
COMPANY
[LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
BEAR, STEARNS & CO. INC.
J.P. MORGAN & CO.
NATWEST SECURITIES LIMITED
OPPENHEIMER & CO., INC.
, 1997
__________________________________ __________________________________
<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 (actual).......... $45,739
Nasdaq National Market Listing Fee (actual).............................. 17,500
NASD Filing Fee (actual)................................................. 15,594
Blue Sky fees and expenses...............................................
Accountants' fees and expenses...........................................
Legal fees and expenses..................................................
Printing and engraving expenses..........................................
Transfer agent and registrar fees........................................
Miscellaneous............................................................
-------
Total............................................................... $
-------
-------
</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
imprfit. 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 $5.0
million.
II-1
<PAGE>
<PAGE>
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 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.
The Company has employment agreements with certain of its executive
officers which require the Company to indemnify such officers under certain
conditions. See 'Management -- Employment Agreements' in the Prospectus forming
a part of this Registration Statement.
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 had 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 price to the public in the
Company's initial public offering. The Company paid all amounts due under the
Rotch Debenture from the proceeds of the Company's initial public offering in
June 1996. 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 became a warrant for 3.0 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.
Pursuant to the Pre-IPO Agreement, dated as of March 30, 1996, the Company
issued 6,150,000 shares of Common Stock (including 150,000 shares issued in
exchange for limited partnership interests acquired upon exercise by Branchview,
Inc. of a portion of the Conti Option acquired in a transaction to which the
Company was not a party) to the Industry Partners and management in exchange for
their interests in the Partnership. The issuance of the Common Stock was exempt
from registration under the Securities Act by virtue of Section 4(2) thereof.
In January 1997, the Company acquired all of the assets of Mortgage
America, a non-conforming lender based in Bay City, Michigan. The purchase price
for all of the assets of Mortgage America included the issuance of 1,790,000
shares of Common Stock. The issuance of the Common Stock was exempt from
registration under the Securities Act by virtue of Section 4(2) thereof.
In January 1997, the Company acquired all of the assets of CoreWest, a
non-conforming lender based in Los Angeles, California. The purchase price for
all the common stock of CoreWest included the issuance of 488,404 shares of
Common Stock. The issuance of the Common Stock was exempt from registration
under the Securities Act by virtue of Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<S> <C>
1.1 -- Form of Underwriting Agreement.[DEL]
2.1 -- Pre-IPO Agreement between the Partnership, the General Partners and each Limited Partner.*
3.1 -- Articles of Incorporation of the Registrant, as amended.*
3.2 -- Bylaws of the Registrant, as amended.*
4.1 -- Specimen of Certificate for Common Stock.*
4.2 -- Indenture Agreement between the Partnership and Rotch Property Group Limited.*
4.3 -- Substitution Agreement between the Partnership and ContiTrade Services Corporation.*
4.4 -- Incentive Plan of the Company and related assumption agreements.*
4.5 -- Outside Directors' Option Plan of the Company and related assumption agreements.*
</TABLE>
II-2
<PAGE>
<PAGE>
<TABLE>
<S> <C>
4.6 -- Form of Common Stock Warrant issued to ContiTrade Services Corporation.*
5.1 -- Opinion of Kramer, Levin, Naftalis & Frankel.[DEL]
10.1 -- Employment Agreement dated January 1, 1996 between the Partnership and George Nicholas, as amended.*
10.2 -- Employment Agreement dated January 1, 1996 between the Partnership and Thomas G. Middleton, as amended.*
10.3 -- Employment Agreement dated January 1, 1996 between the Partnership and David MacDonald.*
10.4 -- Lease Agreements between the Partnership and CLW Realty Asset Group Inc.*
10.5 -- Share Subscription and Shareholders' Agreement between the Partnership and Foxgard Limited, Financial
Security Assurance Holdings, Inc. and Preferred Mortgages Limited.*
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.*
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.*
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.*
10.9 -- Registration Rights Agreement between the Partnership and the shareholders of Mortgage Central Corp.*
10.10 -- Investment Banking Services Agreement between the Partnership and ContiTrade Services Corporation.*
10.11 -- Standby Facility Agreement between the Partnership and ContiTrade Services Corporation and Supplement
thereto.*
10.12 -- Amended and Restated Loan and Security Agreement between the Partnership and ContiTrade Services
Corporation.*
10.13 -- Secured Note from the Partnership to ContiTrade Services Corporation.*
10.14 -- Amended and Restated Custodial Agreement among the Partnership, ContiTrade Services Corporation and Bank
of Boston.*
10.15 -- 1995 Agreement between the Partnership and ContiTrade Services Corporation.*
10.16 -- Assignment, Assumption and Consent Agreement among the Partnership, ContiTrade, ContiTrade Services LLC
and First National Bank of Boston.*
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.*
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.*
10.20 -- Custodial Agreement among the Partnership, The First National Bank of Boston and Nomura Asset Capital
Corporation.*
10.21 -- Loan and Security Agreement between the Partnership and First National Bank of Boston and amendments
thereto.*
10.22 -- Interim Loan and Security Agreement between the Partnership and National Westminster Bank PLC, New York
Branch.*
10.23 -- Custodial Agreement among the Partnership, National Westminster Bank PLC and First National Bank of
Boston.*
10.24 -- Promissory Note between the Partnership and Lakeview Savings Bank.*
10.25 -- Security Agreement Collateralizing Promissory Note between the Partnership and Lakeview Savings Bank.*
10.26 -- Master Repurchase Agreement among the Partnership and Bear Stearns Home Equity Trust 1996-1.*
10.27 -- Custody Agreement among the Partnership, IMC Corporation of America, Bear Stearns Home Equity Trust 1996-1
and Bank of Boston.*
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.*
</TABLE>
II-3
<PAGE>
<PAGE>
<TABLE>
<S> <C>
10.30 -- Loan and Security Agreement between the Partnership and Approved Financial Corp., 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.*
10.34 -- Employment Agreement dated August 1, 1996 between the Registrant and Stuart D. Marvin.**
10.35 -- Asset Purchase Agreement and Plan of Reorganization between the Registrant, Mortgage America, Inc. and the
shareholders of Mortgage America, Inc.
10.36 -- First Amendment to the Asset Purchase Agreement and Plan of Reorganization between the Registrant,
Mortgage America, Inc. and the shareholders of Mortgage America, Inc.
10.37 -- Form of Registration Rights Agreement between the Registrant and the Shareholders of Mortgage America,
Inc.
10.38 -- Agreement and Plan of Reorganization between the Registrant, CWB Acquisitions, Inc., CoreWest Banc and the
shareholders of CoreWest Banc.
10.39 -- Registration Rights Agreement between the Registrant and the shareholders of CoreWest Banc.
10.40 -- Form of Amended and Restated Loan Agreement between the Registrant, the Partnership, IMC Corporation of
America and Nomura Asset Capital Corporation.
10.41 -- Form of Custodial Agreement between the Registrant, the Partnership, IMC Corporation of America, Nomura
Asset Capital Corporation and LaSalle National Bank.
10.42 -- Form of Loan and Security Agreement among the Registrant, the Partnership and The First National Bank of
Boston.
10.43 -- Form of Asset Purchase Agreement between the Registrant, American Mortgage Reduction, Inc., and the
Shareholders of American Mortgage Reduction, Inc.
10.44 -- Form of Asset Purchase Agreement between the Registrant and Equity Mortgage Co., Inc.
10.45 -- Employment Agreement dated as of January 1, 1997 between the Registrant and Mark J. Greenberg.
10.46 -- Form of Warehouse Security Agreement among the Registrant, the Partnership and GE Capital Mortgage
Services, Inc.
10.47 -- Form of Warehouse Credit Agreement among the Registrant, the Partnership and GE Capital Mortgage Services,
Inc.
11.1 -- Statement re computation of earnings per share (See Note 4 to the Consolidated Financial Statements).
16.1 -- Letter dated April, 1996 from Deloitte & Touche, LLP to the Registrant.*
21.1 -- Subsidiaries of the Registrant.*
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Kramer, Levin, Naftalis & Frankel (contained in Exhibit 5.1).[DEL]
99.1 -- Third Amended and Restated Agreement of Limited Partnership.*
</TABLE>
- ------------
[DEL] To be filed by amendment.
`D' Confidential treatment granted with respect to certain provisions.
* Incorporated by reference to the same exhibit to the Registrant's
Registration Statement on Form S-1 declared effective by the Securities and
Exchange Commission on June 25, 1996 (Registration No. 333-3954).
** Incorporated by reference to Exhibit 1 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996.
------------------------
(b) Financial Statement Schedules
None
ITEM 17. UNDERTAKINGS
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
II-4
<PAGE>
<PAGE>
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 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-5
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement or amendment thereto to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Tampa,
State of Florida, on February 13, 1997.
IMC MORTGAGE COMPANY
By /S/ THOMAS G. MIDDLETON
..................................
THOMAS G. MIDDLETON,
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or amendment thereto has been signed by the following
persons in the capacities indicated on February 13, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ --------------------------------------------
<C> <S> <C>
/S/ GEORGE NICHOLAS Chairman of the Board and Chief Executive
......................................... Officer (Principal Executive Officer)
(GEORGE NICHOLAS)
/S/ STUART D. MARVIN Chief Financial Officer (Principal
......................................... Accounting Officer and Principal Financial
(STUART D. MARVIN) Officer)
/S/ JOSEPH P. GORYEB Director
.........................................
(JOSEPH P. GORYEB)
/S/ MITCHELL W. LEGLER Director
.........................................
(MITCHELL W. LEGLER)
/S/ THOMAS G. MIDDLETON Director
.........................................
(THOMAS G. MIDDLETON)
/S/ ALLEN D. WYKLE Director
.........................................
(ALLEN D. WYKLE)
</TABLE>
II-6
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
LOCATION OF EXHIBIT
EXHIBIT IN SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
- ------- --------------------------------------------------------------------------------------- -------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement[DEL].................................................
2.1 -- Pre IPO Agreement between the Partnership, the General Partners and each Limited
Partner*.............................................................................
3.1 -- Articles of Incorporation of the Registrant, as amended*............................
3.2 -- Bylaws of the Registrant, as amended*...............................................
4.1 -- Specimen of Certificate for Common Stock*...........................................
4.2 -- Indenture Agreement between the Partnership and Rotch Property Group Limited*.......
4.3 -- Substitution Agreement between the Partnership and ContiTrade Services
Corporation*.........................................................................
4.4 -- Incentive Plan of the Company and related assumption agreements*....................
4.5 -- Outside Directors' Option Plan of the Company and related assumption agreements*....
4.6 -- Form of Common Stock Warrant issued to ContiTrade Services Corporation*.............
5.1 -- Opinion of Kramer, Levin, Naftalis & Frankel[DEL]...................................
10.1 -- Employment Agreement dated January 1, 1996 between the Partnership and George
Nicholas, as amended*................................................................
10.2 -- Employment Agreement dated January 1, 1996 between the Partnership and Thomas G.
Middleton, as amended*...............................................................
10.3 -- Employment Agreement dated January 1, 1996 between the Partnership and David
MacDonald*...........................................................................
10.4 -- Lease Agreements between the Partnership and CLW Realty Asset Group Inc.*...........
10.5 -- Share Subscription and Shareholders' Agreement between the Partnership and Foxgard
Limited, Financial Security Assurance Holdings, Inc. and Preferred Mortgages
Limited*.............................................................................
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.*.....................................
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*..........................................................
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.*...............................................................................
10.9 -- Registration Rights Agreement between the Partnership and the shareholders of
Mortgage Central Corp.*..............................................................
10.10 -- Investment Banking Services Agreement between the Partnership and ContiTrade
Services Corporation*................................................................
10.11 -- Standby Facility Agreement between the Partnership and ContiTrade Services
Corporation and Supplement thereto*..................................................
10.12 -- Amended and Restated Loan and Security Agreement between the Partnership and
ContiTrade Services Corporation*.....................................................
10.13 -- Secured Note from the Partnership to ContiTrade Services Corporation*...............
10.14 -- Amended and Restated Custodial Agreement among the Partnership, ContiTrade Services
Corporation and Bank of Boston*......................................................
10.15 -- 1995 Agreement between the Partnership and ContiTrade Services Corporation*.........
10.16 -- Assignment, Assumption and Consent Agreement among the Partnership, ContiTrade,
ContiTrade Services LLC and First National Bank of Boston*...........................
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*............................................................................
10.18 -- Master Repurchase Agreement between the Partnership and Nomura Securities
International, Inc. *................................................................
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
LOCATION OF EXHIBIT
EXHIBIT IN SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
- ------- --------------------------------------------------------------------------------------- -------------------
<S> <C> <C>
10.19 -- Global Master Repurchase Agreement between the Partnership and Nomura Grand Cayman,
Ltd*.................................................................................
10.20 -- Custodial Agreement among the Partnership, The First National Bank of Boston and
Nomura Asset Capital Corporation*....................................................
10.21 -- Loan and Security Agreement between the Partnership, First National Bank of Boston
and Nomura Asset Capital Corporation and amendments thereto*.........................
10.22 -- Interim Loan and Security Agreement between the Partnership and National Westminster
Bank PLC, New York Branch*...........................................................
10.23 -- Custodial Agreement among the Partnership, National Westminster Bank PLC and First
National Bank of Boston*.............................................................
10.24 -- Promissory Note between the Partnership and Lakeview Savings Bank*..................
10.25 -- Security Agreement Collateralizing Promissory Note between the Partnership and
Lakeview Savings Bank*...............................................................
10.26 -- Master Repurchase Agreement among the Partnership and Bear Stearns Home Equity Trust
1996-1*..............................................................................
10.27 -- Custody Agreement among the Partnership, IMC Corporation of America, Bear Stearns
Home Equity Trust 1996-1 and Bank of Boston*.........................................
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*..........................
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, Moorp. 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*.............................................................
10.34 -- Employment Agreement dated August 1, 1996 between the Registrant and Stuart D.
Marvin.**............................................................................
10.35 -- Asset Purchase Agreement and Plan of Reorganization between the Registrant, Mortgage
America, Inc. and the Shareholders of Mortgage America, Inc..........................
10.36 -- First Amendment to the Asset Purchase Agreement and Plan of Reorganization between
the Registrant, Mortgage America, Inc. and the Shareholders of Mortgage America,
Inc..................................................................................
10.37 -- Form of Registration Rights Agreement between the Registrant and the Shareholders of
Mortgage America, Inc................................................................
10.38 -- Agreement and Plan of Reorganization between the Registrant, CWB Acquisitions, Inc.,
CoreWest Banc and the Shareholders of CoreWest Banc..................................
10.39 -- Registration Rights Agreement between the Registrant and the Shareholders of
CoreWest Banc........................................................................
10.40 -- Form of Amended and Restated Loan Agreement between the Registrant, the Partnership,
IMC Corporation of America and Nomura Asset Capital Corporation......................
10.41 -- Custodial Agreement between the Registrant, the Partnership, IMC Corporation of
America, Nomura Asset Capital Corporation and LaSalle National Bank..................
10.42 -- Form of Loan and Security Agreement among the Registrant, the Partnership, and The
First National Bank of Boston........................................................
10.43 -- Form of Asset Purchase Agreement between the Registrant and American Mortgage
Reduction, Inc. and the Shareholders of American Mortgage Reduction..................
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
LOCATION OF EXHIBIT
EXHIBIT IN SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
- ------- --------------------------------------------------------------------------------------- -------------------
<S> <C> <C>
10.44 -- Form of Asset Purchase Agreement between the Registrant and Equity Mortgage Co.,
Inc..................................................................................
10.45 -- Employment Agreement dated as of January 1, 1997 between the Registrant and Mark J.
Greenberg............................................................................
10.46 -- Form of Warehouse Security Agreement among the Registrant, the Partnership and GE
Capital Mortgage Services, Inc.......................................................
10.47 -- Form of Warehouse Credit Agreement among the Registrant, the Partnership and GE
Capital Mortgage Services, Inc.......................................................
11.1 -- Statement re computation of earnings per share (See Note 4 to the Consolidated
Financial Statements)................................................................
16.1 -- Letter dated April, 1996 from Deloitte & Touche, LLP to the Registrant*.............
21.1 -- Subsidiaries of the Registrant*.....................................................
23.1 -- Consent of Coopers & Lybrand L.L.P..................................................
23.2 -- Consent of Kramer, Levin, Naftalis & Frankel (contained in Exhibit 5.1)[DEL]........
99.1 -- Third Amended and Restated Agreement of Limited Partnership*........................
</TABLE>
- ------------
[DEL] To be filed by amendment.
`D' Confidential treatment granted with respect to certain provisions.
* Incorporated by reference to the same exhibit to the Registrant's
Registration Statement on Form S-1 declared effective by the Securities and
Exchange Commission on June 25, 1996 (Registration No. 333-3954).
** Incorporated by reference to Exhibit 1 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996.
STATEMENT OF DIFFERENCES
------------------------
The British pound sterling sign shall be expressed as .... 'L'
The dagger symbol shall be expressed as .................. 'D'
The delta footnote symbol shall be expressed as .......... [DEL]
<PAGE>
<PAGE>
EXECUTION COPY
ASSET PURCHASE AGREEMENT
AND
PLAN OF REORGANIZATION
BETWEEN
IMC MORTGAGE COMPANY
MORTGAGE AMERICA, INC.
AND
THE SHAREHOLDERS OF
MORTGAGE AMERICA, INC.
DECEMBER 14, 1996
<PAGE>
<PAGE>
TABLE OF CONTENTS
FACTUAL BACKGROUND
ARTICLE 1
CERTAIN DEFINITIONS
ARTICLE 2
PURCHASE AND SALE OF ASSETS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
2.1 Assets to be Transferred............................................................. 8
2.2 Excluded Assets...................................................................... 10
2.3 Assumption of Liabilities............................................................ 11
ARTICLE 3
PURCHASE PRICE - PAYMENT WITH EXCHANGE SHARES
3.1 Purchase Price....................................................................... 13
3.2 Payment of Purchase Price............................................................ 13
3.3 Matched Payment...................................................................... 14
3.4 Base Payment ....................................................................... 14
3.5 Contingent Payment................................................................... 14
3.6 Prorations........................................................................... 17
3.7 Other Payments and Adjustments....................................................... 18
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF MAI AND SHAREHOLDERS
4.1 Organization......................................................................... 18
4.2 Capitalization....................................................................... 18
4.3 Subsidiaries of the MAI; Nature of Business.......................................... 19
4.4 Authority; No Violation.............................................................. 19
4.5 Consents and Approvals............................................................... 20
4.6 Financial Statements................................................................. 20
4.7 Undisclosed Liabilities.............................................................. 20
4.8 No Material Adverse Change........................................................... 21
4.9 Legal Proceedings.................................................................... 21
</TABLE>
i
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
4.10 Material Contracts................................................................... 21
4.11 Taxes................................................................................ 22
4.12 ERISA................................................................................ 23
4.13 Ownership of Property................................................................ 24
4.15 Brokers and Finders.................................................................. 25
4.16 Insurance............................................................................ 25
4.17 Mortgage Banking Licenses and Qualifications......................................... 26
4.18 Loan Portfolio....................................................................... 26
4.19 Enforceability....................................................................... 26
4.20 Title to Certain Mortgage Loans...................................................... 27
4.21 No Recourse.......................................................................... 27
4.22 Compliance........................................................................... 27
4.23 Investor Commitments................................................................. 28
4.24 Custodial Accounts................................................................... 28
4.25 Accounts Receivable.................................................................. 28
4.26 Data Processing...................................................................... 28
4.27 Inquiries............................................................................ 28
4.28 Representations...................................................................... 29
4.29 Advances............................................................................. 29
4.30 Pools................................................................................ 29
4.31 Commercial Mortgages................................................................. 29
4.32 No Tax-Sharing Agreements............................................................ 29
4.33 No Intercompany Accounts............................................................. 29
4.34 MAI Employees........................................................................ 30
4.35 Conduct Prior to Closing............................................................. 30
4.36 MAI's and Shareholders' Investment Intention/Restricted Securities................... 32
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
5.1 Organization......................................................................... 33
5.2 Authority; No Violation.............................................................. 34
5.3 Brokers and Finders.................................................................. 34
5.4 Buyer's Review of Seller's Schedules................................................. 35
ARTICLE 6
COVENANTS
6.1 Filings and Consent.................................................................. 35
6.2 Press Releases....................................................................... 35
6.3 Employment Agreements................................................................ 36
</TABLE>
ii
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
6.4 Marketing of Competing Products...................................................... 36
6.5 Leases............................................................................... 36
6.9 Confidentiality...................................................................... 37
ARTICLE 7
FURTHER COVENANTS OF MAI AND SHAREHOLDERS
7.1 Access to Information and Records....................................................... 37
7.2 Bank Accounts........................................................................... 37
7.3 Conduct of Business Pending the Closing................................................. 38
7.4 Change of Corporate Name................................................................ 39
7.5 Consents................................................................................ 39
7.6 Other Action............................................................................ 39
7.7 Disclosure.............................................................................. 39
ARTICLE 8
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
8.1 Representations and Warranties True on the Closing Date................................. 40
8.2 Compliance With Agreement............................................................... 40
8.3 Absence of Litigation................................................................... 40
8.4 Consents and Approvals.................................................................. 40
8.5 Hart-Scott-Rodino Waiting Period........................................................ 40
8.6 NASDAQ Requirement for Shareholder Approval.......................................... 41
ARTICLE 9
CONDITIONS PRECEDENT TO MAI'S OBLIGATIONS
9.1 Representations and Warranties True on the Closing Date.................................. 41
9.2 Compliance With Agreement................................................................ 41
9.3 Absence of Litigation.................................................................... 41
9.4 Hart-Scott-Rodino Waiting Period......................................................... 41
ARTICLE 10
CLOSING
10.1 Documents to be Delivered by MAI and Shareholders....................................... 42
10.2 Documents to be Delivered by Buyer...................................................... 43
ARTICLE 11
</TABLE>
iii
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
TERMINATION
11.1 Right of Termination Without Breach..................................................... 44
11.2 Termination for Breach............................................................... 44
ARTICLE 12
MAI'S PLAN OF REORGANIZATION AND LIQUIDATION
12.1 Plan of Reorganization............................................................... 45
12.2 Shareholders' Investment Intent...................................................... 46
12.3 Termination of MAI Business Operations............................................... 46
12.4 Immediate Partial Liquidation Distribution........................................... 46
12.5 Buyer's Temporary Operation of MAI's Business Pending License Transfer............... 46
12.6 MAI's Assignment to Shareholders of Agreement Upon MAI Liquidation................... 47
12.7 Appointment of Shareholders' Agent................................................... 47
12.8 Tax-free Exchange for Seller......................................................... 48
ARTICLE 13
INDEMNIFICATION
13.1 Indemnification...................................................................... 49
ARTICLE 14
POST-CLOSING COVENANTS
14.1 Personnel Matters.................................................................... 50
14.2 Shareholder Cooperation.............................................................. 50
14.3 Board of Directors................................................................... 50
14.4 Guaranties........................................................................... 51
14.5 Auto Business; Right of First Refusal................................................ 51
ARTICLE 15
AMENDMENTS
15.1 Amendment, Extension and Waiver...................................................... 51
ARTICLE 16
MISCELLANEOUS
16.1 Survival............................................................................. 52
16.2 Expenses............................................................................. 52
</TABLE>
iv
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
16.3 Entire Agreement..................................................................... 52
16.4 Parties in Interest.................................................................. 52
16.5 Assignment........................................................................... 52
16.6 Setoff............................................................................... 53
16.7 Notices.............................................................................. 53
16.8 Captions............................................................................. 54
16.9 Counterparts......................................................................... 54
16.10 Governing Law........................................................................ 55
16.11 No Third Party Beneficiaries......................................................... 55
</TABLE>
v
<PAGE>
<PAGE>
ASSET PURCHASE AGREEMENT
AND
PLAN OF REORGANIZATION
THIS ASSET PURCHASE AGREEMENT AND PLAN OF REORGANIZATION (the
"Agreement"), dated as of December 14, 1996, is made by and between IMC MORTGAGE
COMPANY, a Florida corporation ("Buyer"), MORTGAGE AMERICA, INC., a Michigan
corporation ("MAI"), and THOMAS LAPORTE, MARY M. REID, JON LAPORTE AND STEVEN
BARTUS (individually "Shareholder" and together, jointly and severally, the
"Shareholders") (MAI and Shareholders, together, jointly and severally, are
sometimes referred to as "Seller") and THOMAS LAPORTE, as agent for the
Shareholders (the "Shareholder Agent").
FACTUAL BACKGROUND
A. MAI is engaged in the mortgage banking and brokerage business (the
"Business") and the automobile finance business (the "Auto Business").
The Shareholders own all the issued and outstanding shares of capital
stock in MAI.
B. Buyer desires to purchase all of the Business and substantially all of
the assets of MAI (the "Acquisition").
C. In consideration for the sale of the assets of MAI, MAI shall receive
fully paid, nonassessable, common stock, $.01 par, of Buyer ("Common
Stock"). MAI intends to distribute the Stock to the Shareholders, in
connection with MAI's liquidation following the sale.
D. MAI has certain non-transferable licenses and permits necessary or
useful in connection with the operation of the Business. To the extent
Buyer does not have such licenses and permits, Buyer shall immediately
apply for them. In the event, and to the extent that MAI's
non-transferable licenses and permits are required for Buyer to
continue operation of the Business, Buyer shall operate the Business
under a temporary management agreement with MAI until such licenses
and permits are obtained.
F. This Agreement is intended to be a Plan of Reorganization within the
meaning of Section 368(a)(1)(C) of the Internal Revenue Code of 1986,
as amended.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, agreements, representations and warranties herein contained, and
intending to be legally bound, the parties hereto do hereby agree as follows:
<PAGE>
<PAGE>
ARTICLE 1
CERTAIN DEFINITIONS
For the purpose of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, (i) the terms defined in this
Article have the meanings assigned to them in this Article and include the
plural as well as the singular and (ii) all accounting terms not otherwise
defined herein have the meanings assigned under GAAP.
Acquisition -- As defined in the Introduction.
Affiliate -- With respect to any Person, any Person directly or
indirectly controlling, controlled by, or under common control with such other
Person. For purposes of this definition, "control" (including with correlative
meaning, the terms "controlled by" and "under common control with,") as used
with respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through ownership of voting securities, by contract or
otherwise.
Affiliated Group -- Any affiliated group within the meaning of Code
Section 1504 or any similar group defined under a similar provision of state,
local or foreign law, including any consolidated, unitary or combined group of
companies.
Agency -- FHA, VA, GNMA, FNMA, FHLMC or a State Agency, as applicable.
Agreement -- As defined in the Factual Background.
Audited Financial Statements -- As defined in Section 4.6.
Auto Business -- As defined in the Introduction.
Balance Sheet -- The statement of financial condition forming a part of
the Interim Financial Statements.
Base Payment -- Delivery by Buyer to MAI of certain Exchange Shares
pursuant to Section 3.4 as part of the Purchase Price.
Base Payment Amount -- As defined in Section 3.4.
Business -- As defined in the Introduction, and includes MAI's
Conforming Business and Non-Conforming Business.
Business Days -- Any day on which the New York Stock Exchange is open
for trading.
2
<PAGE>
<PAGE>
Business Pipeline -- The sum of all Conforming Mortgage Loans and
Non-Conforming Mortgage Loans of MAI in the process of being closed by MAI for
which credit approval has already been obtained from the Investor or for which
MAI has general credit authority from the Investor without the need for a
loan-by-loan approval where MAI has formally or informally advised the Borrower
that it will make the loan and which have arisen in the ordinary course of MAI's
business, consistent with MAI's past practices, as shown on MAI's regularly
prepared reports.
Buyer -- As defined in the Introduction.
Buyer Schedule -- The disclosure schedule delivered by Buyer to Sellers
in connection with the Acquisition.
Closing -- The closing with respect to the Acquisition as defined in
preamble to Article 10.
Closing Balance Sheet -- The balance sheet of MAI as of December 31,
1996.
Closing Date -- The date and time of Closing as defined in the preamble
to Article 10.
Closing Tangible Net Worth -- The amount equal to the amount included
under shareholder's equity on the Closing Balance Sheet minus the amount of all
intangible assets on the Closing Balance Sheet and minus any amount attributable
to (i) MAI's ownership of Common Stock and (ii) any Excluded Assets and directly
related Liabilities retained by MAI.
Code -- The Internal Revenue Code of 1986, as amended.
Common Stock -- As defined in the Factual Background section.
Conforming Business -- The Conforming Mortgage Loan origination and
brokerage business conducted by MAI.
Conforming Mortgage Loan -- A Mortgage Loan which is an FHA Loan, a VA
Loan or a loan eligible to be sold to FNMA or FHLMC.
Contingent Payment -- As defined in Section 3.2(d).
Contingent Payment Amount -- As defined in Section 3.5(a).
Conventional Loan -- Any Mortgage Loan which (a) is a first lien on a
"single family" residence, (b) is neither insured by FHA nor guaranteed by VA,
(c) has a loan-to-value ratio of 95% or less at the time of origination,
(d) matures in 30 years or less, (e) bears a market yield at the time of
origination, and (f) satisfies all requirements for sale to FNMA and FHLMC.
3
<PAGE>
<PAGE>
Effective Time -- January 1, 1997 at 12:01 a.m.
Employment Agreements -- As defined in Section 6.3.
Encumbrance -- Any lien, pledge, security interest, claim, charge,
easement, limitation, commitment, restriction or encumbrance of any kind or
nature whatsoever.
ERISA -- As defined in Section 4.12(b).
Environmental Claim -- Civil, criminal, administrative action, claim or
other proceeding relating to Environmental Laws.
Environmental Laws -- As defined in Section 4.14.
Exchange Shares -- Shares of Common Stock delivered by Buyer to MAI as
partial payment of the Purchase Price.
Excluded Assets -- As defined in Section 2.2.
Executives -- As defined in Section 6.3.
FHA -- Federal Housing Administration.
FHA Loans -- Mortgage Loans which satisfy all applicable rules and
requirements to be insured by FHA and which are insured by FHA.
FHLMC -- Federal Home Loan Mortgage Corporation.
Financial Statements -- As defined in Section 4.6.
FNMA -- Federal National Mortgage Association.
GAAP - - Generally accepted accounting principles as used in the United
States of America.
GNMA -- Government National Mortgage Association.
GNMA Securities -- GNMA mortgage-backed certificates.
HUD -- United States Department of Housing and Urban Development.
Independent Accounting Firm -- Any "Big Six" accounting firm or its
successor.
4
<PAGE>
<PAGE>
Inquiry -- As defined in Section 4.27.
Interim Financial Statements -- As defined in Section 4.6.
Investor -- Any Person who owns or holds Mortgage Loans, or servicing
rights to Mortgage Loans, pursuant to Mortgage Servicing Agreements or who is a
party to an Investor Commitment.
Investor Commitment -- The commitment of a Person to purchase a
Mortgage Loan.
Investor Programs -- Mortgage participation, whole-loan sales, pooling
and servicing programs.
IRS -- Internal Revenue Service.
Lease Agreements -- As defined in Section 6.5.
Liability -- As defined in Section 2.3(a).
Licenses -- As defined in Section 4.17.
Loan Property -- Any property in which MAI holds a mortgage lien or
security interest.
Loss -- Any claim, liability, loss, cost, clean up cost or
reimbursement, damage, penalty, fine, obligation, deficiency or expense of any
kind whatsoever (including, without limitation, reasonable attorneys',
accountants', consultants' or experts' fees, and disbursements including but not
limited to court costs and reasonable costs of investigation incurred in
defending against or settling any such claim, liability, loss, cost, damage or
expense, or any amounts paid in connection with the investigation, defense or
settlement thereof, whether or not arising out of third party claims and
including costs and expenses incurred on appeal or in connection with any
bankruptcy or insolvency proceeding).
Matched Payment -- Delivery by Buyer to MAI of number of Exchange
Shares as equals the number of Matched Shares acquired as part of Purchased
Assets, as partial payment of the Purchase Price.
Matched Shares -- The shares of Common Stock owned by MAI prior to the
Closing Date and constituting part of the Purchased Assets.
Material Adverse Effect -- Adverse effect on the business, condition
(financial or otherwise), results of operations, properties, assets or prospects
of a Person with an economic effect, individually or in the aggregate, of
$50,000 or more.
5
<PAGE>
<PAGE>
Mortgage Loan -- Any closed residential mortgage loan whether or not
such mortgage is included in a securitized portfolio, as evidenced by notes or
other evidences of indebtedness duly secured by mortgages or deeds of trust.
Non-Conforming Business -- The Non-Conforming Mortgage Loan origination
and brokerage business conducted by MAI.
Non-Conforming Mortgage Loan -- A Mortgage Loan which does not satisfy
the requirements for being an FHA Loan, VA Loan or Conventional Loan.
Operating Property -- As defined in Section 4.14.
Owned Real Property -- As defined in Section 2.2(b).
Person -- Any individual, corporation, company, partnership (limited or
general), joint venture, association, trust or other entity, including
governmental and quasi-governmental bodies.
Plans -- As defined in Section 4.12(a).
Pooling -- Aggregation of two or more Mortgage Loans that have been
pledged or granted to secure mortgage-backed securities or participation
certificates.
Purchased Assets -- As defined in Section 2.1.
Purchase Price -- As defined in Section 3.1.
Registration Rights Agreement -- The Registration Rights Agreement of
even date herewith, in the form attached hereto as Exhibit 10.1(k).
Regulations -- (i) Federal, state and local laws, rules and
regulations, (ii) the responsibilities and obligations set forth in any
agreement between MAI and an Investor or private mortgage insurer and (iii) the
laws, rules, regulations, guidelines, handbooks and other requirements of an
Investor, Agency, private mortgage insurer, Public Housing Programs or Investor
Programs, with respect to the origination, insuring, purchase, sale, or filing
of claims in connection with a Mortgage Loan.
Schedule -- The disclosure schedule delivered by Sellers to Buyer in
connection with the Acquisition.
Seller(s) -- As defined in the Introduction.
Shareholders' Agent -- As defined in the Introduction.
6
<PAGE>
<PAGE>
Servicing Released Loans -- As defined in Section 4.21.
Single Employer Plan -- Any employee pension benefit plan (as that term
is defined in Section 3(2) of ERISA) maintained or contributed to by any entity
which would be deemed a "single employer" with MAI under Section 4001 of ERISA.
State Agency -- Any state agency with authority to regulate the
business of MAI, determine the investment requirements with regard to loans
originated or purchased by MAI, or originate or purchase mortgage loans, or
otherwise participate in or promote mortgage lending.
Subsidiary -- A company is a Subsidiary of another company if 50% or
more of its outstanding voting securities are owned by such other company.
Tangible Net Worth -- The amount equal to the amount included under
Shareholders' equity on MAI's balance sheet minus (i) the amount of all
intangible assets, (ii) the amount attributable to MAI's ownership of Common
Stock, and (iii) the amount of all Excluded Assets on the Balance Sheet.
Tax Affiliate -- A Person is a Tax Affiliate of another Person if they
are both members of the same Affiliated Group.
Taxes -- As defined in Section 4.11(d).
Tax Return -- As defined in Section 4.11(e).
VA -- Veterans Administration.
VA Loans -- Mortgage Loans which satisfy all applicable rules and
regulations to be guaranteed by VA and which are guaranteed by VA.
Warehouse Loans -- Mortgage Loans held by MAI for sale and pledged to
secure borrowings by MAI.
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ARTICLE 2
PURCHASE AND SALE OF ASSETS
2.1 Assets to be Transferred
Subject to the terms and conditions of this Agreement, on the Closing
Date (as hereinafter defined) Shareholders shall cause MAI to, and MAI shall
sell, transfer, convey, assign and deliver to Buyer (or upon Buyer's request, to
one or more wholly-owned subsidiaries of Buyer as designated by Buyer), and
Buyer shall purchase and accept all of the business, rights, claims and assets
(of every kind, nature, character and description, whether real, personal or
mixed, whether tangible or intangible, whether accrued, contingent or otherwise,
and wherever situated) of MAI, together with all rights and privileges
associated with such assets and with the business of MAI, other than the
Excluded Assets (as hereinafter defined) (collectively, the "Purchased Assets").
The Purchased Assets shall include, but not be limited to, the following:
(a) Leased Real Property. All of the leases of real property
with respect to real property leased by MAI, including the
leases (the "Real Property Leases") described in Schedule
with respect to the real property described thereon (the
"Leased Real Property").
(b) Personal Property. All machinery, equipment, tools,
supplies, spare parts, furniture and all other personal
property (other than personal property leased pursuant to
Personal Property Leases as hereinafter defined) owned,
utilized or held for use by MAI on the Closing Date,
including, without limitation, the personal property
described on Schedule 2.1(b).
(c) Mortgage Loan Inventory. All of MAI's Mortgage Loans
(including loans which have closed but not funded),
including the Mortgage Loans and Warehouse Loans Described
in Schedule 2.1(c).
(d) Work in Process. All loan applications and loans in process.
(e) Personal Property Leases. All of MAI's rights and interests
as lessee under all leases of machinery, equipment,
vehicles, furniture and other personal property leased by
MAI, including all such leases (the "Personal Property
Leases") described in Schedule 2.1(e).
(f) Trade Rights. All of MAI's interest in any Trade Rights. As
used herein, the term "Trade Rights" shall mean and include:
(i) all trademark rights, business identifiers, trade dress,
service marks, trade names, and brand names, all
registrations thereof and applications therefor and all
goodwill associated with the foregoing, including the name
"Mortgage America" and "Alternative Lending Mortgage Corp.";
(ii) all copyrights, copyright registrations and copyright
applications, and all other rights associated with the
foregoing and the underlying works of ownership; (iii) all
patents and patent applications and all international
proprietary rights associated therewith; (iv) all contracts
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or agreements granting any right, title, license or
privilege under the intellectual property rights of any
third party; (v) all inventions, mask works and mask
work registrations, know-how, discoveries, improvements,
designs, trade secrets, shop and royalty rights, employee
covenants and agreements respecting intellectual property
and non-competition and all other types of intellectual
property; and (vi) all claims for infringement or breach
of any of the foregoing.
(g) Contracts. All of MAI's rights in, to and under all
contracts, Mortgage Commitments, Investor Commitments,
Investor Programs and pending mortgage applications
(hereinafter "Contracts") of MAI. To the extent that any
Contract for which assignment to Buyer is provided herein is
not assignable without the consent of another party, this
Agreement shall not constitute an assignment or an attempted
assignment thereof if such assignment or attempted
assignment would constitute a breach thereof. Each
Shareholder, MAI and Buyer agree to use their reasonable
best efforts (without any requirement on the part of Buyer
to pay any money or agree to any change in the terms of any
such Contract) to obtain the consent of such other party to
the assignment of any such contract to Buyer in such
assignment. If any such consent shall not be obtained, each
Shareholder and MAI agrees to cooperate with Buyer in any
reasonable arrangement designed to provide for Buyer the
benefits intended to be assigned to Buyer under the relevant
Contract, including enforcement at the cost and for the
account of Buyer of any and all rights of MAI against the
other party thereto arising out of the breach or
cancellation thereof by such other party or otherwise. If
and to the extent that such arrangement cannot be made,
Buyer, upon notice to MAI, shall have no obligation pursuant
to Section 2.3(a) or otherwise with respect to any such
Contract and any such Contract shall not be deemed to be a
Purchased Asset hereunder.
(h) Computer Software. All computer source codes, programs and
other software of MAI, including all machine readable code,
printed listings of code, documentation and related property
and information of MAI.
(i) Literature. All sales literature, promotional literature ,
catalogs and similar materials of MAI.
(j) Records and Files. All records, files, invoices, customer
lists, blueprints, specifications, designs, drawings,
accounting records, business records, operating data and
other data of MAI, provided that MAI and Shareholders shall
have reasonable access, and the right to copy, such records
for tax and other bona fide purposes.
(k) Notes and Accounts Receivable. All notes, drafts and
accounts receivable of MAI relating to the Mortgage Loans
and Warehouse Loans, including, without limitation, those
described in Section 2.1(k) of the Schedule.
(l) Licenses; Permits. All licenses, permits and approvals of
MAI, to the extent transferable, including, without
limitation, the licenses set forth on Schedule 2.1(k).
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(m) Corporate Name. The name "Mortgage America" and all rights
to use or allow others to use such name and the related
goodwill.
(n) General Intangibles. All prepaid items, all causes of action
arising out of occurrences before or after the Closing, and
other intangible rights and assets.
(o) Trade Secrets. All know-how, research data, business methods
and trade secrets.
(p) Matched Shares. The Matched Shares.
(q) Telephone Numbers. All telephone numbers.
2.2 Excluded Assets
The provisions of Section 2.1 notwithstanding, MAI shall not sell,
transfer, assign, convey or deliver to Buyer, and Buyer shall not purchase or
accept the following assets of MAI (collectively the "Excluded Assets"):
(a) Auto Business Assets. The Auto Business and assets of MAI
directly used in the Auto Business and liability arising out
of or related to the Auto Business, provided that such Auto
Business assets must be wholly separate and unrelated to,
and unnecessary for, the business of purchasing,
originating, servicing and selling Conventional Mortgage
Loans, Conforming Loans, and/or Non-Conforming Loans and
MAI's related business activities.
(b) Owned Real Property. All of the real estate, including
fixtures, buildings, improvements and all appurtenant
rights, which are owned in fee simple by MAI (the "Owned
Real Property").
(c) Cash and Cash Equivalents. All cash and cash equivalents.
(d) Consideration. The consideration delivered by Buyer to MAI
pursuant to this Agreement.
(e) Tax Credits and Records. Federal, state and local income and
franchise tax credits and tax refund claims and associated
returns and records and any available Michigan Single
Business Tax refunds. Buyer shall have reasonable access to
such returns and records and may make excerpts therefrom and
copies thereof.
(f) Corporate Franchise. MAI's franchise to be a corporation,
its certificate of incorporation, corporate seal, stock
books, minute books and other corporate records having
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exclusively to do with the other corporate organization and
capitalization of MAI. Buyer shall have reasonable access to
such books and records and may make excerpts therefrom and
copies thereof.
Notwithstanding the foregoing, in no event shall the net fair market
value of the Excluded Assets (over related indebtedness which is not assumed by
Buyer) exceed ten percent (10%) of the fair market value of the Base Payment.
2.3 Assumption of Liabilities
(a) Liabilities to be Assumed. As used in this Agreement, the
term "Liability" shall mean and include any direct or indirect indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, fixed or unfixed, known or unknown, asserted or
unasserted, liquidated or unliquidated, secured or unsecured. Subject to the
terms and conditions of this Agreement on the Closing Date, Buyer shall assume
and agree to perform and discharge the following, and only the following
Liabilities of MAI (collectively the "Assumed Liabilities"):
(i) The accounts payable and accrued Liabilities
relating to Buyer's operation of the Purchased Assets which accrue
following the Effective Time, including costs and expenses arising
after the Effective Time (including, but not limited to, regulatory
audit fees until Buyer terminates the temporary management agreement
with MAI, if any, under Section 12.5 hereof) related to Mortgage Loans
which have not closed at the Effective Time or to Mortgage Loans which
have closed, but not funded at the Closing.
(ii) MAI's Liabilities arising from and after the
Effective Time under and pursuant to the contracts listed in Section
4.10 of the Schedule; provided, however, that in no event shall such
Liabilities, when added to all other Liabilities of MAI, exceed the Net
Book Value of the Tangible Purchased Assets.
(iii) MAI's Warehouse Line of Credit with respect to
Mortgage Loans constituting Purchased Assets, provided that the
indebtedness on any loan shall not exceed the Fair Market Value of such
loan. (Buyer agrees to repay such Warehouse Line of Credit within 20
days following Closing.)
The Contracts described in subsection 2.3(a)(ii) above are hereinafter
collectively described as the "Assumed Contracts."
(iv) The obligation to pay a commission to a loan
officer with respect to the premium received, if any, upon sale of a
Mortgage Loan (not the commission paid at Closing) in the event the
Mortgage Loan is sold after the Effective Date.
(v) MAI obligations to its employees for accrued
vacation and sick leave, accrued on MAI's December 31, 1996 financial
statements.
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(vi) Past service credit for vesting in MAI's 401K
retirement plan applicable to MAI's employees so that such employees
will, the full extent permitted by applicable law and internal revenue
service regulations, receive full credit for time employed with MAI in
computing time under Buyer's similar plans.
(b) Liabilities Not to be Assumed. Except as and to the extent
specifically set forth in Section 2.3(a), Buyer is not assuming any Liabilities
of MAI and all such Liabilities shall be and remain the responsibility of MAI.
Notwithstanding the provisions of Section 2.3(a), Buyer is not agreeing to
perform and discharge and MAI shall not be deemed to have transferred to Buyer
the following Liabilities of MAI (which list of specific liabilities shall not
be deemed to suggest that liabilities not listed are being assumed):
(i) Certain Contracts. The Liabilities of MAI under and pursuant
to any contracts with Investors for refunds or guarantees
related to Mortgage Loans, including prepayment refund
obligations and refunds to Investors upon default by
borrower or prepayment.
(ii) Taxes Arising from Transaction. Any taxes applicable to,
imposed upon or arising out of the sale or transfer of the
Purchased Assets to Buyer and the other transactions
contemplated by this Agreement, including but not limited to
any income, transfer, sales, use, gross receipts or
documentary stamp taxes or unemployment taxes.
(iii) Income and Franchise Taxes. Any Liability of MAI for
Federal income taxes and any state or local income, profit
or franchise taxes (and any penalties or interest due on
account therefor).
(iv) Insured Claims. Any Liability of MAI insured against, to the
extent such Liability is or will be paid by an insurer.
(v) Litigation Matters. Any Liability with respect to any
action, suit, proceeding, arbitration, investigation or
inquiry, whether civil, criminal or administrative ("Litigat
on"), whether or not described in Schedule 4.9.
(vi) Infringements. Any Liability to a third party for
infringement of such third party's Trade Rights.
(vii) Transaction Expenses. All Liabilities incurred by MAI in
connection with this Agreement and the transactions
contemplated therein.
(viii) Liability for Breach. Liabilities of MAI for any breach or
failure to perform any of MAI's covenants and agreements
contained in, or made pursuant to, this Agreement, or, prior
to the Closing, any other contract, whether or not assumed
hereunder,
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including any breach arising from assignment of contracts
hereunder without consent of third parties.
(ix) Liabilities of Affiliates. Liabilities of MAI to its present
or former Affiliates.
(x) Pre-Closing Operating Expenses. MAI's operating expenses
(including, without limitation, payroll, rent and utilities)
incurred before, or relating to the period prior to, the
Closing Date.
(xi) Excluded Assets. Any Liabilities of MAI relating to the
Excluded Assets, including, without limitation, the Owned
Real Property and the Auto Business.
(c) Net Worth. Notwithstanding anything in this Article 2 to
the contrary, the parties intend for the sum of the Purchased Assets and
Liabilities to be zero. The parties will adjust first Assumed Liabilities and
Assumed then Excluded Assets in order to affect that intent. When all accounting
of such Assets, Excluded Asset and Assumed Liabilities has been completed,
but in no event later than June 1, 1997, the Buyer and MAI will make such
adjustments between them as is necessary to take account of matters not
known or not accurately accounted for at Closing, in order to achieve that
balance between Assets and Assumed Liabilities.
ARTICLE 3
PURCHASE PRICE - PAYMENT WITH EXCHANGE SHARES
3.1 Purchase Price
The purchase price (the "Purchase Price") for the Purchased Assets
shall be (i) the assumption by Buyer of the Assumed Liabilities, (ii) the
Matched Payment, (iii) the Base Payment and (iv) the Contingent Payment.
3.2 Payment of Purchase Price
The Purchase Price shall be paid by Buyer to MAI as follows:
(a) Assumption of Liabilities. At the Closing, Buyer shall
assume the Assumed Liabilities.
(b) Matched Payment. At the Closing, the Buyer shall deliver
Exchange Shares to MAI representing the Matched Payment.
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(c) Base Payment. At the Closing, Buyer shall deliver 975,000
Exchange Shares representing the Base Payment.
(d) Contingent Payment. As soon as reasonably practical
following the Closing of Buyer's books relating to the
Post-Closing MAI Business Unit (as defined below) for the
period ending December 31, 1999 (but in no event later than
June 30, 2000), Buyer shall deliver to MAI, or its
Shareholders, as assignee of MAI pursuant to MAI's Plan of
Liquidation, the Exchange Shares, if any, representing the
Contingent Payment as provided in Section 3.5 below.
3.3 Matched Payment
The Matched Payment shall be paid by Buyer to MAI in Exchange Shares
equal in number to the number of Matched Shares acquired by Buyer as part of the
Purchased Assets.
3.4 Base Payment
The Base Payment shall be 975,000 Exchange Shares.
3.5 Contingent Payment
(a) The Contingent Payment Amount shall be the amount, if any,
by which the following exceeds an agreed amount of $19.5 million:
7.5 multiplied by the percentage equal to Buyer's Effective
After-Tax Value (as defined below).
(i) fifty percent (50%) of the average annual
Post-Closing MAI Business Unit's Adjusted Pre-tax Net Income (as
defined below) for the three fiscal years ending December 31, 1999,
calculated according to GAAP;
plus
(ii) one percent (1%) of an amount equal to the
average annual Post-closing MAI Business Unit's gross production
during the three fiscal years ending December 31, 1999 of (x)
Non-Conforming Mortgage Loans and (y) Conforming Mortgage Loans,
provided that any included Conforming Mortgage Loan had an average fair
market value at the time originated, of not less than 103% of par,
based upon the prevailing price available based on the average price
paid by Buyer or its affiliates to unrelated third party mortgage
originators at the time for similar Conforming Mortgage Loans.
(b) Buyer's Effective After-Tax Value. For the purposes of the
foregoing calculation, Buyer's Effective After-Tax Value for a given year shall
be the percentage equal to 100%
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less the effective combined average federal and state income tax rate
(including all taxes in the nature of an income tax) actually paid each
year by Buyer, expressed as a percentage of pre-tax income. For example,
if Buyer's effective federal and state average tax is 40% of the pre-tax
income, then the Effective After-Tax Value shall be 60%.
(c) Post-Closing MAI Business Unit. For the purpose of the
calculation, "Post-Closing MAI Business Unit" shall mean the separate business
unit of the Buyer comprised of the Purchased Assets and identifiable business
operations and p ersonnel acquired by Buyer from MAI pursuant to this
Acquisition. The Buyer shall cause the Post-Closing MAI Business Unit to be a
separate Division or other separate business unit or subsidiary of Buyer (or its
Affiliate) following the Closing.At Closing, Buyer shall enter into employment
agreements with certain officers and managers of MAI, pursuant to Section
6.3 hereof, providing for them to manage the Post-Closing MAI Business Unit,
subject to the normal oversight of responsibilities of the Buyer's Board of
Directors former MAI executives shall direct the day-to-day operations of the
Post-Closing MAI Business Unit, subject to an annual budget and business plan
approved by Buyer's Board of Directors and senior executives. Buyer shall
separately track the performance of, and account for, the Post-Closing MAI
Business Unit as a separate profit and expense center. The Post-Closing MAI
Business Unit shall bear an imputed interest expense on the capital used to
finance its Warehouse Mortgage Loans at the prevailing market rate available to
third parties of the size and condition of the Post-Closing MAI Business Unit on
a stand-alone basis, not to exceed LIBOR plus 225 basis points (calculated on a
floating rate basis). In the event Buyer securitizes a Mortgage Loan generated
by the Post-Closing MAI Business Unit or in the unlikely event Buyer desires to
hold such Mortgage Loan for its own account as an investment, then for the
purpose of calculating the Post-Closing MAI Business Unit's operating income
with respect to such mortgage loan, the Post-Closing MAI Business Unit shall
be deemed to have sold the loan to Buyer at the prevailing average price being
paid at the time by Buyer (or its Affiliates) to third parties for similar
Mortgage Loans at similar volumes. In the event a Mortgage Loan generated by
the Post-Closing MAI Business Unit is sold to a third party, then for the
purpose of calculating the Post-Closing MAI Business Unit's operating income
with respect to such Mortgage Loan, the Post-Closing MAI Business Unit shall
be deemed to have sold the loan at the actual price paid for the loan by the
third party. To the extent general overhead and administrative expenses are
attributed to the Post-Closing MAI Business Unit, for the purpose of
calculating the Post-Closing MAI Business Unit's operating income, the Post-
Closing MAI Business Unit shall not be charged more general overhead and
administrative expense, in the aggregate, than the Post-Closing MAI Business
Unit could have purchased such services from independent third parties if the
Post-Closing MAI Business Unit was an independent, stand-alone business.
Therefore, the business operation of the Post-Closing MAI Business Unit will
include future growth and development of the Business being acquired in this
Acquisition, but not Buyer's other existing operations or future acquisition by
Buyer. Parties acknowledge that Buyer's other business units will compete with
the Post-Closing MAI Business Unit.
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(d) Payment in Exchange Shares. The Contingent Payment, if
any, shall be payable by Buyer to MAI (or MAI's shareholders under MAI's Plan of
Reorganization) in Exchange Shares. The number of Exchange Shares to be
delivered as the Contingent Payment shall be calculated by dividing the
Contingent Payment Amount, if any, by the higher of the following: (i) $18.00
per share of Stock (adjusted for stock splits or stock dividends), or (ii) the
average of the closing price for Buyer's shares of Stock quoted on NASDAQ for
each of the twenty (20) Business Days immediately preceding the last day of the
thirty-sixth (36th) month following the Closing Date.
(e) Maximum Limit on Contingent Payment. Notwithstanding the
foregoing, the maximum number of Exchange Shares paid as the Contingent Payment
shall not exceed 99% of the number of Exchange Shares constituting the Matched
Payment and the Base Payment, adjusted for all stock splits and stock dividends.
Moreover, in the event the Contingent Payment, combined with the Base Payment
and Matched Payment exceed the maximum amount of shares permitted to be issued
under NASDAQ rules (in the opinion of Buyer's counsel), then Buyer shall pay the
maximum number of Exchange Shares permitted to be paid under NASDAQ rules with
the balance paid in cash.
(f) Not Dependent Upon Employment Agreement. MAI's right to
receive the Contingent Payment is not dependent upon the Executives fulfilling
their obligations under their respective Employment Agreements.
3.6 Other Payments and Adjustments
MAI may elect to make certain distributions of intangible assets and/or
award certain stock options to certain of its employees prior to Closing with
Buyer's consent not to be unreasonably withheld (the "Recognition Payments"). To
the extent the Recognition Payments have post Closing economic and/or tax
effects, Buyer, MAI and the Shareholders agree to make such adjustments as are
appropriate so that the economic and tax benefits & detriments of any such
Recognition Payments remain with Seller and are neutral to Buyer from all
economic, GAAP and tax standpoints.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF MAI AND SHAREHOLDERS
MAI and Shareholders, jointly and severally, make the following
representations and warranties to Buyer, each of which is true and correct on
the date hereof, shall be unaffected by any investigations heretofore or
hereafter made by Buyer, or any knowledge of Buyer other than as specifically
disclosed in the Disclosure Schedule delivered to Buyer at the time of execution
of this Agreement, and shall survive the Closing of the transactions provided
for herein:
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4.1 Organization
(a) MAI is a corporation duly organized, validly existing and
in good standing under the laws of the State of Michigan with full corporate
power and authority to carry on its business as now conducted, to own the
properties and assets that it now owns, and to lease the properties and assets
that it now leases, and is duly licensed and qualified to do business and is in
good standing in each state or jurisdiction where its ownership or leasing of
property or assets or the conduct of its business requires such licensing or
qualification.
(b) MAI and Shareholders have heretofore delivered to Buyer
accurate and complete copies of the articles of incorporation and by-laws of
MAI, as in effect on the date thereof. Such articles and by-laws are in full
force and effect, and have not been subsequently amended, and MAI is not in
violation of any of the provisions thereof.
4.2 Capitalization
The authorized capital stock of MAI consists of 50,000 shares of Common
Stock, 5,747 shares of which are validly issued and outstanding, fully paid,
nonassessable, free of preemptive rights. There are no other classes of
securities of MAI authorized or outstanding. The Shareholders together own all
the issued and outstanding shares of common stock of MAI. The record and
beneficial stock ownership is set forth below:
<TABLE>
<CAPTION>
=============================================================================================================================
Stock Number % of Total
Name Certificate No. of Shares Shares
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Thomas LaPorte 4 5,000 87
- -----------------------------------------------------------------------------------------------------------------------------
Mary M. Reid above shares held
jointly with Thomas
LaPort
- -----------------------------------------------------------------------------------------------------------------------------
Jon LaPorte 5 575 10
- -----------------------------------------------------------------------------------------------------------------------------
Steven Bartus 6 172 3
=============================================================================================================================
</TABLE>
Neither MAI nor any of its Affiliates has or is bound by any
outstanding subscriptions, options, warrants, calls, commitments, agreements or
other rights of any character calling for the purchase or issuance of any shares
of Common Stock or any securities representing the right to purchase or
otherwise receive any shares of Common Stock. There are no outstanding or
authorized stock appreciation, phantom stock or similar rights with respect to
MAI. There are no voting trusts, proxies, or other agreements or understandings
with respect to the voting of the capital stock of MAI.
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4.3 Subsidiaries of the MAI; Nature of Business
MAI does not own any equity interest, directly or indirectly, in any
Subsidiary, except as set forth in Section 4.3 of the Schedule.
4.4 Authority; No Violation
(a) MAI and Shareholders have full power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed by MAI
and all Shareholders and, assuming this Agreement constitutes a valid and
binding obligation of Buyer, constitutes a valid and binding obligation of MAI
and Shareholders enforceable against MAI and Shareholders in accordance with its
terms.
(b) Neither the execution and delivery of this Agreement by
MAI and Shareholders nor the consummation by MAI and Shareholders of the
transactions contemplated hereby, nor compliance by MAI and Shareholders with
any of the terms or provisions hereof, will (i) conflict with or result in a
breach of any provision of the articles of incorporation or by-laws of MAI, (ii)
violate any statute, code, ordinance, rule, Regulation, judgment, order, writ,
decree or injunction applicable to Shareholders or MAI or any of their
respective properties or assets, or (iii) violate, conflict with, result in a
breach of any provisions of, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result in
the termination of, accelerate the performance required by, or result in a right
of termination or acceleration or the creation of any Encumbrance upon any of
the respective properties or assets of Shareholders or MAI under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument, or obligation to which
Shareholders or MAI is a party, or by which Shareholders, MAI or any of their
respective properties or assets may be bound or affected except for such
violations, conflicts, breaches and defaults which either individually or in the
aggregate would not have a Material Adverse Effect on MAI.
4.5 Consents and Approvals
Except as set forth in Section 4.5 of the Schedule, no consents,
permits, authorizations or approvals of, or filings or registrations with, any
governmental or regulatory authorities, government sponsored agencies or
corporations or other third parties are necessary to be obtained or made by
Shareholders or MAI in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
4.6 Financial Statements
MAI has previously delivered to Buyer copies of (i) the audited
financial statements of MAI for each of the years in the three-year period ended
December 31, 1995 (the "Audited Financial Statements"), together with reports on
all such audited financial statements by MAI's independent
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accountants, and (ii) the unaudited interim financial statements of MAI dated
October 31, 1996 (the "Interim Financial Statements") (the Audited Financial
Statements and the Interim Financial Statements are collectively referred to
herein as the "Financial Statements"), copies of which are attached hereto as
part of Schedule . The Audited Financial Statements have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered by such statements and fairly present the financial position of MAI as
of the respective dates thereof, the results of its operations and the changes
in its financial position for the respective periods covered thereby. The
Interim Financial Statements have been prepared from the books and records of
MAI in accordance with the requirements of GAAP.
4.7 Undisclosed Liabilities
As of the date of this Agreement, MAI does not have any liabilities or
obligations of any nature, whether accrued, absolute, contingent or otherwise,
asserted or unasserted, known or unknown, whether or not required to be shown on
a balance sheet prepared in accordance with GAAP (collectively, "Liabilities"),
except for (i) liabilities and obligations stated or adequately reserved against
on the Balance Sheet dated October 31, 1996, and (ii) obligations to close Non-
Conforming Mortgage Loans and Conforming Mortgage Loans for which commitments
already have been made, and (iii) obligations arising from warranties with
respect to Mortgage Loans sold before the Effective Date, which liabilities are
expressly retained by MAI. Prior to Closing, MAI shall have paid or otherwise
satisfied all MAI's Liabilities, except liabilities accrued on the financial
statements, not exceeding the amount of such accruals.
4.8 No Material Adverse Change
Since October 31, 1996, MAI has not suffered any Material Adverse
Effect nor taken any of the actions specified in Section (a) - (r).
4.9 Legal Proceedings
Except as described in Schedule , neither Sellers, MAI nor any of MAI's
directors or officers is party to any and there are no legal, administrative,
arbitral or other proceedings, claims, actions or governmental investigations of
any nature pending, nor to the best knowledge of MAI or Shareholders,
threatened, against or affecting MAI or any of its respective assets or business
or challenging the validity or propriety of the transactions contemplated by
this Agreement. MAI is not subject to any order, judgment, injunction, rule or
decree.
4.10 Material Contracts
Section of the Schedule is a complete and accurate list of the
following contracts, agreements, and other written or oral arrangements (or
group of related written or oral arrangements) (hereinafter collectively
referred to as "arrangements"), to which MAI is a party on the date hereof:
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(a) any arrangement with any employee, agent or independent
contractors involved in the origination of mortgage loans for MAI;
(b) any arrangement (including the lease of real or personal
property from or to third parties) providing for lease payments in excess of
$5,000 per annum or in excess of $10,000 for the remaining term of the
arrangement;
(c) any arrangement in which MAI is participating as a general
partner or joint venturer;
(d) any arrangement which shall survive the Closing (other
than recourse servicing) under which MAI has created, incurred, assumed, or
guaranteed (or may create, incur, assume, or guarantee) indebtedness for
borrowed money (including capitalized lease obligations) involving more than
$5,000;
(e) any arrangement concerning confidentiality or
noncompetition;
(f) any arrangement between any Shareholder and MAI or any of
the Affiliates;
(g) any arrangement pursuant to which MAI or any Shareholder
has promised to pay, or loan any amount to, or sold, transferred or leased any
property or assets to or from, any Person in their capacity as an officer,
director or other employee of MAI;
(h) any arrangement requiring MAI to pay severance or similar
payments as a result of the transactions contemplated hereby;
(i) any other arrangement which will survive the Closing not
entered into in the ordinary course of business; or
(j) any power of attorney or similar arrangement.
MAI has delivered to Buyer a correct and complete copy of each written
arrangement listed in Section 4.10 of the Schedule. With respect to each
arrangement so listed: (A) the arrangement is in full force and effect; (B)
neither Shareholders nor MAI is in breach or default, and no event has occurred
which with notice or lapse of time or both would constitute a breach or default
by Shareholders or MAI, or permit termination, modification, or acceleration
against Shareholders or MAI under the arrangement applicable to it; (C) neither
Shareholders nor MAI has repudiated or waived any material provision of any such
arrangement; (D) no other party to any such arrangement is in default in any
respect thereunder; and (E) no consent is required under any arrangement for MAI
to enter into and perform this Agreement and the transactions contemplated
herein. With respect to any lease disclosed pursuant to this Section 4.10, all
rents and other amounts currently due thereunder have been paid; no waiver
or indulgence or postponement of any obligation thereunder has been
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granted by any lessor or sublessor; and MAI has not received any notice that it
has breached any term, condition or covenant.
4.11 Taxes
(a) MAI has (i) duly filed (or there have been duly filed on
its behalf) with the appropriate federal, state, local and foreign taxing
authorities all Tax Returns required to be filed by or with respect to MAI, and
such Tax Returns are true, correct and complete in all respects, and (ii) paid
in full on a timely basis (or there have been paid on its behalf) all Taxes
shown to be due on such Tax Returns. The provision for current Taxes on each of
the Financial Statements and the Closing Balance Sheet is or will be adequate
for the payment of all accrued but unpaid Taxes through the date thereof. At or
before Closing, Shareholders shall cause MAI to pay all taxes then due and MAI
shall pay all taxes arising, or relating to any period, before the Closing Date
when they become due.
(b) Neither MAI nor any Affiliate thereof has received any
notice of a deficiency or assessment with respect to taxes of MAI from any
federal, state, local or foreign taxing authority which has not been fully paid
or finally settled; there are no ongoing audits or examinations of any Tax
Return which includes MAI and no notice of audit or examination of any such Tax
Return has been received; MAI has not given and there has not been given on its
behalf a waiver or extension of any statute of limitations relating to the
payment of Taxes; and no issue has been raised in writing on audit or in any
other proceeding with respect to Taxes of MAI by any federal, state, local or
foreign taxing authority which, if resolved against MAI, would have a Material
Adverse Effect on MAI.
(c) MAI has not filed a consent under Section 341(f) of the
Code concerning collapsible corporations. MAI has not made any payments, is not
obligated to make any payments, and is not a party to any contract, agreement or
other arrangement that could obligate it to make any payments that would not be
deductible under Section 280G of the Code. MAI has disclosed on its federal
income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income tax within the meaning of Section
6661 (or its successor, Section 6662) of the Code.
(d) For purposes of this Agreement "Taxes" shall mean all
taxes, charges, fees, levies, penalties or other assessments imposed by any
United States federal, state, local or foreign taxing authority, including, but
not limited to, income, excise, property, sales, transfer, franchise, payroll,
gains, withholding, ad valorem, social security or other taxes, including any
interest, penalties or additions attributable to Taxes.
(e) For purposes of this Agreement, "Tax Return" shall mean
any return, report or information return required to be filed with any taxing
authority with respect to Taxes.
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(f) After the Closing, MAI shall bear responsibility for and
pay the reasonable costs and expenses relating to the preparation of any Tax
Return relating to any period before the Closing Date and shall pay, any Taxes
relating to any period before the Closing Date or as a result of this
transaction.
4.12 ERISA
(a) Section 4.12(a) of the Schedule contains a true and
complete list of each employee benefit, compensation or welfare benefit plan,
program or agreement maintained or contributed to or required to be contributed
to by MAI (the "Plans"). MAI has no formal plan or commitment, whether legally
binding or not, to create any additional Plan or modify or change any existing
Plan that would affect any employee or terminated employee of MAI.
(b) With respect to each of the Plans, MAI has heretofore
delivered to Buyer true and complete copies of each of the following documents:
(i) each Plan and related trust, if any, (including all amendments thereto);
(ii) annual report and actuarial report, if required to be filed under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), for the
last two (2) years and the latest financial statement, if any, for each such
Plan; (iii) the most recent summary plan description, together with each summary
of material modifications, required under ERISA; and (iv) the most recent
determination letter received from the IRS with respect to each Plan that is
intended to be qualified under Section 401 of the Code.
(c) All required contributions have been, or will be, made
with respect to each Plan on or prior to the Closing Date or will be properly
recorded on the Closing Balance Sheet.
(d) Each of the Plans has been operated and administered in
all material respects in accordance with applicable laws, including, but not
limited to, ERISA and the Code and each of the Plans that is intended to be
"qualified" within the meaning of Section 401(a) of the Code is so qualified.
(e) Except as set forth in Section 4.12(e) of the Schedule, no
Plan provides benefits, including, without limitation, death or medical benefits
(whether or not insured), with respect to current or former employees beyond
their retirement or other termination of service (other than (A) coverage
mandated by applicable law, (B) death benefits or retirement benefits under any
"employee pension plan," as that term is defined in Section 3(2) of ERISA, (C)
deferred compensation benefits accrued as liabilities on the books of MAI or (D)
benefits the full cost of which is borne by the current or former employee (or
his beneficiary)).
(f) There are no pending, threatened or anticipated claims
(other than routine claims for benefits) by, on behalf of or against any of the
Plans or any trusts related thereto.
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(g) The consummation of the transactions contemplated by this
Agreement will not (either alone or upon the occurrence of any additional acts
or events) (A) entitle any current or former employee of MAI to severance pay,
employment compensation or any other payment, benefit or award or (B) accelerate
or modify the time of payment or vesting, or increase the amount of any benefit,
award or compensation due any such employee.
4.13 Ownership of Property
MAI has good, valid and marketable title to all Purchased Assets and
properties, whether real or personal, tangible or intangible, and all other
assets and properties reflected in its balance sheet as of October 31, 1996, or
acquired subsequent thereto, subject to no Encumbrances, except (i) those items
that secure liabilities that are reflected in said balance sheet or the notes
thereto or incurred in the ordinary course of business after the date of such
balance sheet, (ii) statutory liens for amounts not yet delinquent or which are
being contested in good faith, (iii) liens and encumbrances on, and rights of
redemptions with respect to, foreclosed real estate, and (iv) such Encumbrances
that do not in the aggregate materially detract from the value or interfere with
the use or operations of the assets and properties subject thereto. MAI as
lessee has the right under valid leases to occupy, use, possess and control all
property leased by MAI, as presently occupied, used, possessed and controlled by
MAI. The properties and assets owned or leased by MAI are adequate for the
conduct of the current business of MAI. Giving effect to the transactions
contemplated by this Agreement, Buyer shall have all assets, personnel and
property necessary and proper to conduct MAI's business consistent with
historical practice, subject to Buyer securing appropriate licenses and
regulatory approvals to the extent necessary. The documents selling, assigning
and conveying from MAI to Buyer the Purchased Assets will grant and transfer to
Buyer good and marketable title to the Purchased Assets, free and clear of all
encumbrances, except those expressly permitted in this Agreement.
Notwithstanding the foregoing, certain other persons may claim conflicting
rights to the name "Mortgage America" and "Alternative Lending Mortgage
Corporation," but Shareholders do not reasonably believe these claims will have
a material adverse effect on the Business.
4.14 Environmental Protection
MAI has not received from any source with respect to any property
("Operating Property") that it owns (including as a trustee), leases, or
actively participates in the management of, any Environmental Claim to the
effect that MAI, or any Operating Property or Loan Property, or any predecessor
is not in compliance with all environmental or health laws, rules, Regulations,
standards and requirements relating to pollution (including the discharge of
materials into the environment or indoors) or protection of the environment,
including common law ("Environmental Laws"), nor any requests for information
which could result in or help provide a basis for any Environmental Claim, nor
are there any facts of which MAI or Shareholders have knowledge which could
reasonably be expected to form the basis of an Environmental Claim against MAI.
All environmental audits, analyses, or surveys of any Operating Property or Loan
Property which have been submitted to or by MAI are identified in Section 4.14
of the Schedule, and copies of such audits, analyses, surveys
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or other documents have been made available to Buyer. MAI has not owned,
managed, supervised or participated in the management of any commercial real
property except for the three office buildings occupied by MAI in Bay City.
4.15 Brokers and Finders
Neither Shareholders nor MAI, nor any of MAI's officers, directors,
employees or agents has employed any broker, finder or financial advisor or
incurred any liability for any fees or commissions in connection with the
transactions contemplated hereby, except for legal, accounting and other
professional fees payable by MAI or Shareholders in connection with the
Acquisition. Shareholders shall cause all legal, accounting and other
professional fees and expenses of MAI related to this transaction to be paid by
MAI prior to Closing.
4.16 Insurance
MAI is insured with reputable insurers against such risks and in such
amounts normally insured against by companies of the same type and in the same
line of business. All of the insurance policies, binders or bonds maintained by
MAI are in full force and effect; MAI is not in default thereunder; all claims
thereunder have been filed in due and timely fashion; and all such policies,
binders and bonds will remain in full force and effect through the Closing Date
unaffected by the transactions contemplated hereby.
4.17 Mortgage Banking Licenses and Qualifications
MAI (i) is qualified as and is (A) an FHA approved supervised mortgagee
under 24 C.F.R. 'SS' 203.3, and (B) a supervised lender under the VA loan
guarantee program, 38 U.S.C. 'SS' 1802(d); (ii) in all material respects meets
all applicable requirements of laws and regulations so as to be eligible to
originate, hold, sell FHA Loans, mortgage loans guaranteed by the VA Loans and
conventional mortgage loans; and (iii) has all other material certifications,
authorizations, licenses, permits and other approvals ("Licenses") necessary to
conduct its current mortgage banking business, and is in good standing under all
applicable federal, state and local laws and regulations thereunder, as a
mortgage lender and servicer. A complete list of such Licenses is set forth in
Section 4.17 of the Schedule. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
affect the validity of any License currently possessed by MAI, and all such
Licenses will remain in full force and effect after the Closing Date. MAI
shall cause, at MAI's sole expense, all regulatory filings and other actions
necessary or desirable in connection with the Acquisition and change in
ownership of the Business of MAI. Section 4.17 of the Schedule sets forth all
regulatory actions and consents necessary or desirable in connection with the
Acquisition and change in ownership of the Business and Buyer's operation of the
Business.
4.18 Loan Portfolio
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MAI does not perform any mortgage servicing for any Investors or other
third parties.
4.19 Enforceability
All Mortgage Loans are valid and legally binding obligations of the
borrowers thereunder enforceable in accordance with their terms, except as
enforcement thereof may be limited by (i) bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (whether applied in a proceeding in equity or at
law), (ii) state laws requiring creditors to proceed against the collateral
before pursuing the borrower, and (iii) state laws on deficiencies. Neither the
operation of any of the terms of any Mortgage Loan nor the exercise of any right
thereunder, has rendered or will render the related mortgage or note
unenforceable, in whole or in part, subject it to any right of rescission,
setoff, counterclaim or defense, and no such right of rescission, setoff,
counterclaim or defense has been asserted with respect thereto.
4.20 Title to Certain Mortgage Loans
Mortgage Loans held in MAI's account (whether or not for future sale or
delivery to an Investor) are owned by MAI free and clear of any Encumbrance
other than its lender banks pursuant to warehouse lines. Such Mortgage Loans
have been duly recorded or submitted for recordation in the appropriate filing
office in the name of MAI as mortgagee. MAI has not, with respect to any such
Mortgage Loan, released any security therefor, except upon receipt of reasonable
consideration for such release or accepted prepayment of any such Mortgage Loan
which has not been promptly applied to such Mortgage Loan.
4.21 No Recourse
Except as set forth in Section 4.21 of the Schedule, MAI is not a party
to (A) any agreement or arrangement with (or otherwise obligated to) any Person,
including an Investor or insurer, to repurchase from any such Person any
Mortgage Loan and mortgaged property serviced for others or any mortgage loan
sold by MAI with servicing released ("Servicing Released Loans"), or (B) any
agreement, arrangement or understanding to reimburse, indemnify or hold harmless
any Person or otherwise assume any liability with respect to any Loss suffered
or incurred as a result of any default under or the foreclosure or sale of any
such Mortgage Loan or mortgage property or Servicing Released Loans, except
insofar as (i) such recourse is based upon breach by MAI of a customary
representation, warranty or undertaking, or (ii) MAI incurs expenses such as
legal fees in excess of the reimbursement limits, if any, set forth in the
applicable Mortgage Servicing Agreement.
4.22 Compliance
MAI has been and is (and specifically the documentation, origination,
purchase, assumption, modification, sale, servicing of Mortgage Loans (including
the maintenance of and transactions with respect to custodial Account) and
maintenance of books and records by it has been and is) in
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compliance with all Regulations, orders, writs, decrees, injunctions and other
requirements of any court or governmental authorities applicable to it, its
properties and assets or its conduct of business in all material respects. MAI
has not done or failed to do, and has not caused to be done or omitted to be
done, any act or omission, the effect of which would operate to invalidate or
materially impair (i) any title insurance policy, (ii) any hazard insurance
policy, (iii) any flood insurance policy required by the National Flood
Insurance Act of 1968, as amended, (iv) any fidelity bond, direct surety bond,
or errors and omissions insurance policy required by HUD, FHA, VA or private
mortgage insurers or (v) any surety or guaranty agreement. During the twelve
month period preceding the date hereof, no Agency, Investor or private mortgage
insurer has (i) claimed that MAI has violated or not complied with the
applicable underwriting standards with respect to mortgage loans sold by MAI to
such Investor or (ii) imposed restrictions on the activities (including
commitment authority) on MAI.
4.23 Investor Commitments
MAI has no Investor Commitments.
4.24 Custodial Accounts
MAI has full power and authority to maintain escrow accounts
("Custodial Accounts") for certain serviced loans. Such Custodial Accounts
comply in all respects with (i) all applicable Regulations (including without
limitation Regulations governing the calculation of the amount of the monthly
payments for deposit into Custodial Accounts that mortgagors are required to
make), and (ii) any terms of the Mortgage Loans (and Mortgage Servicing
Agreements) relating thereto. The Custodial Accounts contain the amounts shown
in the records of MAI, which amounts represent all monies received or advanced
by MAI as required by the applicable Mortgage Servicing Agreements, less amounts
remitted by or on behalf of MAI pursuant to applicable Mortgage Servicing
Agreements except for checks in process.
4.25 Accounts Receivable
All accounts receivable arising from the Business, including without
limitation the amounts that have been advanced by MAI in connection with
servicing the Mortgage Loans pursuant to Mortgage Servicing Agreements (such as
principal, accrued interest, taxes and insurance premiums) are valid and
subsisting amounts owing to MAI, have been acquired in the ordinary course of
business and are carried on the books at values determined in accordance with
GAAP, and are not subject to defenses, setoffs or claims of the mortgagor (other
than those already accounted for) arising from acts or omissions of MAI.
4.26 Data Processing
MAI has good and valid title or valid license to the data processing
software (including documentation, user manuals, upgrades and current releases,
etc.), currently used by it, and the data
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processing system (software and hardware), used to support MAI's mortgage
servicing business is operating in the intended manner.
4.27 Inquiries
Section 4.27 of the Schedule contains a true and correct list of all of
the audits, investigations, complaints and inquiries of MAI by an Agency, HUD,
an Investor, or a private mortgage insurer since June 30, 1995, the result of
which audits and investigations claimed a material failure to comply with
applicable Regulations, resulted in a repurchase of Mortgage Loans by MAI,
resulted in indemnification by MAI in connection with the Mortgage Loans,
resulted in rescission of an insurance or guaranty contract or agreement, or
resulted in payment of a penalty to a Agency, HUD, an Investor or a private
mortgage insurer, and like adverse findings. Except for customary ongoing
quality control reviews, no such audit or investigation (each an "Inquiry") is
pending or threatened. Sellers have made available to Buyer copies of all
written reports and materials received in connection with such audits,
investigations, complaints and inquiries.
4.28 Representations
No breach or violation of any representation, warranty or covenant
exists which individually, or collectively, would have a Material Adverse Effect
on MAI or any Purchased Assets with respect to any Mortgage Loans, the ownership
of which has been transferred by MAI to any Person.
4.29 Advances
Except as set forth in Section 4.29 of the Schedule, there are no
pooling, participation, servicing or other agreements to which MAI is a party
which obligate it to make servicing advances with respect to defaulted or
delinquent Mortgage Loans.
4.30 Pools
Except as set forth in Section 4.30 of the Schedule, all Pools serviced
by MAI have been certified and, if required, re-certified. With respect to any
Pools serviced by MAI which have not been fully certified, MAI has notified the
custodian with respect thereto of all deficiencies, and such custodian has so
notified the applicable Investor or Investor Program.
4.31 Commercial Mortgages
MAI has never taken title to any commercial mortgage loan. MAI has
never foreclosed on any commercial property securing any commercial mortgage
loan in its own name, is not required under any Mortgage Servicing Agreement to
foreclose on any commercial property securing any commercial mortgage loans in
default in its own name and has never taken title to any commercial property
securing any commercial mortgage loan. Any breach of any representation or
warranty set
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forth in this Section 4.31 shall be deemed to render such representation or
warranty to be untrue and incorrect in a material respect.
4.32 No Tax-Sharing Agreements
MAI is not a party to any tax sharing agreement or similar arrangement.
4.33 No Intercompany Accounts
MAI has no intercompany accounts.
4.34 MAI Employees
To the best of Sellers' knowledge, each employee of MAI will accept
Buyer's offer of employment after the Closing Date. MAI has no agreements,
policies, practices or understandings (written or oral) concerning MAI employee
bonus programs, employee incentive plans or employee benefit plans except as set
forth in Section 4.12(a) of the Schedule. A complete list of MAI's employees is
set forth in Section 4.34 of the Schedule.
4.35 Conduct Prior to Closing
Within the four (4) months prior to the Closing Date or on the Closing
Date, except as set forth in Section 4.35 of the Schedule, MAI has conducted its
business only in the ordinary course, and MAI has not:
(a) issued, sold or delivered any shares of its capital stock
or issue or sell any securities convertible into, or options with respect to, or
warrants to purchase or rights to subscribe to, any shares of its capital stock;
(b) effected any recapitalization, reclassification, stock
dividend, stock split or like change in capitalization;
(c) amended its articles of incorporation or by-laws;
(d) merged or consolidated with, or, except as a result of
foreclosure or repossession in the ordinary course of its mortgage banking
business, acquired substantially all of the assets of, any other entity;
(e) sold, transferred, leased or encumbered a material amount
of assets (other than Excluded Assets)except in the ordinary course of business;
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(f) materially altered or varied its methods or policies of
(i) underwriting, pricing, originating, warehousing, selling and servicing, or
buying or selling rights to service, its Mortgage Loans, (ii) hedged (which term
includes both buying futures and forward commitments from financial
institutions) its mortgage loan positions or commitments, and (iii) obtained
financing and credit;
(g) granted to any director, officer, employee or consultant
any material increase in compensation or benefits (other than as may be required
under the terms of written agreements in effect on the date hereof and other
than normal increases made in the ordinary course of business to officers or
employees in accordance with customary past practices and policies);
(h) granted any severance or termination pay (other than as
may be required under the terms of written agreements in effect on the date
hereof) to, or entered into or amended any employment or severance agreement
with, any person, other than termination pay paid in the ordinary course of
business to officers or employees in accordance with customary past practices
and policies;
(i) adopted any new or amended any existing director, officer
or employee benefit plans (including, without limitation, profit sharing, bonus,
director and officer incentive compensation, retirement, medical,
hospitalization, life or other insurance plans, arrangements and commitments) or
any trust agreement relating thereto;
(j) incurred any debt other than in the ordinary course of
business in amounts consistent with past practice;
(k) made any change in accounting principles or methods from
those currently employed, except as required by GAAP or by applicable regulatory
requirements;
(l) granted any mortgage or security interest in, or made any
pledge of, or permitted any lien or encumbrance to be placed on, any of its
assets or properties other than in the ordinary course of business consistent
with past practice;
(m) canceled, waived, released or compromised any material
debt or claim, other than upon payment in full;
(n) failed to maintain in full force and effect all existing
insurance policies and fidelity bonds;
(o) taken any action, or failed to take any action, that would
result in a breach or violation of the representations and warranties of Sellers
contained in this Agreement or caused any condition to the transactions
contemplated hereby not to be satisfied;
(p) accelerated, terminated, modified or canceled any material
contract, lease, or license to which MAI is a party;
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(q) entered into any employment or collective bargaining
agreement, or modified any existing employment or collective bargaining
agreement; and
(r) agreed to do any of the foregoing included in (a)
through (q).
4.36 MAI's and Shareholders' Investment Intention/Restricted Securities.
(a) MAI is acquiring the Exchange Shares for investment solely
for MAI's account, and when distributed to Shareholders pursuant to a Plan of
Liquidation, Shareholders will acquire the Exchange Shares for investment solely
for the Shareholders' account and not with a view to, or for resale in
connection with, the distribution or other disposition thereof and neither MAI
nor Shareholders have any present intention of selling, granting any
participation in, or otherwise distributing the same except in compliance with
the securities laws as provided in Section 67. MAI and the Shareholders agree
and acknowledge that MAI and the Shareholders will not, directly or indirectly,
offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of any
Exchange Shares or solicit any offers to purchase or otherwise acquire or take a
pledge of any Shares, except in accordance with the terms of this Agreement
unless (i) the transfer, sale, assignment, pledge, hypothecation or other
disposition is pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "Securities Act") and the rules and
regulations thereunder and has been registered under any applicable state
securities or "blue sky" laws or (ii) no such registration is required because
of the availability of an exemption from registration under the Securities Act
and the rules and regulations in effect thereunder and under any applicable
state securities or "blue sky" laws.
(b) MAI and each Shareholder has such knowledge and experience
in financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Exchange Shares and the Shareholder can bear the
economic risk of its investment.
(c) MAI and each Shareholder is an "accredited investor"
within the meaning of SEC Rule 501 of Regulation D, as presently in effect.
(d) MAI and each Shareholder understands that the Exchange
Shares are characterized as "restricted securities" under the federal securities
laws inasmuch as they are being acquired from Buyer in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act of
1933, as amended (the "Act"), only in certain limited circumstances. In this
connection, MAI and each Shareholder represent that they are familiar with SEC
Rule 144, as presently in effect, and understand the resale limitations imposed
thereby and by the Act.
(e) Without in any way limiting the representations set forth
above, MAI and each Shareholder further agrees not to make any disposition of
all or any portion of the Exchange Shares unless:
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(i) There is then in effect a Registration Statement
under the Act covering such proposed disposition and such disposition
is made in accordance with such Registration Statement; or
(ii) the Shareholder shall have notified Buyer of the
proposed disposition and shall have furnished the Buyer with an opinion
of counsel, reasonably satisfactory to the Buyer, that such disposition
will not require registration of such shares under the Securities Act.
It is agreed that the Buyer will not require opinions of counsel for
transactions which are shown to the Buyer's reasonable satisfaction as
being made pursuant to and in compliance with Rule 144.
(f) It is understood that the certificates evidencing the
Exchange Shares may bear one or all of the following legends:
(i) "These securities have not been registered under
the Securities Act of 1933 (the 'Act') and have been issued pursuant to
exceptions under the Act and under applicable state securities laws.
They may not be sold, offered for sale, pledged or hypothecated in the
absence of a registration statement in effect with respect to the
securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required under the Act or under
such Act." The foregoing legend shall be removed from any such
certificate at the request of the holder thereof at such time as the
shares represented thereby are registered under the Act or become
eligible for resale pursuant to Rule 144(k).
(ii) Any legend required by applicable state
securities laws.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer makes the following representations and warranties to MAI and
Shareholders, each of which is true and correct on the date hereof, shall remain
true and correct to and including the Closing Date, shall be unaffected by any
investigation heretofore or hereafter made by MAI or any notice to MAI, and
shall survive the closing of the transactions provided for herein.
5.1 Organization
Buyer is a corporation duly organized and in good standing under the
laws of the State of Florida. Buyer has the corporate power and authority to own
or lease all of its properties and to carry on its business as it is now being
conducted. Buyer is licensed to originate mortgage loans in the stated listed on
Schedule 2.1(k).
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5.2 Authority; No Violation
(a) Buyer has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby, provided that Buyer may require certain Shareholder approval pursuant to
certain NASDAQ rules. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action in respect thereof and no other
corporate proceedings on the part of Buyer are necessary to consummate the
transactions so contemplated except for such potential NASDAQ Shareholder
approval. This Agreement has been duly and validly executed and delivered by
Buyer and, assuming this Agreement constitutes a valid and binding agreement of
Seller, constitutes a valid and binding obligation of Buyer, enforceable against
Buyer in accordance with its terms (subject to applicable bankruptcy, insolvency
and similar laws affecting creditors' rights generally and subject, as to
enforceability, to general principles of equity.)
(b) Neither the execution and delivery of this Agreement nor
the consummation by Buyer of the transactions contemplated hereby, nor
compliance by Buyer with any of the terms or provisions hereof, will (i)
conflict with or result in a breach of any provision of the articles of
incorporation or by-laws of Buyer, (ii) subject to making or obtaining the
consents, permits, authorizations, approvals, filings and registrations set
forth in Section 5.2 of the Buyer Schedule, violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to Buyer or any of its properties or assets, or (iii) subject to
obtaining or making the consents, permits, authorizations, approvals, filings
and registrations set forth in Section 5.2 of the Buyer Schedule, violate,
conflict with, result in a breach of any provisions of, constitute a default (or
an event which, with notice or lapse of time, or both, would constitute a
default) under, result in the termination of, accelerate the performance
required by, or result in a right of termination or acceleration or the
creation of any Encumbrance upon any of the properties or assets of Buyer
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which Buyer is a party, or by which its properties or assets may
be bound or affected except for such violations, conflicts, breaches or defaults
which either individually or in the aggregate would not have a Material Adverse
Effect on Buyer. Notwithstanding the foregoing, the representations and
warranties in this subsection (b) shall not relate to or cover any consents,
approvals, filings or registrations, if any, arising from the regulated
nature of MAI or made applicable to Buyer by virtue of MAI or Buyer's
acquisition of the Purchased Assets and business of MAI or such regulations
governing MAI and the mortgage banking industry as a result of Buyer's purchase
of the Purchased Assets.
5.3 Brokers and Finders
Neither Buyer nor any of its officers, directors, employees or agents
has employed any broker, finder or financial advisor or incurred any liability
for any fees or commissions in connection with the transactions contemplated
hereby, except for legal, accounting and other professional fees payable in
connection with the Acquisition.
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5.4 Buyer's Review of Seller's Schedules
Buyer acknowledges that it has reviewed the Seller's schedules attached
to this Agreement. The Buyer is satisfied with the form and format of such
schedules and accepts the matters accurately disclosed therein; provided that
this representation shall not constitute a release or waiver of Buyer's claims
and causes of action arising from misstatements, errors and omissions contained
in Buyer's schedules.
ARTICLE 6
COVENANTS
6.1 Filings and Consent
(a) Promptly following the execution and delivery hereof,
Shareholders shall, or shall cause MAI to, obtain or file all consents
(including Agency and Investor consents), approvals, permits, authorizations,
notices, and registrations (collectively, "filings and consent solicitations")
necessary to consummate the assignment to Buyer of the Purchased Assets and
business of MAI. Buyer shall cooperate with Shareholders and MAI in obtaining or
making the necessary filings and consent solicitations. Sellers will use their
best efforts to cause the filings and consent solicitations to be made as soon a
practicable. The parties hereto agree that they will consult with each other
with respect to the obtaining of all necessary permits, consents, approvals and
authorizations of all third parties and governmental bodies necessary or
advisable to consummate the transactions contemplated by this Agreement, and
each party will keep the others apprised of the status of matters relating to
completion of the transactions contemplated herein.
(b) Sellers and Buyer shall promptly furnish each other with
copies of written communications received by Shareholders, MAI or Buyer, as the
case may be, or delivered by any of them, of any governmental body, Agency,
Investor or private mortgage insurer in respect of the transactions contemplated
hereby.
6.2 Press Releases
MAI and Buyer shall cooperate with each other in the development and
distribution of all news releases and other public information disclosures with
respect to the Agreement or the transactions contemplated hereby; provided,
however, prior to the consummation of the Acquisition, no party hereto shall
make any public announcement or disclosure with respect to the transactions
contemplated hereby without the prior approval of the other parties, except
where disclosure is required by law. The parties anticipate issuing a press
release relating to the acquisition upon execution of this Agreement.
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6.3 Employment Agreements
Buyer shall enter into Employment Agreements with Thomas LaPorte, Jon
LaPorte, Patrick LaPorte, Jack Reid and Steve Bartus (collectively, the
"Executives") to serve as executive officers of the Post-Closing MAI Business
Unit, or of Buyer or an affiliate of Buyer, in the form attached hereto as
Exhibit 6.3 for Thomas LaPorte and the others will be modified in form
reasonably acceptable to Buyer and MAI.
6.4 Marketing of Competing Products
Shareholders and MAI acknowledge that Buyer markets products that
directly compete with MAI's products, and after closing Buyer's other business
units will market products which directly compete with the Post-Closing MAI
Business Unit.
6.5 Leases
Buyer shall enter into a lease agreement for Buyer to lease MAI's
principal offices in Bay City, Michigan for ten (10) years with Buyer having two
five-year renewal options (the "Lease Agreements"). The form of Lease Agreement
is attached as Exhibit 6.5.
6.6 HSR Act Filing
To the extent any filing, notice or consent is required under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, each of Buyer and MAI
shall, in cooperation with the other, file any reports or notifications that may
be required to be filed by it and shall reasonably cooperate to satisfy such
requirements. The official fees of making any necessary filings under such Act
will be split equally between Buyer and Sellers.
6.7 Cash Conversion
Buyer agrees to provide Seller an opportunity by no later than
September 30, 1997 to dispose of up to 15% of the Exchange Shares (not to exceed
$7.5 million in value) for payment in immediately available funds. Buyer may
fulfill this obligation by including such shares held by Seller in a secondary
offering, by arranging a private placement or by any other method which results
in Seller obtaining the then fair market value of such shares after taking into
account normal sales commissions and transaction costs.
6.8 Seat on Board
Buyer agrees to seek the election of Tom LaPorte to Seller's Board of
Directors by proposing Tom LaPorte for election by the existing Board and
seeking to include Tom LaPorte on the list of nominees submitted to Buyer's
shareholders. This obligation shall terminate if the Shareholders and
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their immediate families and controlled entities collectively own less than 5%
of Seller's then outstanding shares of common stock.
6.9 Confidentiality
In the event that, for any reason, this transaction does not close, the
parties shall use reasonable, good faith efforts to keep confidential the
information learned about the other's business.
ARTICLE 7
FURTHER COVENANTS OF MAI AND SHAREHOLDERS
MAI and Shareholders covenant and agree as follows:
7.1 Access to Information and Records
During the period prior to the Closing:
(a) MAI shall, and shall cause its officers, employees,
agents, independent accountants and advisors to, furnish to Buyer, its
officers, employees, agents, independent accountants and advisors, at
reasonable times and places, all information in their possession
concerning MAI as may be requested, and give such persons access to all
of the properties, books, records, contracts and other documents of or
pertaining to MAI that MAI or its officers, employees, agents,
independent accountants or advisors shall have in their custody.
(b) With the prior consent of MAI in each instance (which
consent shall not be unreasonably withheld), Buyer and its officers,
employees, agents, independent accountants and advisors, shall have
access to vendors, customers, and others having business dealings with
MAI for the purpose of performing Buyer's due diligence investigation.
7.2 Bank Accounts
Not less than ten (10) days prior to the Closing, MAI shall provide to
Buyer a list of each bank in which MAI has an account or safe deposit box, the
name and number of each such account or box and the names of all persons
authorized to draw thereon or who have access thereto, with the amounts they
are authorized to draw.
7.3 Conduct of Business Pending the Closing
From the date hereof until the Closing, except as otherwise approved in
writing in advance by the Buyer (which approval shall not be unreasonably
withheld):
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(a) No Changes. MAI will carry on its business diligently
and in the same manner as heretofore and will not make or institute any changes
in its methods of purchase, sale, management, accounting or operation.
(b) Maintain Organization. MAI will take such action as may be
necessary to maintain, preserve, renew and keep in favor and effect the
existence, rights and franchises of MAI and will use its best efforts to
preserve the business organization of MAI intact, to keep available to Buyer the
present officers and employees, and to preserve for Buyer its present
relationships with suppliers and customers and others having business
relationships with MAI.
(c) No Breach. MAI and Shareholders will not do or omit any
act, or permit any omission to act, which may cause a breach of any material
contract, commitment or obligation, or any breach of any representation,
warranty, covenant or agreement made by MAI and/or the Shareholders herein, or
which would have required disclosure on Schedule 4.35 had it occurred after
October 31, 1996 and prior to the date of this Agreement.
(d) No Material Contracts. No contract or commitment will be
entered into, and no purchase of raw materials or supplies and no sale of goods
or services (real, personal, or mixed, tangible or intangible) will be made, by
or on behalf of MAI, except the transfer of the real estate as described in
Section and contracts, commitments, purchases or sales which are in the ordinary
course of business and consistent with past practice, are not material to the
MAI (individually or in the aggregate) and would not have been required to be
disclosed in the Disclosure Schedule had they been in existence on the date of
this Agreement.
(e) No Corporate Changes. MAI shall not amend its Articles
of Incorporation or By-laws or make any changes in authorized or issued capital
stock.
(f) Maintenance of Insurance. MAI shall maintain all of the
insurance in effect as of the date hereof and shall procure such additional
insurance as shall be reasonably requested by Buyer.
(g) Maintenance of Property. MAI shall use, operate,
maintain and repair all property of MAI in a normal business manner.
(h) Interim Financials. MAI will provide Buyer with interim
monthly financial statements and other management reports as and when they are
available.
(i) No Negotiations. Neither MAI nor any Shareholder will
directly or indirectly (through a representative or otherwise) solicit or
furnish any information to any prospective buyer, commence, or conduct presently
ongoing, negotiations with any other party or enter into any agreement with any
other party concerning the sale of MAI, MAI's assets or business or any part
thereof or any equity securities of MAI (an "acquisition proposal"), and MAI and
Shareholders shall immediately advise Buyer of the receipt of any acquisition
proposal.
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7.4 Change of Corporate Name
Concurrently with the Closing, MAI shall change its corporate name to a
new name bearing no resemblance to its present name so as to permit the use of
its present name by Buyer.
7.5 Consents
MAI and Shareholders will use their best efforts prior to Closing to
obtain all consents necessary for the consummation of the transactions
contemplated hereby.
7.6 Other Action
MAI and Shareholders shall use their best efforts to cause the
fulfillment at the earliest practicable date of all of the conditions to the
parties' obligations to consummate the transactions contemplated in this
Agreement.
7.7 Disclosure
MAI and Shareholders shall have a continuing obligation to promptly
notify Buyer in writing with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Disclosure Schedule, but no
such disclosure shall cure any breach of any representation or warranty which is
inaccurate.
ARTICLE 8
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
Each and every obligation of Buyer to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of each of the
following conditions:
8.1 Representations and Warranties True on the Closing Date
Each of the representations and warranties made by MAI and Shareholders
in this Agreement, and the statements contained in the Disclosure Schedule or in
any instrument, list, certificate or writing delivered by MAI pursuant to this
Agreement, shall be true and correct in all material respects when made and
shall be true and correct in all material respects at and as of the Closing Date
as though such representations and warranties were made or given on and as of
the Closing Date, except for any changes permitted by the terms of this
Agreement or consented to in writing by Buyer.
8.2 Compliance With Agreement
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MAI and Shareholders shall have in all material respects performed and
complied with all of their agreements and obligations under this Agreement which
are to be performed or complied with by them prior to or on the Closing Date,
including the delivery of the closing documents specified in Section 10.1.
8.3 Absence of Litigation
No Litigation shall have been commenced or threatened, and no
investigation by any Government Entity shall have been commenced, against Buyer,
MAI or any of the affiliates, officers or directors of any of them, with respect
to the transactions contemplated hereby.
8.4 Consents and Approvals
All approvals, consents and waivers that are required to effect the
transactions contemplated hereby shall have been received, and executed
counterparts thereof shall have been delivered to Buyer not less than two
business days prior to the Closing. Notwithstanding the foregoing, receipt of
the consent of any third party to the assignment of a Contract which is not (and
is not required to be) disclosed in the Disclosure Schedule shall not be a
condition to Buyer's obligation to close, provided that the aggregate of all
such Contracts does not represent a material portion of MAI's sales or
expenditures. After the Closing, MAI and Shareholders will continue to use their
best effects to obtain any such consents or approvals, and neither MAI nor any
Shareholder shall hereby be relieved of any liability hereunder for failure to
perform any of their respective covenants or for the inaccuracy of any
representation or warranty.
8.5 Hart-Scott-Rodino Waiting Period
All applicable waiting periods related to the HSR Act shall have
expired.
8.6 NASDAQ Requirement for Shareholder Approval
Buyer obtains Shareholder approval if required by NASDAQ for
transaction.
ARTICLE 9
CONDITIONS PRECEDENT TO MAI'S OBLIGATIONS
Each and every obligation of MAI and Shareholders to be performed on
the Closing Date shall be subject to the satisfaction prior to or at the Closing
of the following conditions:
9.1 Representations and Warranties True on the Closing Date
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Each of the representations and warranties made by Buyer in this
Agreement shall be true and correct in all material respects when made and shall
be true and correct in all material respects at and as of the Closing Date as
though such representations and warranties were made or given on and as of the
Closing Date.
9.2 Compliance With Agreement
Buyer shall have in all material respects performed and complied with
all of Buyer's agreements and obligations under this Agreement which are to be
performed or complied with by Buyer prior to or on the Closing Date, including
the delivery of the closing documents specified in Section 10.2.
9.3 Absence of Litigation
No Litigation shall have been commenced or threatened, and no
investigation by any government entity shall have been commenced, against Buyer,
MAI or any of the affiliates, officers or directors of any of them, with respect
to the transactions contemplated hereby; provided that the obligations of MAI
shall not be affected unless there is a reasonable likelihood that as a result
of such action, suit, proceeding or investigation MAI will be unable to retain
substantially all the consideration to which it is entitled under this
Agreement.
9.4 Hart-Scott-Rodino Waiting Period
All applicable waiting periods related to the HSR Act shall have
expired.
ARTICLE 10
CLOSING
The closing of this transaction ("the Closing") shall take place at the
offices of Buyer in Tampa, Florida, at 11:00 A.M. on January 9, 1997, or at such
other time and place as the parties hereto shall agree upon. Such date is
referred to in this Agreement as the "Closing Date." Regardless of the Closing
Date, the transaction shall be deemed to have occurred for all purposes as of
the Effective Time and the parties shall cooperate to treat the transaction as
having occurred as of the Effective Time.
10.1 Documents to be Delivered by MAI and Shareholders
At the Closing, MAI and Shareholders shall deliver to Buyer the
following documents, in each case duly executed or otherwise in proper form:
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(a) Bills of Sale. Bills of sale and such other instruments of
assignment, transfer, conveyance and endorsement as will be sufficient in the
opinion of Buyer and its counsel to transfer, assign, convey and deliver to
Buyer the Purchased Assets as contemplated hereby.
(b) Compliance Certificate. A certificate signed by the chief
executive officer of MAI that each of the representations and warranties made by
MAI and Shareholders in this Agreement is true and correct in all material
respects on and as of the Closing Date with the same effect as though such
representations and warranties had been made or given on and as of the Closing
Date (except for any changes permitted by the terms of this Agreement or
consented to in writing by Buyer), and that MAI and Shareholders have performed
and complied with all of MAI's and Shareholders' obligations under this
Agreement which are to be performed or complied with on or prior to the Closing
Date.
(c) Opinion of Counsel. A written opinion of Joseph, Wolf,
Endean & Stahle, P.C., counsel to MAI and Shareholders, dated as of the Closing
Date, addressed to Buyer, substantially in the form of Exhibit 10.1(c) hereto.
(d) Employment Agreements. The Employment Agreements referred
to in Section , duly executed by the persons referred to in such Section.
(e) Certified Resolutions. A certified copy of the resolutions
of the Board of Directors and the Shareholders of MAI authorizing and approving
this Agreement and the consummation of the transactions contemplated by this
Agreement.
(f) Escrow Agreement. The Escrow Agreement duly executed by
MAI, Buyer and the Escrow Agent in the form of Exhibit 3.2(b) hereto.
(g) Articles; By-laws. A copy of the By-laws of MAI certified
by the secretary of MAI, and a copy of the Articles of Incorporation of MAI
certified by the Secretary of State of Michigan.
(h) Real Estate Leases. The Lease Agreements executed by the
owner of the property occupied by MAI in Bay City.
(i) Registration Rights Agreement. The egistration Rights
Agreement in the form attached as Exhibit 10.1(i).
(j) Incumbency Certificate. Incumbency certificates relating
to each person executing any document executed and delivered to MAI pursuant to
the terms hereof.
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(k) Other Documents. All other documents, instruments or
writings required to be delivered to Buyer at or prior to the Closing pursuant
to this Agreement and such other certificates of authority and documents as
Buyer may reasonably request.
10.2 Documents to be Delivered by Buyer
At the Closing, Buyer shall deliver to MAI the following documents, in
each case duly executed or otherwise in proper form:
(a) Exchange Shares. To MAI, and to the Escrow Agent, the
Exchange Shares representing the purchase price.
(b) Assumption of Liabilities. Such undertakings and
instruments of assumption as will be reasonably sufficient in the opinion of MAI
and its counsel to evidence the assumption of Assumed Liabilities as provided
for in Article 2.
(c) Compliance Certificate. A certificate signed by the chief
executive officer of Buyer that the representations and warranties made by Buyer
in this Agreement are true and correct on and as of the Closing Date with the
same effect as though such representations and warranties had been made or given
on and as of the Closing Date (except for any changes permitted by the terms of
this Agreement or consented to in writing by MAI), and that Buyer has performed
and complied with all of Buyer's obligations under this Agreement which are to
be performed or complied with on or prior to the Closing Date.
(d) Opinion of Counsel. A written opinion of Mitchell W.
Legler, general counsel to Buyer, dated as of the Closing Date, addressed to
MAI, in substantially the form of Exhibit 10.2(d)-1 and a written opinion of
Foley & Lardner, special counsel to Buyer dated as of the Closing Date,
addressed to Buyer in substantially the form of Exhibit 10.2(d)-2 hereto.
(e) Escrow Agreement. The Escrow Agreement duly executed by
Buyer, MAI and the Escrow Agent in the form of Exhibit 3.2 hereto.
(f) Employment Agreements. The Employment Agreements
referred to in Section 6.3 duly executed by the Buyer referred to in such
Section.
(g) Real Estate Leases. The Lease Agreements duly executed
by Buyer.
(h) Registration Rights Agreement. The Registration Rights
Agreement.
(i) Other Documents. All other documents, instruments or
writings required to be delivered to MAI at or prior to the Closing pursuant to
this Agreement and such other certificates of authority and documents as MAI may
reasonably request.
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ARTICLE 11
TERMINATION
11.1 Right of Termination Without Breach
This Agreement may be terminated without further liability of any party
at any time prior to the Closing:
(a) by mutual written agreement of Buyer and MAI, or
(b) by either Buyer or MAI if the Closing shall not have
occurred on or before January 31, 1997, provided the terminating party has not,
through breach of a representation, warranty or covenant, prevented the Closing
from occurring on or before such date.
11.2 Termination for Breach.
(a) Termination by Buyer. If (i) there has been a material
violation or breach by MAI of any of the agreements, representations or
warranties contained in this Agreement which has not been waived in writing by
Buyer, or (ii) there has been a failure of satisfaction of a condition to the
obligations of Buyer which has not been so waived, or (iii) MAI shall have
attempted to terminate this Agreement under this Article 11 or otherwise without
grounds to do so, then Buyer may, by written notice to MAI at any time prior to
the Closing that such violation, breach, failure or wrongful termination attempt
is continuing, terminate this Agreement with the effect set forth in Section
10.2(c) hereof.
(b) Termination by MAI. If (i) there has been a material
violation or breach by Buyer of any of the agreements, representations or
warranties contained in this Agreement which has not been waived in writing by
MAI, or (ii) there has been a failure of satisfaction of a condition to the
obligations of MAI which has not been so waived, or (iii) Buyer shall have
attempted to terminate this Agreement under this Article 11 or otherwise without
grounds to do so, then MAI may, by written notice to Buyer at any time prior to
the Closing that such violation, breach, failure or wrongful termination attempt
is continuing, terminate this Agreement with the effect set forth in Section
10.2(c) hereof.
(c) Effect of Termination. Termination of this Agreement
pursuant to this Section 11.2 shall not in any way terminate, limit or restrict
the rights and remedies of any party hereto against any other party which has
violated, breached or failed to satisfy any of the representations, warranties,
covenants, agreements, conditions or other provisions of this Agreement prior to
termination hereof. In addition to the right of any party under common law to
redress for any such breach or violation, each party whose breach or violation
has occurred prior to termination shall
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jointly and severally indemnify each other party for whose benefit such
representation, warranty, covenant, agreement or other provision was made
("indemnified party") from and against all losses, damages, costs and expenses
(including, without limitation, interest (including prejudgment interest in any
litigated matter), penalties, court costs, and attorneys fees and expenses)
asserted against, resulting to, imposed upon, or incurred by the indemnified
party, directly or indirectly, by reason of, arising out of or resulting from
such breach or violation. Subject to the foregoing, the parties' obligations
under Section 10.2 of this Agreement shall survive termination.
(d) Opportunity to Cure. In the event that either party
desires to terminate the Agreement as a result of a breach by the other party,
and such breach is reasonably capable of being cured, the party shall give
written notice and provide a ten day opportunity to cure before terminating the
Agreement.
ARTICLE 12
MAI'S PLAN OF REORGANIZATION AND LIQUIDATION
12.1 Plan of Reorganization
Effective as of the Closing Date, MAI shall adopt the Plan of
Liquidation attached as Exhibit 12.1 and proceed to completely liquidate,
dissolve and terminate its business pursuant to the Plan of Liquidation and to
distribute its assets, including the Exchange Shares, to the Shareholders pro
rata to stock ownership. The parties intend that the transactions contemplated
by this Agreement and the liquidation of MAI pursuant to the Plan of Liquidation
shall constitute a Plan of Reorganization and shall qualify as a "C"
reorganization under IRS 'SS' 368(a)(1)(c).
12.2 Shareholders' Investment Intent
The Shareholders represent, warrant and confirm that they have no plan
or intention to sell, exchange, or otherwise dispose of any of the Exchange
Shares received as a result of the liquidation of MAI pursuant to the Plan of
Liquidation except as set forth on Schedule 12.2.
12.3 Termination of MAI Business Operations
MAI shall immediately terminate all business operations and terminate
all employees, except as may be necessary to permit Buyer to take advantage of
MAI's non-transferable licenses pursuant to the temporary operation agreement
provided in Section 12.5 below until Buyer can complete the application for such
licenses to the extent required.
12.4 Immediate Partial Liquidation Distribution
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Within 15 Business Days after the Closing Date, MAI shall begin the
liquidation distribution process by distributing not less than 50% of the
Exchange Shares received as the Base Payment to the Shareholders. MAI shall
complete final liquidation in six months, regardless of whether Buyer has
obtained appropriate licenses.
12.5 Buyer's Temporary Operation of MAI's Business Pending License
Transfer
(a) The parties acknowledge that Buyer (which term for
purposes of this Section shall include Buyer's Affiliates) may require, but not
yet have, all Licenses necessary to conduct the mortgage banking business and
mortgage brokering business being acquired from MAI. The parties have been
coordinating regarding Buyer's efforts to obtain all necessary licenses but in
certain situations, it is not practical for Buyer to obtain requisite licenses
prior to Closing. Buyer covenants to use reasonable good faith efforts to secure
all appropriate Licenses as soon as possible.
(b) Until the earlier of (i) Buyer obtaining all Licenses
necessary or appropriate for Buyer's operation of the mortgage banking and
mortgage brokering business consistent with MAI's past practices or (ii) the
close of business on June 30, 1997, Buyer shall be permitted to operate, manage
and supervise MAI's mortgage banking business in the name of MAI, and to thereby
take advantage of MAI's Licenses, to the extent that Buyer has not yet secured
its own Licenses to conduct such business. Buyer shall pay all costs and
expenses relating to, or arising out of, Buyer's management of MAI's business,
including without limitation, providing or facilitating the credit facilities
necessary to fund such business. Unless otherwise required by law, all personnel
involved in Buyer's temporary operation of MAI's business shall be on Buyer's
payroll. MAI shall pay Buyer a management fee equal to all profits which MAI
would otherwise earn from Buyer's temporary operation of MAI's business and
Buyer shall reimburse MAI for any loss from such temporary operation of MAI's
business.
Buyer's temporary operation of MAI's business shall result in MAI making no
profit or loss from such temporary operation, except as otherwise required by
law. MAI shall cooperate with Buyer to facilitate Buyer's temporary operation of
MAI's business. MAI may impose such conditions and restrictions upon Buyer's
temporary operation of MAI's business as MAI shall consider appropriate, acting
reasonably and in good faith, and provided that MAI and Shareholders shall not
seek to profit directly or indirectly from the imposition of such conditions and
restrictions.
12.6 MAI's Assignment to Shareholders of Agreement Upon MAI Liquidation
As part of MAI's Liquidation at the appropriate time, as determined by
MAI, acting reasonably and in good faith, MAI shall assign to the Shareholders,
and the Shareholders agree to accept and perform, all of MAI's rights,
privileges, obligations, liabilities and covenants, of every kind and nature,
arising out of or in connection with this Agreement, including the right to
receive the Contingent Payment. The Shareholders, by written agreement in form
and content reasonably satisfactory to Buyer, may re-assign among themselves
such rights and responsibilities derived from MAI, provided that such rights and
responsibilities shall not be transferred to any third party, subject
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to the provisions of Section 16.5. MAI shall provide written notice to Buyer and
Shareholders as part of MAI's liquidation that MAI has assigned to Shareholders
all future rights to receive the Contingent Payment under this Agreement. Upon
receipt of such notice, Buyer shall make all future payments directly to the
respective Shareholders (with Stock Certificates issued in the names of the
respective Shareholders, where appropriate), based on MAI's Common Stock
ownership schedule set forth in Section 4.2 unless the recipient individual
Shareholder directs otherwise by written notice. Without limiting Buyer's other
remedies, Buyer shall have the express right to setoff any loss or claim arising
under this Agreement against the Contingent Payment, even if the Contingent
Payment has been assigned to the Shareholders as part of a Plan of Liquidation.
(This provision shall not modify Buyer's right to set-off or otherwise limit
Buyer's rights against Shareholders as an assignee of MAI.)
12.7 Appointment of Shareholders' Agent
(a) The Shareholders hereby appoint and constitute Thomas
LaPorte as Shareholders' Agent hereunder, to exercise the powers on behalf of
Shareholders set forth in this Agreement; and Thomas LaPorte hereby accepts such
appointment. In the event of the death, resignation or inability to act of
Thomas LaPorte, and upon receipt by Buyer of evidence of the same which is
satisfactory to Buyer, Shareholders will, by majority consent, name a successor
Shareholders' Agent with all powers of his predecessor, subject to prior
approval of Buyer.
(b) Each Shareholder, by his execution of this Agreement,
hereby constitutes and appoints the Shareholders' Agent his true and lawful
attorney in fact, with full power in his name and on his behalf:
(i) to receive on behalf of such Shareholder the
Exchange Shares constituting the Contingent Payment, to give Buyer a
receipt therefor on behalf of such Shareholder and to hold such
proceeds subject to the terms hereof and the instructions of such
Shareholder with respect to the ultimate disbursement thereof;
(ii) to act on such Shareholder's behalf according to
the terms of this Agreement, including, without limitation, the power
to contest or acquiesce in the determination of the Contingent Payment
in accordance with Section 3.5; the power to contest or acquiesce
regarding any payment calculation statement in accordance with Section
; to amend this Agreement in accordance with Section 15.1; to waive
Buyer's performance pursuant to Section 15.1; to give and receive
notices on behalf of all the Shareholders; and to act on their behalf
in connection with any matter as to which the Shareholders jointly and
severally are an "Indemnified Party" under Article 13 hereof; all in
the absolute discretion of the Shareholders' Agent;
(iii) to act on such Shareholder's behalf, including
providing any consents, approvals or undertakings on behalf of
Shareholder with respect to the Registration Rights Agreement of even
date, including the hold-back provisions contained in Section 7
thereof;
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(iv) in general, to do all things and to perform all
acts, including, without limitation, executing and delivering all
agreements, certificates, receipts, instructions and other instruments
contemplated by or deemed advisable in connection with this Agreement.
This power of attorney, and all authority hereby conferred, is granted subject
to the interests of the other Shareholders and the Buyer hereunder and in
consideration of the mutual covenants and agreements made herein, and shall be
irrevocable and shall not be terminated by any act of any Shareholder or by
operation of law, whether by the death or incapacity of any Shareholder or by
the occurrence of any other event. Each Shareholder agrees, jointly and
severally, to indemnify, defend and hold harmless the Shareholders' Agent from
any and all loss, damage or liability which they, or any one of them, may
sustain as a result of any action taken in good faith hereunder.
12.8 Tax-free Exchange for Seller
Buyer and Seller agree that in the event there is a challenge to the
tax free nature of the stock-for-asset exchange contemplated by this Agreement,
each will reasonably cooperate with each other, and third parties, to furnish
all relevant information. Buyer and MAI shall each pay their own costs and
expenses in such matters. Shareholders and MAI acknowledge that Buyer makes no
representation or warranty regarding the tax consequences of this transaction.
ARTICLE 13
INDEMNIFICATION
13.1 Indemnification
(a) From and after the Closing Date, Shareholders and MAI,
jointly and severally shall indemnify and hold harmless Buyer and each of its
Affiliates from and against any and all Losses which any of them may suffer,
incur or sustain arising out of or attributable to (whether or not arising out
of third party claims) (i) any breach of any covenant, representation or
warranty made by Sellers pursuant to this Agreement, and (ii) any claim or
liability (other than payment of benefits in the ordinary course), tax, penalty
asserted, legal action or administrative proceeding resulting from or arising in
connection with any Plan or Single Employer Plan that was accrued or incurred
prior to the Closing Date.
(b) From and after the Closing Date, Buyer shall indemnify and
hold harmless Sellers from and against any and all Losses which any of them may
suffer, incur or sustain arising out of any breach of any covenant to be
performed by Buyer pursuant to this Agreement.
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(c) From and after the Closing Date, MAI and Sellers shall
indemnify and hold Buyer and its affiliates harmless against, and agree to pay,
any and all expenses, costs or losses relating to the operation of MAI prior to
Closing, except as set forth on Schedule 13.1.
(d) If any third party makes a claim for which an indemnifying
party under this Section ("Indemnified Party") seeks indemnity from the
indemnifying party ("Indemnitor"), the Indemnified Party shall as soon as
practicable notify Indemnitor of the details of the claim ("Claim Notice").
After receiving a Claim Notice, Indemnitor may elect, by
written notice to the Indemnified Party, to assume the defense of such claim by
using counsel selected by Indemnitor, acting reasonably. If Indemnitor assumes
such defense and admits that the claim is subject to the Indemnitor's indemnity
obligations, then (i) the claim shall be deemed to be a claim indemnified by the
Indemnitor; (ii) the Indemnified Party may, at its election, participate in the
defense of the claim, but Indemnitor will have no obligation to pay for any
defense costs including attorneys' fees of the Indemnified Party after
Indemnitor assumes the defense of the claim; and (iii) Indemnitor will have the
right, without cost to Indemnified Party, to compromise and settle the claim on
any basis believed reasonable, in good faith, by Indemnitor, and Indemnified
Party shall be bound thereby, provided that Indemnitor can reasonably
demonstrate the financial resources to perform under the terms of the proposed
Settlement.
After receiving a Claim Notice, if Indemnitor either does not
assume the defense thereof, or does so under a reservation of rights without
admitting that the claim is subject to the Indemnitor's indemnity obligations,
then: (i) the claim shall not be deemed to be a claim indemnified by the
Indemnitor and neither party shall have waived any rights to assert that the
claim is or is not properly a claim subject to the Indemnitor's indemnity
obligations; (ii) both Indemnitor and Indemnified Party may, at their individual
election, participate in the defense of such claim but Indemnitor will remain
responsible for the costs of defense, including reasonable attorneys' fees of
the Indemnified Party should the claim ultimately be determine to be subject to
Indemnitor's indemnity obligation; and (iii) the Indemnified Party shall have
the right to compromise and settle the claim on any basis believed reasonable,
in good faith, by the Indemnified Party, and the Indemnitor will be bound
thereby should the claim ultimately be determined to be subject to Indemnitor's
indemnity obligation.
(e) Notwithstanding anything to the contrary anywhere in this
Agreement, (i) MAI and Shareholders' maximum aggregate liability arising out of
this Agreement and the Acquisition shall be the Purchase Price except for claims
based on intentional fraud of MAI and/or the Shareholders; (ii) MAI and
Shareholders shall have no liability for any claim which is not presented to
them in writing within three years following the Effective Date; (iii) MAI and
Shareholders shall be jointly and severally liable for all indemnification
relating to claims presented in writing within three years following the
Effective Date. The notice of a potential claim shall state the general factual
basis, to the extent known, and the basis of alleged liability.
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ARTICLE 14
POST-CLOSING COVENANTS
14.1 Personnel Matters
After the Closing Date, except for the Executives, each employee of MAI
will continue to be employed by Buyer on terms that are comparable to the
employment terms, compensation and benefits provided by MAI immediately prior to
the Closing.
14.2 Shareholder Cooperation
Shareholders shall encourage MAI employees to accept employment with
Buyer.
14.3 Board of Directors
Buyer shall exercise its reasonable best efforts to cause the election
of Thomas LaPorte to Buyer's Board of Directors, provided, that Thomas LaPorte
and/or his Family and Affiliates shall continue to own at least five percent
(5%) of Buyer's outstanding shares of stock.
14.4 Guaranties
Within forty-five (45) days following the Closing Date, Buyer shall
exercise its best efforts to cause the release of all personal guaranties and
personal collateral provided by any of the Shareholders with respect to loans by
third parties to MAI.
14.5 Auto Business; Right of First Refusal
As of the Closing Date, the Auto Business shall be completely separated
from the Business and shall be conducted by Affiliates of MAI with a corporate
entity, corporate facilities, equipment and personnel entirely separate from MAI
and the Business. Notwithstanding the foregoing, Thomas LaPorte shall be
permitted to spend a reasonable amount of time working in the Auto Business,
provided, that such work does not interfere with his duties to the Business as
set forth in his Employment Agreement with Buyer. After the Closing and upon
Buyer's review of a business plan developed by the Auto Business, Buyer shall
consider the possibility of strategic alliances with the Auto Business. Buyer
shall have a right of first refusal to purchase the Auto Business in the event
of any direct or indirect sale of the Auto Business, its assets or the stock or
other equity interest of the entity which owns and operates the Auto Business.
Pursuant to this Right of First Refusal, MAI or its successor shall give Buyer
thirty (30) days advance written notice of any proposed sale of the Auto
Business, including sale of stock or equity of the Auto business, which notice
shall include the
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proposed sale price, terms and proposed purchaser. The Buyer shall have
reasonable opportunity to conduct due diligence regarding the condition of
business at the time and Buyer shall have thirty (30) days to decide whether or
not to purchase the business or the equity interest in the venture.
ARTICLE 15
AMENDMENTS
15.1 Amendment, Extension and Waiver
Subject to applicable law, at any time prior to the consummation of the
transactions contemplated by this Agreement, Sellers and Buyer may (a) amend
this Agreement, (b) extend the time for the performance of any of the
obligations or other acts of any other party hereto, (c) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto, or (d) waive compliance with any of the agreements or
conditions contained in this Agreement. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto. Any
agreement on the part of a party hereto to any extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party, but such waiver or failure to insist on strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
ARTICLE 16
MISCELLANEOUS
16.1 Survival
The entire Agreement, including without limitation the representations
and warranties set forth herein, shall survive the Closing.
16.2 Expenses
Each party hereto shall bear and pay all costs and expenses incurred by
it in connection with the transactions contemplated hereby, including fees and
expenses of its own financial consultants, accountants and counsel.
16.3 Entire Agreement
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This Agreement, including the documents, schedules and other writings
referred to herein or delivered pursuant hereto, contains the entire agreement
and understanding of the parties with respect to its subject matter, including,
without limitation, the letter of intent. This Agreement supersedes all prior
arrangements and understandings between the parties, both written or oral with
respect to its subject matter.
16.4 Parties in Interest
The Agreement shall be binding upon and shall inure to the benefit of
upon the parties hereto and their respective successors and assigns; provided,
however, that nothing in this Agreement, expressed or implied, is intended to
confer upon any other person or entity, any rights, remedies, obligations or
liabilities of any nature whatsoever under or by reason of this Agreement.
16.5 Assignment
No party hereto may assign any of its rights or obligations hereunder
to any other person, without the prior written consent of the other parties
provided, however, Buyer may assign its rights and obligations hereunder to any
one or more of its Affiliates (whether existing on the date hereof or hereafter
created). This provision shall not prohibit MAI's assignment of rights under
this Agreement to Shareholders pursuant to Shareholders' Plan of Liquidation and
any other assignment among Shareholders specifically authorized hereunder.
Moreover, Shareholders may pledge their rights under this Agreement to a
financial institution pursuant to a bona fide loan transaction provided that any
such assignment is expressly subject to Buyer's right of setoff under this
Agreement.
16.6 Setoff
The Buyer shall have the right to setoff against the Purchase Price
(including the Contingent Payment) and the Exchange Shares (including Exchange
Shares after they have been transferred by MAI to Shareholders as part of MAI's
liquidation) for any damages for any breach of Shareholders' or MAI's
representations, warranties or covenants. This shall not limit any of Buyer's
other remedies under this Agreement, at law or in equity.
16.7 Notices
All notices or other communications hereunder shall be in writing and
shall be deemed given if delivered personally or mailed by prepaid registered or
certified mail (return receipt requested), or by overnight courier, cable,
telegram or telex addressed as follows:
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(a) If to Seller to:
Mr. Thomas LaPorte
Mortgage America, Inc.
305 5th Street, Suite 200
Bay City, MI 48708
Facsimile: (517) 894-8010
Copy to:
John W. Wolf, Esq.
Joseph, Wolf, Endean & Stable, PC
3875 Fortune Blvd.
Saginaw, MI 48603
Facsimile:
and
John E. Jacobs, Esq.
Mason, Steinhardt, Jacobs & Perlman
4000 Town Center
Suite 1500
Southfield, MI 48075
Facsimile: (810) 358-2090
(b) If to Buyer to:
Mr. George Nicholas
Industry Mortgage Company
3450 West Busch Blvd., Suite 250
Tampa, FL 33618
Facsimile: (813) 935-0227
Copy to:
Mitchell W. Legler, Esquire
Mitchell W. Legler, P.A.
One Independent Drive, Suite 3104
Jacksonville, FL 32202
Facsimile: (904) 791-9333
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16.8 Captions
The table of contents and captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
16.9 Counterparts
This Agreement may be executed in any number of counterparts, and each
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one Agreement.
16.10 Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of Florida, without giving effect to the principles of
conflict of laws thereof.
16.11 No Third Party Beneficiaries
There are no third party beneficiaries and no third party shall have
any rights or remedies under this Agreement.
IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement as of
the day and year first above written.
MORTGAGE AMERICA, INC.
By: /s/ George Nicholas
------------------------
George Nicholas
Title: Chairman
---------------------
IMC MORTGAGE COMPANY
By: /s/ Thomas LaPorte
------------------------
Thomas LaPorte
Title: CEO
---------------------
/s/ THOMAS LAPORTE
---------------------------
THOMAS LAPORTE
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/s/ MARY M. REID
---------------------------
MARY M. REID
/s/ JON LAPORTE
---------------------------
JON LAPORTE
/s/ STEVEN BARTUS
---------------------------
STEVEN BARTUS
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FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT
AND PLAN OF REORGANIZATION
THIS AGREEMENT, dated as of December 30, 1996, is made by and between IMC
Mortgage Company, a Florida corporation ("Buyer"), Mortgage America, Inc., a
Michigan Corporation ("MAI"), and Thomas P. LaPorte, Mary M. Reid, Jon LaPorte,
and Steven Bartus (individually "Shareholder" and together, jointly and
severally, the "Shareholders") and Thomas LaPorte as agent for Shareholders
("Shareholders' Agent").
FACTUAL BACKGROUND
A. The parties have entered into an Asset Purchase Agreement and Plan of
Reorganization dated as of December 14, 1996 (the "Purchase Agreement"),
pursuant to which Buyer will purchase all of the Business and substantially all
the assets of MAI.
B. The parties wish to modify the Purchase Agreement (i) to modify a
provision initially drafted in order to ensure that the transaction complied
with a technical NASDAQ rule regarding Shareholder approval, and (ii) to modify
the Purchase Price to take into consideration certain outstanding options issued
by MAI which will be assumed by Buyer.
AGREEMENT
In consideration of the mutual agreements contained herein, and for good
and valuable consideration, the parties hereto agree that the Purchase Agreement
is incorporated herein by this reference and amended and supplemented as set
forth hereinafter, effective as of the date hereof:
ARTICLE 1
Definitions
Section 1.1 Unless otherwise defined herein, the terms used in this
Agreement shall have the meaning ascribed to them in the Purchase Agreement.
<PAGE>
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ARTICLE 2
Contingent Payment/NASDAQ Rules
Section 2.1 Deletion of present provision. The following sentence contained
at the end of Section 3.5(e) (at page 16) of the Purchase Agreement is hereby
deleted in its entirety:
Moreover, in the event the Contingent Payment, combined with the Base
Payment and Matched Payment exceed the maximum amount of shares permitted
to be issued under NASDAQ rules without the approval of Buyer's
shareholders (in the opinion of Buyer's counsel), then Buyer shall pay the
maximum number of Exchange Shares permitted to be paid under NASDAQ rules
with the balance paid in cash.
Section 2.2 Substitute Sentence. The following sentence is hereby added to
the end of Section 3.5(e) (at page 16) of the Purchase Agreement:
Buyer covenants that it shall issue such additional common stock to
third parties (including stock issued pursuant to secondary offerings,
through acquisitions, private placements or otherwise) prior to the time of
the Contingent Payment hereunder, as may be necessary so that the amount of
the Contingent Payment, combined with the Base Payment and Matched Payment
will not exceed the maximum amount of shares permitted to be issued under
NASDAQ rules without the approval of the Buyer's shareholders.
ARTICLE 3
Purchase Price
Section 3.1 Assumption of Options. MAI has issued and outstanding options
to purchase 5,097 shares of MAI's common stock pursuant to the Mortgage America,
Inc. Stock Option Plan dated December 30 , 1996 (the "MAI Option Plan") which,
upon consummation of the Acquisition, will represent options to acquire 167,295
shares of Buyer's Common Stock. Buyer agrees to assume MAI's obligations under
such options and to treat the stock options issued by MAI as an option to
acquire Common Stock on the terms set forth in the MAI Option Plan.
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Section 3.2 Purchase Price Adjustment. In view of Buyer's agreement to
assume MAI's obligations under the MAI Option Plan, Buyer, MAI and the
Shareholders agree that the number of Exchange Shares issued for the Purchase
Price will be reduced by 79,465 Exchange Shares so that the Base Payment will be
895,535 Exchange Shares instead of 975,000 Exchange Shares as contemplated by
Section 3.4 of the Purchase Agreement.
ARTICLE 4
Miscellaneous
Section 4.1 Affirmation. Except to the extent modified herein, all
provisions of the Purchase Agreement shall remain in full force and effect.
Section 4.2 Counterparts. This Agreement may be executed by the parties in
separate counterparts, no one of which needs to be executed by all parties. This
Agreement shall be effective when executed and delivered by all parties. The
Agreement may be delivered by telecopier, with an original to follow by U.S.
Mail.
Section 4.3 Continuation of Prior Agreement. It is the intention of the
parties hereto that the Purchase Agreement previously executed by and between
the parties shall remain in full force and effect except to the extent
inconsistent with this Agreement.
EXECUTED as of the day and year first above written.
MORTGAGE AMERICA, INC.
By: [signature]
--------------------
Its: Chairman
2A
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IMC MORTGAGE COMPANY
By: /s/ George Nicholas
--------------------
Its: CEO
/s/ THOMAS P. LaPORTE
--------------------
Thomas P. LaPorte
/s/ MARY M. REID
--------------------
Mary M. Reid
/s/ JON LaPORTE
--------------------
Jon LaPorte
/s/ STEVEN BARTUS
--------------------
Steven Bartus
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EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of this 1st day of
January, 1997, by and between IMC MORTGAGE COMPANY, a Florida corporation (the
"Company"), and the persons signing below as shareholders (individually
"Shareholder" and collectively the "Shareholders") of MORTGAGE AMERICA, INC., a
Michigan corporation ("MAI").
RECITALS
WHEREAS, the Company, MAI and the Shareholders are parties to an Asset
Purchase Agreement and Plan of Reorganization dated December 14, 1996 (the
"Asset Purchase Agreement"), by which the Company has purchased substantially
all the assets and business of MAI and MAI is receiving fully paid,
nonassessable shares of common stock, $.01 par, of the Company (the "Common
Stock") which will be distributed to the Shareholders as part of the liquidation
of MAI.
WHEREAS, as an inducement to the Shareholders, MAI and the Company to
enter into the Asset Purchase Agreement, the Shareholders and the Company hereby
agree that this Agreement shall govern the rights of the Shareholders to
register shares of Common Stock issuable to the Shareholders in accordance with
the Asset Purchase Agreement.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Definitions.
(a) The term "Abbreviated Registration Statement" means a
registration statement on Form S-3 or any similar or successor form in which
financial statements and other detailed information about the issuer are
incorporated by reference from the issuer's periodic reports filed under
Securities Exchange Act of 1934.
(b) The term "Act" means the Securities Act of 1933, as amended,
or any successor legislation thereto.
(c) The terms "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement
or similar document in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or document;
(d) The term "Registrable Securities" means the Common Stock
issuable or issued to a Shareholder pursuant to the terms of the Asset Purchase
Agreement.
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2. Piggyback Registration.
2.1 Right to Include Registrable Stock. If the Company at any time
proposes to register any of its shares of Common Stock under the Act for its own
account for sale for cash (other than a registration on Form S-4 or Form S-8, or
any successor or similar forms) (the "Offering"), it will each such time
promptly give written notice thereof to the Shareholders. Upon the written
request of any Shareholder (the "Requesting Shareholders") made within 15 days
after the receipt of any such notice (which request shall specify the
Registrable Securities intended to be disposed of by such Shareholders and the
intended method of distribution thereof), the Company will use its reasonable
good faith efforts to effect the registration under the Act of all Registrable
Securities which the Company has been so requested to register by the Requesting
Shareholders to the extent requisite to permit the disposition of the
Registrable Securities so to be registered in accordance with the intended
methods of distribution thereof specified in such request; provided that (i) if,
at any time after giving written notice of its intention to register any
securities and prior to the effective date of the registration statement filed
in connection with such registration, the Company shall determine for any bona
fide good faith business reason not to register such securities, the Company
may, at its election, give written notice of such determination to the
Requesting Shareholders and, thereupon, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration, and
(ii) in case of a determination by the Company to delay registration of its
securities, the Company shall be permitted to delay the registration of
Registrable Securities for the same period as the delay in registering such
other securities.
2.2 Priority in Piggyback Registrations. If the managing
underwriter for a piggyback registration involving an underwritten Offering
shall advise the Company in writing that, in its opinion, the number of
securities of the Company (including Registrable Securities) requested to be
included in such registration by the holders thereof exceeds the number of
securities of the Company (the "Sale Number") which can be sold in an orderly
manner in such offering within a price range acceptable to the Company, the
Company shall, subject to the requirements of the following sentence, include
(i) first, all securities of the Company that the Company proposes to register
for its own account; (ii) second, to the extent that the number of securities of
the Company to be included by the Company is less than the Sale Number, all
Registrable Securities requested to be included by the Shareholders; and (iii)
third, all other securities of the Company requested to be included by the
holders thereof, pro rata based on the relative numbers of securities requested
to be included by each.
2.3 Demand Registrations/Portion of Base Payment. The Company has
agreed to register the sale, in the aggregate, of such Registrable Securities as
the Shareholders shall request on or before September 30, 1997, not to exceed
the lesser of (i) fifteen percent (15%) of the total Registrable Securities held
by the Shareholders at such time, or (ii) $7.5 million in value of Common Shares
(calculated at the closing price on NASDAQ for the last trading day preceding
the filing by the Company of a registration statement relating to the
Registrable Securities sought to be registered by the Shareholders).
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2.4. Demand Registration/Portion of Contingent Payment. The
Company has agreed to register the sale, in the aggregate, up to 50% of the
Registrable Securities received by Shareholder as the Contingent Payment upon
request of the Shareholder.
3. Obligations of the Company. Whenever required under this Agreement to effect
the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such of the Registrable Securities as are set forth in the request,
use its reasonable good faith efforts to cause such registration statement to
become effective and use its reasonable good faith efforts to keep such
registration statement effective for up to one year (nine months in the case of
a registration statement that is not an Abbreviated Registration Statement) but
not after such securities cease being Registrable Securities.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Requesting Shareholders such numbers of copies
of a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by such
Shareholders.
(d) Use its best reasonable efforts to register or qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions within the United States as shall be
reasonably requested by the Requesting Shareholders, provided that the Company
shall not be required in connection therewith or as a condition thereto to
qualify to do business, subject itself to taxation or to file a general consent
to service of process in any such states or jurisdictions.
(e) In the event the registration statement is used in an
underwritten public offering, enter into and perform its obligations under an
underwriting agreement, in usual and customary form, with the managing
underwriter of such offering, provided that the Requesting Shareholders also
have entered into and performed their obligations under such an agreement.
(f) Notify the Requesting Shareholders, at any time when a
prospectus relating thereto is required to be delivered under the Act, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
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4. Furnish Information. The Company's obligation to cause any registration
statement to become effective in connection with distribution of any Registrable
Securities pursuant to this Agreement shall be contingent upon each of the
Shareholders, with reasonable promptness, furnishing to the Company such
information regarding such Shareholder, the Registrable Securities held by such
Shareholder, and the intended method of disposition of such securities, as shall
be required to effect the registration of the Registrable Securities.
5. Indemnification. In the event of any registration under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless the Requesting Shareholders, any underwriter (as defined in the
Act) for such Shareholders and each person, if any, who controls such
Shareholders or underwriter within the meaning of the Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Act, or the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, or the 1934 Act or any state
securities law, and the Company will pay to the Requesting Shareholders,
underwriter or controlling person, as incurred, any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 5(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon (1) a Violation which occurs in reliance upon and
in conformity with written information furnished expressly for use in connection
with such registration by the Requesting Shareholders, underwriter or
controlling person or (2) a Violation which results from the fact that there was
not sent or given to a person who bought Registrable Stock, at or prior to the
written confirmation of the sale, a copy of the final prospectus, as then
amended or supplemented, if the Company had previously furnished copies of such
prospectus hereunder and such prospectus corrected the misstatement or omission
forming the basis of the Violation.
(b) To the extent permitted by law, the Requesting Shareholders
will indemnify and hold harmless, to the extent of the proceeds received by such
Shareholders, the Company, each of its directors, each of its officers who has
signed the registration statement, each person, if any, who controls the Company
within the meaning of the Act, any underwriter, any other
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shareholder of the Company selling securities in such registration statement and
any controlling person of any such underwriter or other shareholder, against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Act, or the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or action in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by the
Requesting Shareholders expressly for use in connection with such registration;
and such Shareholders will pay, as incurred, any legal or other expenses
reasonably incurred by any person intended to be indemnified pursuant to this
subsection 5(b), in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 5(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Requesting Shareholders, which
consent shall not be unreasonably withheld; provided further, that in no event
shall any indemnity under this subsection 5(b) exceed the gross proceeds from
the Offering (excluding underwriting discounts and commissions) received by the
Requesting Shareholders.
(c) If any third party makes a claim for which an indemnifying
party under this Section 5 ("Indemnified Party") seeks indemnity from the
indemnifying party ("Indemnitor"), the Indemnified Party shall as soon as
practicable notify Indemnitor of the details of the claim ("Claim Notice").
After receiving a Claim Notice, Indemnitor may elect, by written
notice to the Indemnified party, to assume the defense of such claim by using
counsel selected by Indemnitor, acting reasonably. If Indemnitor assumes such
defense and admits that the claim is subject to the Indemnitor's indemnity
obligations, then (i) the claim shall be deemed to be a claim indemnified by the
Indemnitor; (ii) the Indemnified Party may, at its election, participate in the
defense of the claim, but Indemnitor will have no obligation to pay for any
defense costs including attorneys' fees of the Indemnified Party after
Indemnitor assumes the defense of the claim; and (iii) Indemnitor will have the
right, without cost to Indemnified Party, to compromise and settle the claim on
any basis believed reasonable, in good faith, by Indemnitor, and Indemnified
Party shall be bound thereby, provided that Indemnitor can reasonably
demonstrate the financial resources to perform under the terms of the proposed
Settlement.
After receiving a Claim Notice, if Indemnitor either does not
assume the defense thereof, or does so under a reservation of rights without
admitting that the claim is subject to the Indemnitor's indemnity obligations,
then: (i) the claim shall not be deemed to be a claim indemnified by the
Indemnitor and neither party shall have waived any rights to assert that the
claim is or is not properly a claim subject to the Indemnitor's indemnity
obligations; (ii) both Indemnitor and Indemnified Party may, at their individual
election, participate in the defense of such claim but Indemnitor will remain
responsible for the costs of defense, including reasonable attorneys' fees of
the Indemnified Party should the claim ultimately be determined to be subject to
Indemnitor's indemnity obligation; and (iii) the Indemnified Party shall have
the right to
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compromise and settle the claim on any basis believed reasonable, in good faith,
by the Indemnified Party, and the Indemnitor will be bound thereby should the
claim ultimately be determined to be subject to Indemnitor's indemnity
obligation.
(d) If the indemnification provided for in this Section 5 is held
by a court of competent jurisdiction to be unavailable to an Indemnified Party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the Indemnitor, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnitor on
the one hand and of the Indemnified Party on the other in connection with the
statements or omissions that resulted in such loss, liability, claim, damage,
or expense as well as any other relevant equitable considerations. The relative
fault of the Indemnitor and of the Indemnified Party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the Indemnitor or by the Indemnified Party and the
parties' relative intent, knowledge, access to information, and opportunity to
correct or prevent such statement or omission.
(e) The obligations of the Company and the Requesting Shareholders
under this Section 5 shall survive the completion of any offering of Registrable
Securities in a registration statement under this agreement, and otherwise.
6. Expenses of Registration. All expenses incurred in connection with any
registration, qualification or compliance pursuant to this Agreement, including,
without limitation, all registration, filing and qualification fees, printing
expenses, fees and disbursements of counsel for the Company and expenses of any
special audits incidental to or required by such registration, qualification or
compliance shall be borne by the Company, except that the Company shall not be
required to pay underwriters' discounts, commissions, or stock transfer taxes
relating to the Registrable Securities or the fees and disbursements of counsel
to the Shareholders.
7. Holdback Agreement. If requested by the Company, the Shareholders agree not
to effect any public sale or distribution, including any sale pursuant to Rule
144 under the Act, of any Registrable Securities (in each case, other than as
part of the offering to which such registration statement relates) within 7 days
before or for such time after the effective date of a registration statement
filed pursuant to this Agreement for an underwritten offering as is reasonably
required by the Underwriter in connection with the Offering.
8. Miscellaneous.
8.1 Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties; provided that the Shareholders may not assign its rights
under this Agreement without the consent of the Company. Nothing in this
Agreement, express or implied, is intended to confer upon any party
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other than the parties hereto any rights, remedies, obligations, or liabilities
under or by reason of this Agreement.
8.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Florida.
8.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.4 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
8.5 Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given (i) upon personal delivery to the party to be notified, (ii) on the
seventh business day after deposit with the United States Post Office, by
registered or certified mail, postage prepaid, (iii) on the next business day
after dispatch via nationally recognized overnight courier or (iv) upon
confirmation of transmission by facsimile, all addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties. Notices should be provided in accordance
with this Section at the following addresses:
If to the Shareholders to:
Mr. Thomas LaPorte
Mortgage America, Inc.
305 5th Street, Suite 200
Bay City, MI 48708
Facsimile: (810) 358-3599
with a copy to:
John W. Wolf, Esquire
Joseph, Wolf, Endean & Stable, PC
3875 Fortune Boulevard
Saginaw, MI 48603
Facsimile: (___) ________
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If to the Company, to:
Mr. George Nicholas, Chairman
IMC Mortgage Company
c/o Industry Mortgage Corp.
3450 West Busch Boulevard, Suite 250
Tampa, FL 33618
Facsimile: (813) 935-0227
with a copy to:
Mitchell W. Legler, Esquire
Mitchell W. Legler, P.A.
One Independent Drive, Suite 3104
Jacksonville, FL 32202
Facsimile: (904) 791-9333
9.8 Expenses. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the prevailing party shall be entitled
to reasonable attorneys' fees, costs and necessary disbursements in addition to
any other relief to which such party may be entitled.
9.9 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company.
9.10 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
9.11 Entire Agreement; Amendment; Waiver. This Agreement constitutes the
full and entire understanding and agreement between the parties with regard to
the subjects hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
IMC MORTGAGE COMPANY
By:__________________________________________ __________________________________
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its President THOMAS LaPORTE
Address:
3450 West Busch Boulevard, Suite 250 __________________________________
Tampa, FL 33618 MARY M. REID
Fax: (813) 935-0227
"COMPANY"
__________________________________
JON LaPORTE
__________________________________
STEVEN BARTUS
"SHAREHOLDERS"
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AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
IMC MORTGAGE COMPANY
CWB ACQUISITIONS, INC.
COREWEST BANC
AND
THE SHAREHOLDERS OF
COREWEST BANC
AS OF JANUARY 1, 1997
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TABLE OF CONTENTS
Page
FACTUAL BACKGROUND
ARTICLE 1
CERTAIN DEFINITIONS
ARTICLE 2
MERGER OF SUBSIDIARY INTO COREWEST
2.1 Incorporation of Agreement of Merger........................... 8
ARTICLE 3
BUYER'S COMMON STOCK TO BE ISSUED TO SHAREHOLDERS
3.1 Shares to be Issued............................................ 8
3.2 Base Payment................................................... 9
3.3 Contingent Payment............................................. 9
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF COREWEST AND SHAREHOLDERS
4.1 Organization................................................... 21
4.2 Capitalization of the Company.................................. 21
4.3 Shareholders................................................... 21
4.4 Subsidiaries of CoreWest....................................... 22
4.5 Authority; No Violation........................................ 22
4.6 Consents and Approvals......................................... 23
4.7 Financial Statements........................................... 23
4.8 Undisclosed Liabilities........................................ 23
4.9 No Material Adverse Change..................................... 24
4.10 Legal Proceedings.............................................. 24
4.11 Material Contracts............................................. 24
4.12 Taxes.......................................................... 25
4.13 ERISA.......................................................... 26
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4.14 Ownership of Property.......................................... 27
4.15 Environmental Protection....................................... 28
4.16 Brokers and Finders............................................ 28
4.17 Insurance...................................................... 28
4.18 Mortgage Banking Licenses and Qualifications................... 29
4.19 Loan Portfolio................................................. 29
4.20 Enforceability................................................. 29
4.21 Title to Certain Mortgage Loans................................ 30
4.22 No Recourse.................................................... 30
4.23 Mortgage Servicing Agreements.................................. 30
4.24 Compliance..................................................... 31
4.25 Investment Commitments......................................... 31
4.26 Custodial Accounts............................................. 32
4.27 Accounts Receivable............................................ 32
4.28 Data Processing................................................ 32
4.29 Inquiries...................................................... 32
4.30 CoreWest's Representations with Respect to Mortgage Loans...... 32
4.31 Advances....................................................... 32
4.32 Pools.......................................................... 33
4.33 Commercial Mortgages........................................... 33
4.34 No Tax-Sharing Agreements...................................... 33
4.35 No Intercompany Accounts....................................... 33
4.36 CoreWest Employees............................................. 33
4.37 Conduct Prior to Closing....................................... 33
4.38 Officers and Directors......................................... 35
4.39 Shareholder's Investment Intention/Restricted Securities....... 35
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
5.1 Organization................................................... 37
5.2 Authority; No Violation........................................ 37
5.3 Brokers and Finders............................................ 38
5.4 Exchange Shares................................................ 38
5.5 Litigation..................................................... 38
5.6 Securities Filings............................................. 38
ARTICLE 6
COVENANTS
6.1 Filings and Consents........................................... 39
6.2 Press Releases................................................. 39
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6.3 Employment Agreements.......................................... 39
6.4 Marketing of Competing Products................................ 40
6.5 Consent to CoreWest Preclosing Dividend........................ 40
6.6 HSR Act Filing................................................. 40
ARTICLE 7
FURTHER COVENANTS OF COREWEST AND SHAREHOLDERS
7.1 Access to Information and Records.............................. 40
7.2 Bank Accounts.................................................. 41
7.3 Conduct of Business Pending the Closing........................ 41
7.4 Cooperation with Buyer's Accountants........................... 42
7.5 General Releases............................................... 42
7.6 Consents....................................................... 43
7.7 Other Action................................................... 43
7.8 Disclosure..................................................... 43
ARTICLE 8
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
8.1 Representations and Warranties True on the Closing Date........ 43
8.2 Compliance With Agreement...................................... 44
8.3 Absence of Litigation.......................................... 44
8.4 Consents and Approvals......................................... 44
8.5 Hart-Scott-Rodino Waiting Period............................... 44
8.6 No Material Adverse Change in CoreWest......................... 44
ARTICLE 9
CONDITIONS PRECEDENT TO COREWEST'S AND
SHAREHOLDER'S OBLIGATIONS
9.1 Representations and Warranties True on the Closing Date........ 45
9.2 Compliance With Agreement...................................... 45
9.3 Absence of Litigation.......................................... 45
9.4 Hart-Scott-Rodino Waiting Period............................... 45
9.5 Tax Opinion of Buyer's Counsel................................. 45
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ARTICLE 10
CLOSING
10.1 Documents to be Delivered by CoreWest and Shareholders......... 46
10.2 Documents to be Delivered by Buyer............................. 47
ARTICLE 11
TERMINATION
11.1 Right of Termination Without Breach............................ 48
11.2 Termination for Breach......................................... 48
ARTICLE 12
INDEMNIFICATION
12.1 Indemnification................................................ 49
ARTICLE 13
POST-CLOSING COVENANTS
13.1 Shareholder Cooperation........................................ 53
ARTICLE 14
AMENDMENTS
14.1 Amendment, Extension and Waiver................................ 53
ARTICLE 15
MISCELLANEOUS
15.1 Survival....................................................... 53
15.2 Expenses....................................................... 53
15.3 Entire Agreement............................................... 54
15.4 Parties in Interest............................................ 54
15.5 Assignment..................................................... 54
15.6 Setoff......................................................... 54
15.7 Notices........................................................ 55
15.8 Captions....................................................... 57
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15.9 Counterparts................................................... 57
15.10 Governing Law.................................................. 57
15.11 No Third Party Beneficiaries................................... 58
15.12 Further Assurances/Merger...................................... 58
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), dated as of
January 1, 1997, is made by and between IMC MORTGAGE COMPANY, a Florida
corporation ("Buyer"), CWB ACQUISITIONS, INC., a California corporation, a
wholly-owned subsidiary of Buyer ("Subsidiary"), COREWEST BANC, a California
corporation ("CoreWest"), and RONALD E. STAAKE, TIMOTHY C. HAYES, MARK A.
BISHOP, BRIAN M. LEVINE, NORMAND STEEG, JON MADDOX and STEVEN CURRY,
individually "Shareholder" and together, jointly and severally, the
"Shareholders") and RONALD E. STAAKE, as agent for the Shareholders (the
"Shareholder Agent").
FACTUAL BACKGROUND
A. CoreWest is engaged in the mortgage banking business, including the
origination, servicing and brokerage of conforming and non-conforming mortgage
loans (the "Business").
B. Shareholders own all of the issued and outstanding shares (the "Shares")
of capital stock of CoreWest.
C. Pursuant to the Merger (as defined below), Buyer desires to acquire the
Shares from Shareholders and Shareholders desire to transfer the Shares to Buyer
in exchange for certain shares of Buyer, upon the terms and conditions herein
set forth ("Acquisition").
D. Shareholders wish to designate Ronald E. Staake as their agent and
attorney-in-fact with the authority to act on their behalf in connection with
the sale of the Shares to Buyer.
Plan of Reorganization
E. This Plan of Reorganization shall be a reorganization within the meaning
of Section 368(a)(1)(A) by operation of Section 368(a)(2)(E) of the Internal
Revenue Code of 1986, as amended. Subsidiary shall merge into CoreWest pursuant
to an Agreement of Merger, whereby the separate corporate existence of
Subsidiary shall cease, and Shareholders shall receive stock of Buyer (the
"Merger").
Agreement
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, agreements, representations and warranties herein contained, and
intending to be legally bound, the Buyer, Subsidiary and CoreWest approve and
adopt this Agreement and Plan of Merger and the parties hereto do hereby agree
with each other as follows:
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ARTICLE 1
CERTAIN DEFINITIONS
For the purpose of this Agreement, except as otherwise expressly provided
or unless the context otherwise requires, (i) the terms defined in this Article
have the meanings assigned to them in this Article and include the plural as
well as the singular and (ii) all accounting terms not otherwise defined herein
have the meanings assigned under GAAP.
Acquisition -- As defined in the Factual Background.
Affiliate -- With respect to any Person, any Person directly or indirectly
controlling, controlled by, or under common control with such other Person. For
purposes of this definition, "control" (including with correlative meaning, the
terms "controlled by" and "under common control with,") as used with respect to
any Person, means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through ownership of voting securities, by contract or otherwise.
Affiliated Group -- Any affiliated group within the meaning of Code Section
1504 or any similar group defined under a similar provision of state, local or
foreign law, including any consolidated, unitary or combined group of companies.
Agency -- FHA, VA, GNMA, FNMA, FHLMC or a State Agency, as applicable.
Agreed Plan -- The business plan for the Post-Closing CoreWest Business
Unit (including an operating and capital budget) proposed by Ronald Staake and
Timothy Hayes on behalf of the Shareholders and approved by Buyer prior to
closing. The Agreed Plan shall include projections of (i) the balance sheet of
the Post-Closing CoreWest Business Unit at the end of 1997 and 1998, (ii)
statements of income and expense of each such fiscal year, (iii) statement of
cash flow for each such fiscal year, (iv) a budget of capital expenditures to be
incurred by the Post-Closing CoreWest Business Unit for each such fiscal year.
The business plan shall include management's intentions with regard to
significant business developments and objectives of the Post-Closing CoreWest
Business Unit. The Agreed Plan shall be modified, from time to time thereafter
by mutual written agreement of Timothy Hayes, Ronald Staake and Buyer, in which
event the business plan as modified shall thereafter serve as the Agreed Plan.
Agreement -- As defined in the Introduction.
Agreement of Merger -- The Plan and Agreement of Merger by and between the
Subsidiary and CoreWest.
Adjusted Agreed Plan -- As defined in Section 3.3(h).
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Ancillary Agreements -- The (i) Registration Rights Agreement by and
between Buyer and the Shareholders, (ii) Employment Agreements; and (iii) the
Agreement of Merger.
Audited Financial Statements -- As defined in Section 4.7.
Base Payment -- Delivery by Buyer to CoreWest of certain Exchange Shares
pursuant to Section 3.2 as part of the Purchase Price.
Business -- As defined in the Factual Background, and includes CoreWest's
Conforming Mortgage Business and Non-Conforming Mortgage Business.
Business Days -- Any day on which the New York Stock Exchange is open for
trading.
Buyer -- As defined in the Introduction.
Buyer Schedule -- The disclosure schedule delivered by Buyer to Sellers in
connection with the Acquisition.
Change in Control -- Any of the following events which occur after the date
hereof:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act
(a "Person" for the purpose of this definition only) of
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act ("Rule 13d-3")) of 51% or
more of the combined voting power of the then outstanding voting
securities of the Buyer entitled to vote generally in the
election of directors (the "Outstanding Voting Securities");
provided, however, that the following acquisitions shall not
constitute a Change in Control; (i) any acquisition by the Buyer
of its Common Stock, or (ii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the
Buyer or any corporation controlled by the Buyer;
(b) Individuals who, as of the date hereof, constitute the Board
of Directors of the Buyer (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of
Directors of the Buyer; provided, however, that any individual
becoming a director of the Buyer, who shall be nominated or
approved by a vote of at least a majority of the directors then
compromising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board; or
(c) Approval by the shareholders of the Buyer of a
reorganization, merger or consolidation, liquidation or sale of
all or substantially all the assets of Buyer if the effect of
such transaction(s) is that the Shareholders
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of Buyer before the transaction(s) cease to own, directly or
indirectly, at least 51% of the outstanding stock of the
surviving entity or entities.
Closing -- The closing with respect to the Acquisition as defined in
preamble to Article 10.
Closing Balance Sheet -- The balance sheet of CoreWest as of December 31,
1996, prepared in accordance with GAAP accompanied by schedule sufficient to
determine the Initial Net Worth.
Closing Date -- The date and time of Closing as defined in the preamble to
Article 10.
Closing Tangible Net Worth -- The amount equal to the amount included under
shareholder's equity on the Closing Balance Sheet minus the amount of all
intangible assets on the Closing Balance Sheet.
Code -- The Internal Revenue Code of 1986, as amended.
Common Stock -- The common stock, par value $0.01, of Buyer.
Conforming Business -- The Conforming Mortgage Loan origination and
brokerage business conducted by CoreWest.
Conforming Mortgage Loan -- A Mortgage Loan which, as of September 30,
1996, is an FHA Loan, a VA Loan or a loan eligible to be sold to FNMA, FHLMC or
another Agency.
Contingent Payment -- As defined in Section 3.3.
Conventional Loan -- Any Mortgage Loan which (a) is a first lien on a
"single family" residence, (b) is neither insured by FHA nor guaranteed by VA,
(c) has a loan-to-value ratio of 95% or less at the time of origination, (d)
matures in 30 years or less, (e) bears a market yield at the time of
origination, and (f) satisfies the requirements in effect as of the date hereof
for sale to FNMA and FHLMC.
CoreWest Executives -- As defined in Section 3.3(c)(ii).
Effective Time -- January 1, 1997 at 12:01 a.m.
Employment Agreements -- As defined in Section 6.3.
Encumbrance -- Any lien, pledge, security interest, claim, charge,
easement, limitation, commitment, restriction or encumbrance of any kind or
nature whatsoever.
ERISA -- As defined in Section 4.13(b).
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Environmental Claim -- Civil, criminal, administrative action, claim or
other proceeding relating to Environmental Laws.
Environmental Laws -- As defined in Section 4.15.
FHA -- Federal Housing Administration.
FHA Loans -- Mortgage Loans which satisfy all applicable rules and
requirements to be insured by FHA and which are insured by FHA.
FHLMC -- Federal Home Loan Mortgage Corporation.
Financial Statements -- As defined in Section 4.7.
FNMA -- Federal National Mortgage Association.
GAAP - - Generally accepted accounting principles as used in the United
States of America applied on a consistent basis.
GNMA -- Government National Mortgage Association.
GNMA Securities -- GNMA mortgage-backed certificates.
HUD -- United States Department of Housing and Urban Development.
Independent Accounting Firm -- Any "Big Six" accounting firm or its
successor.
Initial Net Worth - As defined in Section 3.2.
Initial Value -- As defined in Section 3.2.
Inquiry -- As defined in Section 4.29.
Investor -- Any Person who owns or holds Mortgage Loans, or servicing
rights to Mortgage Loans, pursuant to Mortgage Servicing Agreements or who is a
party to an Investor Commitment.
Investor Commitment -- The commitment of a Person to purchase a Mortgage
Loan.
Investor Programs -- Mortgage participation, whole-loan sales, pooling and
servicing programs.
IRS -- Internal Revenue Service.
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"Knowledge" and "to our knowledge" -- As used in this Agreement,
"knowledge" and "to our knowledge" with respect to CoreWest means both the
actual current recollection of the CoreWest Executives and Shareholders, and
that an additional investigation, reasonable in light of the facts and
circumstances of the transaction and the matters covered by the statement, has
been conducted by CoreWest with respect to the factual accuracy of the statement
and includes constructive knowledge of facts which reasonably should have been
discovered by such investigation. The phrase also implies that CoreWest has a
reasonable basis for believing the statement is factually correct.
Licenses -- As defined in Section 4.18.
Loan Property -- Any property in which CoreWest holds a mortgage lien or
security interest.
Loss -- Any claim, liability, loss, cost, clean up cost or reimbursement,
damage, penalty, fine, obligation, deficiency or expense of any kind whatsoever
(including, without limitation, reasonable attorneys', accountants',
consultants' or experts' fees, and disbursements including but not limited to
court costs and reasonable costs of investigation incurred in defending against
or settling any such claim, liability, loss, cost, damage or expense, or any
amounts paid in connection with the investigation, defense or settlement
thereof, whether or not arising out of third party claims and including costs
and expenses incurred on appeal or in connection with any bankruptcy or
insolvency proceeding).
Material Adverse Effect -- Adverse effect on the business, condition
(financial or otherwise), results of operations, properties, assets or prospects
of a Person with an economic effect, individually or in the aggregate, of
$75,000 or more.
Mortgage Loan -- Any closed residential mortgage loan (exclusive of
Warehouse Loans) whether or not such mortgage is included in a securitized
portfolio, as evidenced by notes or other evidences of indebtedness duly secured
by mortgages or deeds of trust.
Non-Conforming Business -- The Non-Conforming Mortgage Loan origination and
brokerage business conducted by CoreWest.
Non-Conforming Mortgage Loan -- A Mortgage Loan which does not satisfy the
requirements for being either a Conforming Mortgage Loan or a Conventional Loan.
Operating Property -- As defined in Section 4.15.
Person -- Any individual, corporation, company, partnership (limited or
general), joint venture, association, trust or other entity, including
governmental and quasi-governmental bodies.
Plans -- As defined in Section 4.13(a).
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Pooling -- Aggregation of two or more Mortgage Loans that have been pledged
or granted to secure mortgage-backed securities or participation certificates.
Post-Closing CoreWest Business Unit -- As defined in Section 3.3(c).
Prime Rate -- The interest rate published from time to time in The Wall
Street Journal as the prevailing prime rate at a majority of U.S. Banks. If the
Prime Rate is no longer available in The Wall Street Journal, Buyer shall select
a substitute rate which is reasonably equivalent, which shall thereafter serve
as the Prime Rate.
Regulations -- (i) Federal, state and local laws, rules and regulations,
(ii) the responsibilities and obligations set forth in any agreement between
CoreWest and an Investor or private mortgage insurer and (iii) the laws, rules,
regulations, guidelines, handbooks and other requirements of an Investor,
Agency, private mortgage insurer, Public Housing Programs or Investor Programs,
with respect to the origination, insuring, purchase, sale, or filing of claims
in connection with a Mortgage Loan.
Schedule -- The disclosure schedule delivered by Shareholders to Buyer in
connection with the Acquisition.
Seller -- CoreWest and Shareholders, jointly and severally.
Shareholders -- As defined in the Introduction.
Shareholders' Agent -- As defined in the Introduction.
Servicing Released Loans -- As defined in Section 4.22.
Shares -- As defined in the Factual Background.
Single Employer Plan -- Any employee pension benefit plan (as that term is
defined in Section 3(2) of ERISA) maintained or contributed to by any entity
which would be deemed a "single employer" with CoreWest under Section 4001 of
ERISA.
State Agency -- Any state agency with authority to regulate the business of
CoreWest, determine the investment requirements with regard to loans originated
or purchased by CoreWest, or originate or purchase mortgage loans, or otherwise
participate in or promote mortgage lending.
Subsidiary -- A company is a Subsidiary of another company if 50% or more
of its outstanding voting securities is owned by such other company.
Tangible Net Worth -- The amount equal to the amount included under
shareholders' equity on CoreWest's balance sheet minus the amount of all
intangible assets.
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Tax Affiliate -- A Person is a Tax Affiliate of another Person if they are
both members of the same Affiliated Group.
Taxes -- As defined in Section 4.12(d).
Tax Return -- As defined in Section 4.12(e).
VA -- Veterans Administration.
VA Loans -- Mortgage Loans which satisfy all applicable rules and
regulations to be guaranteed by VA and which are guaranteed by VA.
Warehouse Loans -- Residential Mortgage Loans held by CoreWest for sale and
pledged to secure borrowings by CoreWest.
Wholesale Loans -- As defined in Section 3.3(c).
ARTICLE 2
MERGER OF SUBSIDIARY INTO COREWEST
2.1 Incorporation of Agreement of Merger.
The Agreement of Merger attached hereto as Exhibit 2.1 is incorporated
herein by reference. Buyer, Subsidiary, CoreWest and the Shareholders agree to
take such action to execute and deliver such further instruments as may be
necessary to carry out the terms of said Agreement of Merger. As a result of the
Merger, Subsidiary shall merge into CoreWest, whereby the separate corporate
existence of Subsidiary shall cease, the Shareholders shall receive the Exchange
Shares as provided herein and the Shareholders' old shares of CoreWest shall be
canceled and Buyer shall own all the outstanding shares of CoreWest, as the
surviving corporation.
ARTICLE 3
BUYER'S COMMON STOCK TO BE ISSUED TO SHAREHOLDERS
3.1 Shares to be Issued.
The parties recognize that a precise valuation of CoreWest's common
stock for the purpose of determining an equitable and final exchange of stock at
this time is not possible in view of the fact that the business and products of
CoreWest are in the development stage and because of several uncertainties. The
Buyer's fully-paid, non-assessable common stock delivered
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to the Shareholders pursuant to this merger are referred to as the "Exchange
Shares." The Exchange Shares shall be issued to the Shareholders in proportion
to their holdings of common stock, in two installments of the Base Payment and
the Contingent Payment, if any, as those terms are defined in Sections 3.2
and 3.3 hereof. Each Shareholder entitled to a fractional share of Buyer's
Common Stock shall instead be paid in cash an amount equal to such fraction
multiplied by the closing price on the NASDAQ, as reported in The Wall Street
Journal for the Closing Date. All payments of Exchange Shares, including any
adjustments thereto, are to be delivered to the Shareholders in proportion
to their respective shareholdings of CoreWest, as set forth in Section 3.1 of
the Schedule (the "Shareholder Percentage").
3.2 Base Payment.
The Base Payment, paid at the Closing, shall be Exchange Shares with a
value (as determined below) equal to (the "Initial Value") (i) Seven Million
Five Hundred Twenty-six Thousand and No/100 Dollars ($7,526,000.00); plus (ii)
CoreWest's tangible net worth as of the close of business on December 31, 1996
determined according to GAAP (including all appropriate reserves and expense
accruals, provided that all legal fees and all other fees and expenses of
CoreWest arising in connection with this Agreement prior to Closing, the
preparation of the Closing Balance Sheet and the transactions contemplated to
occur at the Closing (but not fees and expenses related to determination of the
Contingent Payment) shall be treated as pre-closing expenses and fully accrued
on the Closing Balance Sheet for the purpose of determining CoreWest's tangible
net worth (the "Initial Net Worth") not to exceed $250,000. The Exchange Shares
constituting the Base Payment shall be issued and delivered by Buyer to the
Shareholders in the form of stock certificates representing the Exchange Shares
at the Closing. For purposes of the Base Payment, the Exchange Shares will be
deemed to have a value, per share, equal to the average of the last reported
sales price of Buyer's Common Stock on the Nasdaq/NMS (or such other exchange or
market system on which the Common Stock may then be listed or admitted for
trading) for each of the last 20 Business Days preceding January 1, 1997; which
average price the parties agree is $30.819 per share and therefore the Base
Payment is 244,204 Exchange Shares for the portion valued at $7,526,000.
Notwithstanding the foregoing, for purposes of calculating the Base Payment, the
Initial Net Worth shall not exceed Two Hundred Fifty Thousand Dollars
($250,000.00). In the event the Closing Balance Sheet is not available at
Closing, then the portion of the Base Payment representing $7,526,000 (i.e.,
244,204 Exchange Shares) shall be paid at Closing and the balance of the Base
Payment, representing the Initial Net Worth up to a maximum of $250,000, shall
be paid once the Closing Balance Sheet is delivered by CoreWest to Buyer and
Buyer determines that it is reasonably satisfactory in form and content.
3.3 Contingent Payment.
(a) Calculation of Payment. The Contingent Payment, paid in Exchange
Shares, shall be calculated as follows:
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(i) Exchange Shares with a value at the time of the
Contingent Payment (determined according to the valuation formula
in Section 3.3(f) hereof) equal to the amount, if any, by which
the following exceeds the Initial Value:
9.5 times the after-tax net income of the
Post-Closing CoreWest Business Unit (as defined
below) for the twelve months ending December 31,
1998, calculated according to GAAP subject to the
adjustment described below (such Exchange Shares
referred to as the "Contingent Earnings Formula
Shares");
plus
(ii) In the event (a) the total number of Exchange Shares
issued pursuant to the Base Payment and the Contingent Earnings
Formula Shares (collectively, the "Subtotal Shares") exceeds (b)
the amount equal to (i) two times (ii) the total number of
Exchange Shares issued pursuant to the Base Payment and the Escrow
Shares (as defined below) (collectively, the "Original Closing
Shares") (the number of Exchange Shares constituting the excess of
the Subtotal Shares above twice the Original Closing Shares shall
be called the "Gross-Up Shares") and if any Shareholder, upon
written advice of professional tax counsel or due to a position
taken by the Internal Revenue Service or similar state tax
authority actually reports receipt of the value of the Gross-Up
Shares as ordinary income (i.e., not either capital gains and/or
received tax-free) on their tax return, then the Buyer shall issue
additional Exchange Shares equal to (a)(i) the difference between
such Shareholder's tax rate actually paid and the Shareholder's
state and federal capital gain tax rate in effect (expressed as a
percentage); multiplied by (ii) the Gross-Up Shares divided by one
minus the actual combined state and federal tax rate applicable to
such Shareholder for the Gross-Up Shares. (Notwithstanding the
foregoing, this Gross-Up provision shall not apply with respect to
ordinary income arising from imputed interest on the Escrow
Shares.)
Example: As an example of the foregoing calculation, assume
the Base Payment would be 250,000 Exchange Shares and an
additional 250,000 Exchange Shares would be placed in Escrow
at Closing. Assume further that the Contingent-Earnings
Formula Shares were 800,000 Exchange Shares. Therefore, the
Gross-Up Shares would be 50,000 Exchange Shares [calculated
as (250,000 + 800,000) minus ([250,000 + 250,000] x 2)].
Assume further that tax counsel advised in writing that the
Gross-Up Shares must
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be reported as ordinary income under section 368 on the
Shareholder's federal tax return and that Shareholder reports
the Gross-Up Shares as ordinary income for tax purposes and
that Shareholder's marginal ordinary income tax rate was 39%
and the Shareholder's capital gain tax rate on such Gross-Up
Shares would have been 28%. The actual difference is 11%.
Therefore, the Contingent Payment would be increased by 9,016
Exchange Shares, which is calculated as (.11 x 50,000) [div]
(1 - .39).
(b) Contingent Payment Shares Issued at Closing in Escrow. At Closing,
Buyer shall issue Exchange Shares equal to the number of Exchange Shares
constituting the Base Payment (the "Escrow Shares"), and the Escrow Shares shall
be delivered to _________ U.S. Trust Company of California, N.A., to act as
Escrow Agent, pending final determination of the Contingent Payment under
Section 3.3 hereof. (If the Initial Net Worth is not available at Closing, then
Escrow Shares shall be delivered in Escrow at Closing equal to the portion of
the Base Payment representing $7,526,000 [i.e., 244,202 Exchange Shares] and the
balance of the Exchange Shares shall be delivered to Escrow Agent at the time
the balance of the Base Payment representing the Initial Net Worth is paid to
Shareholders.) Shareholders shall be entitled to vote such Escrow Shares and the
Escrow Shares shall be treated as outstanding for all purposes, including
dividends and calculation of liquidation preference. However, Shareholders shall
only receive such Escrow Shares upon determination of the Contingent Payment,
and if the Escrow Shares exceed the total Contingent Payment, the portion in
excess thereof shall be returned to Buyer and canceled. The Escrow Shares shall
be held pursuant to the Escrow Agreement attached as Exhibit 3.3(b).
(c) Post-Closing CoreWest Business Unit. For the purpose of the
foregoing calculation of the Contingent Payment, "Post-Closing CoreWest Business
Unit" shall mean the separate business unit of Buyer comprised of Corewest
(either as a separate subsidiary or separate operating division) and the
business operations and personnel of CoreWest acquired pursuant to this
Acquisition, together with the business contemplated under the Agreed Plan which
shall be operated following the Closing through December 31, 1998 as follows:
(i) The Buyer shall cause the Post-Closing CoreWest Business Unit
to be a separate subsidiary, or a separate operating division or other
separate business unit of Buyer (or its Affiliate). The Buyer and the
Post-Closing CoreWest Business Unit shall cooperate, in a commercially
reasonable manner, to permit the cross-utilization of their respective
licenses and obtaining of additional licenses where practicable.
(ii) At Closing, Buyer shall cause CoreWest to enter into new
employment agreements with certain officers and managers of CoreWest,
pursuant to Section hereof (the "CoreWest Executives"), providing for them
to manage the Post-Closing CoreWest Business Unit, subject to the normal
oversight of responsibilities of the Buyer's Board of Directors and senior
executives and the CoreWest Board of
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Directors, as applicable. The CoreWest Executives shall direct the
day-to-day operations of the Post-Closing CoreWest Business Unit, subject
to the Agreed Plan.
(iii) The Post-Closing CoreWest Business Unit shall be accounted
for as a separate profit and expense center.
(iv) Buyer shall make available to the Post-Closing CoreWest
Business Unit such administrative, financial and other support as Buyer and
CoreWest Executives may agree at such costs as the parties mutually agree.
In the alternative, the CoreWest Executives may cause the Post-Closing
CoreWest Business Unit to independently purchase goods and services to the
extent practical, provided that the Post-Closing CoreWest Business Unit
must engage an Independent Accounting Firm to review its financial
statements in accordance with GAAP. The parties will act reasonably
regarding a fair and equitable allocation of general overhead to the
Post-Closing CoreWest Business Unit by Buyer in situations where it is not
practical for the Post-Closing CoreWest Business Unit to independently
acquire such services. For example, if the Buyer obtains a legal opinion
regarding payment of backpoints for the benefit of various divisions and
Affiliates, the cost shall be fairly allocated to the Post-Closing CoreWest
Business Unit and other divisions and Affiliates based on their respective
activities and operations.
(v) Buyer will make available to the Post-Closing CoreWest
Business Unit such warehouse lines of credit (funded at 100% of the
principal balance) or other financing facilities as may be necessary to
fund all actual Mortgage Loan production and to fund all operating and
capital requirements, provided that such financing and capital requirements
are consistent with the Agreed Plan and include no conditions to funding
that are any more restrictive than the conditions to which parent is
subject with respect to the line. The Post-Closing CoreWest Business Unit
shall bear an imputed interest expense on the capital used to finance its
Warehouse Mortgage Loans at a floating rate equal to LIBOR (thirty day)
plus 225 basis points, provided that Buyer will absorb and not charge the
Post-Closing CoreWest Business Unit with internal costs of administering
the warehouse line (including, without limitation, costs of transferring
and wiring funds, non-usage and Buyer's personnel) but the Post-Closing
CoreWest Business Unit shall pay third party expenses (including, without
limitation, trustee fees and audit fees).
(vi) The business operation comprising the Post-Closing CoreWest
Business Unit will include future direct internal growth and development of
the Business being acquired in this Acquisition, but unless otherwise
specifically agreed in writing by Buyer and Shareholder's Agent, not
Buyer's other existing operations or other future acquisitions by Buyer.
Parties acknowledge that Buyer's other business units will compete directly
with the Post-Closing CoreWest Business Unit.
(vii) Buyer shall provide or make available to the Post-Closing
CoreWest Business Unit all product types and programs which are being made
available in the ordinary course of business by Buyer to its other
operating divisions (including retail,
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wholesale, spot, flow, bulk acquisition, brokerage and/or correspondent),
branches, Affiliates and Subsidiaries in the same geographic market, on a
market-by-market basis. For example, Buyer would make available to the
Post-Closing CoreWest Business Unit's southern California locations all
products available from Buyer in such market, but Buyer would not be
required to provide products to the southern California locations which
were available in the Chicago market, but which were not available in the
southern California market. The products shall be available to the
Post-Closing CoreWest Business Unit on terms and conditions which are at
least as favorable as terms and conditions offered by Buyer to its other
operating divisions, branches, Affiliates and Subsidiaries in the same
geographic market, provided, however, that these terms and conditions shall
not supersede the pricing formula set forth below in Section 3.3(d) for
determining the adjusted after-tax net income of the Post-Closing CoreWest
Business Unit generated upon sale of a Mortgage Loan to Buyer.
(viii) Buyer's operating divisions, branches, Affiliates and
Subsidiaries, including locations acquired or established after Closing,
shall compete directly with the Post-Closing CoreWest Business Unit.
Pursuant to the Agreed Plan, the Post-Closing CoreWest Business Unit shall
be able to open new retail and wholesale offices and territories or conduct
lending and other operations and activities in any location where it deems
prudent and appropriate.
(ix) All product pricing, underwriting and similar decisions
concerning the business of the Post-Closing CoreWest Business Unit will be
made by the CoreWest Executives, subject to the provisions of the Agreed
Plan. Notwithstanding the foregoing (i) not less than 90% of the Mortgage
Loans originated and purchased by the Post-Closing CoreWest Business Unit
shall be of the type originated or purchased by Buyer in its ordinary
course of business or pursuant to a specific program offered by Buyer, (ii)
at least 95% of the Mortgage Loans shall be closed in the name of CoreWest
or table funded; and (iii) not more than 50% (by principal amount) of the
Mortgage Loans shall be originated through brokers ("Wholesale Loans") on
an annual basis.
(x) Buyer will make available to the Post-Closing CoreWest
Business Unit such errors and omissions, fidelity bond, officers' and
directors' liability insurance, and other types of insurance and protection
which are customarily provided or held by businesses operating in the same
areas in which the Post-Closing CoreWest Business Unit is then operating or
proposes to operate, provided that the reasonably allocable costs of such
coverage shall be included as an expense of the Post-Closing CoreWest
Business Unit in the Agreed Plan.
(xi) The Mortgage Loans originated or purchased by the
Post-Closing CoreWest Business Unit shall be transferred to Buyer as if
sold on an inter-company basis if the Mortgage Loans are of the type
originated or purchased by Buyer in its ordinary course of business.
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(d) Adjustments to After-tax Net Income of Post-Closing CoreWest
Business Unit. For the purpose of calculating the Contingent Payment, the
after-tax net income of the Post-Closing CoreWest Business Unit during the
twelve months ending December 31, 1998 shall be adjusted as follows:
(i) Non-Conforming Mortgage Loans originated or acquired in each
quarter of 1998 shall be treated as though they had been aggregated and
sold in bulk on a monthly basis by the Post-Closing CoreWest Business Unit
as a bona fide third party seller of Mortgage Loans to Buyer in the quarter
in which such loans were originated or acquired at a purchase price and
premium equal to the greater of (1) the average purchase price and premium
being paid during the same time period by Buyer (and its Affiliates) for
similar loans purchased from unrelated third parties selling a similar
volume to Buyer (and its Affiliates) on a bulk basis and (2) the "Peer
Price" (as defined and calculated below).
In order to determine the "Peer Price," the parties shall jointly
designate in writing, at or prior to Closing, six companies engaged in the
business of purchasing and securitizing Non-Conforming Mortgage Loans
(these six companies are referred to as "Peers"). During each quarter of
1998, Buyer will select two Peers and Shareholders' Agent shall select one
Peer. (These three companies are referred to as "Select Peers.") Each
quarter the parties shall create a sample mortgage portfolio comprised of
all the Mortgage Loans actually originated and/or acquired by the Post-
Closing CoreWest Business Unit during the thirty (30) day period ending on
the 10th day of the third month of each quarter (March 10th, June 10th,
September 10th and December 10th). This sample portfolio shall be offered
for bid to the Select Peers. The Peer Price will be calculated on a single
portfolio basis if the Buyer is then primarily buying on a single portfolio
basis, a separate product basis if Buyer is then buying primarily on a
separate product basis or any other method as the parties mutually agree.
Shareholders' Agent shall prepare a written bid package for each sample
portfolio which must be in form and content reasonably acceptable to Buyer,
in its discretion. The bid package must require the Select Peers to submit
a written bid for the entire portfolio, as a whole. Once the bid package
written materials are approved by Buyer, Messrs. Staake and Hayes shall
offer the bid package to the Select Peers and Messrs. Staake and Hayes
shall handle all follow-up oral communications in connection with the bid
process. The average premium for the entire model portfolio, based on the
average of the three final written bids submitted by the Select Peers,
shall be the premium used to establish the "Peer Price" for all Mortgage
Loans originated or purchased in that quarter. The Post-Closing CoreWest
Business Unit shall not manipulate the loan origination and purchase
activities in order to prevent the model portfolio from being generally
representative of the types and proportions of Mortgage Loans originated
and purchased during the entire quarter.
(ii) Conforming Mortgage Loans generated pursuant to either an
Agreed Plan or pursuant to a specific product offered by Buyer, if sold to
a third party, shall be valued at the price and premium actually received
and if retained by Buyer shall
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be treated as though it had been sold by the Post-Closing CoreWest Business
Unit to Buyer at a purchase price equal to the average purchase price and
premium being paid during the same period by Buyer (and its Affiliates) for
similar loans purchased from unrelated third parties, provided that no
income or expense from Conforming Mortgage Loans shall be attributed to
Post-Closing CoreWest Business Unit to the extent such income exceeds 5% of
the total income of the Post-Closing CoreWest Division for the period. For
purposes of this provision, a Conforming Mortgage Loan which has a fair
market value of 105% or more of the principal amount thereof shall be
treated as a Non-conforming Mortgage Loan and not subject to the 5%
limitation. In addition, Wholesale Loans in excess of 50% of volume, on an
annual basis, shall not be counted for purpose of determining income or
expense.
(iii) Non-Conforming Mortgage Loan interest spreads, late payment
fees, prepayment rebates and similar income and expenses will be allocated
to the Post-Closing CoreWest Business Unit as if Non-Conforming Mortgage
Loans had been held by the Post-Closing CoreWest Business Unit for one
month following funding. Conforming Mortgage Loans shall be calculated on
the basis of the period of time actually held.
(iv) In the event a Mortgage Loan sold by the Post-Closing
Business CoreWest Business Unit to Buyer is subsequently prepaid by the
borrower within one year of origination, the rebate due as a result of such
prepayment shall be charged as an expense to the Post-Closing CoreWest
Business Unit based on repayment of the premium on a twelve-month declining
prorated basis from the date of origination, provided that the Post-Closing
CoreWest Business Unit shall not be charged if the borrower refinanced the
loan through Buyer, its Affiliates or any other subsidiary, division or
other business unit of Buyer. (For example, if a Mortgage Loan is prepaid
after 6 months and the premium paid for the loan is $2,000, then the
Post-Closing CoreWest Business Unit shall be charged $1,000 as an expense.)
The Post-Closing CoreWest Business Unit shall be entitled to accrue and
retain any fee, penalty, chargeback or refund which the related borrower is
obligated to pay or which is recoverable from borrower or any third party
which originated or sold the Mortgage Loan to the Post-Closing CoreWest
Business Unit, provided that all such payments are reported under GAAP with
appropriate reserves for uncollectability. In the event a Mortgage Loan
which the Post-Closing CoreWest Business Unit sold to a third party (not
Buyer or its Affiliate) is prepaid, the Post-Closing CoreWest Business Unit
shall bear as an expense the actual amount of any chargeback by such third
party, provided that the Post-Closing CoreWest Business Unit shall not be
charged if the borrower refinanced the loan through Buyer, its Affiliates
or any other subsidiary, division or other business unit of Buyer.
(v) In the event the Post-Closing CoreWest Business Unit breaches
a warranty or covenant regarding compliance with underwriting guidelines in
effect at the time of origination in connection with a Mortgage Loan sold
to Buyer or its Affiliate and Buyer and Post-Closing CoreWest Business Unit
are unable to cure such breach (at
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expense of Post-Closing CoreWest Business Unit), the Post-Closing CoreWest
Business Unit shall be charged the actual net loss, unless there was
substantial compliance with such guidelines or the breach arises from a
commercially reasonable underwriting decision made in good faith (analyzed
in a case-by-case basis), in which case no cost or charge shall be assessed
against the Post-Closing CoreWest Business Unit. In the event the
Post-Closing CoreWest Business Unit breaches any other warranty or
covenant, covering the origination of a Mortgage Loan, including without
limitation, warranties regarding fraud, in connection with a Mortgage Loan
sold to Buyer or its Affiliate and Buyer and Post-Closing CoreWest Business
Unit are unable to cure such breach (with all cost thereof charged to the
Post-Closing CoreWest Business Unit), the Post-Closing CoreWest Business
Unit shall be charged the actual net loss as determined under GAAP as if
the Mortgage Loan were sold on a whole loan basis. In either case, to the
extent practicable, the Post-Closing CoreWest Business Unit shall be
permitted to "workout," liquidate and dispose of such Mortgage Loan,
including without limitation the foreclosure and marketing of the Mortgage
Loan or collateral if appropriate. In the event the PostClosing CoreWest
Business Unit breaches any warranty or covenant in connection with a
Mortgage Loan sold to a third party, the Post-Closing CoreWest Business
Unit shall bear all actual losses and expenses arising out of the Mortgage
Loan as provided in the mortgage sale agreement and otherwise by applicable
law, provided that the Post-Closing CoreWest Business Unit is unable to
cure such breach (with all costs thereof charged to the Post-Closing
CoreWest Business Unit).
(vi) The operating expenses of the Post-Closing CoreWest Business
Unit shall be the actual expenses according to GAAP. The CoreWest
Executives have authority to either acquire support services and similar
items from Buyer at a mutually agreed price or independently purchase the
services and similar items from third parties to the extent purchases from
third party vendors is practical. The parties will act reasonably regarding
allocations of general overhead to Post-Closing CoreWest Business Unit by
Buyer where it is not practical for the Post-Closing Business Unit to
independently acquire such services. The Post-Closing CoreWest Business
Unit shall not be allocated Buyer's general overhead (including corporate
general and administrative allocations), other than for items and services
specifically requested at an agreed price or where it is not practical to
independently acquire such support services and similar items.
(vii) The state and federal income and franchise taxes and similar
taxes of Buyer's consolidated group shall be allocated to the Post-Closing
CoreWest Business Unit in accordance with GAAP.
(viii) Except to the extent specifically provided in the Agreed
Plan, income from extraordinary events and from sources outside the
mortgage banking and brokerage business shall be excluded.
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(ix) Except to the extent specifically provided in the Agreed
Plan, ordinary income and capital gains from investment assets shall be
excluded.
(x) The Post-Closing CoreWest Business Unit shall operate its
business in the ordinary course of business and shall not intentionally
shift business volume or income from 1997 or 1999 into 1998 or otherwise
intentionally artificially manipulate the 1998 business and financial
results from the results which would have occurred if the business was
operated in the ordinary course pursuant to the Agreed Plan. For example,
the Post-Closing CoreWest Business Unit's employee compensation programs
shall be consistent during 1997, 1998 and 1999 and the bonus programs each
year shall bear the same ratio to Mortgage Loan production each year
(provided that this provision shall not apply to the "Basis Point
Incentive/Executive Bonus Pool," described in certain employment agreements
of CoreWest Executives or changes approved by the Board of Directors).
(xi) All income and expenses (including without limitation the
timing and calculation of reserves and accruals) shall be in accordance
with GAAP and to the extent possible, expenses shall be tied to related
items of income.
(xii) In the event GAAP requires that the CoreWest Shares owned by
Normand Steeg, Jon Maddox, Steve Curry, John Cutajar and/or Laurence Nair
(or the transactions relating to their acquisition of such CoreWest Shares)
results in an expense charged to Buyer's consolidated income statement or
the Post-Closing CoreWest Business Unit's income, then the total amount of
such expense, regardless of when actually accrued for GAAP, shall be
attributed to the Post-Closing CoreWest Business Unit's net profit during
1998 provided however that no such expense shall be allocated to the Post-
Closing CoreWest Business Unit to the extent that such expense relates to
all Shareholders and provided further if GAAP requires the accrual of an
expense for the period before the Effective Time, then Buyer's right to
recoup such expense shall be governed solely by Article 12.
(xiii) There will be no allocation of goodwill to the Post-Closing
CoreWest Business Unit as a result of the Acquisition.
(e) Payment of Contingent Payment. The Contingent Payment Date shall be
February 28, 1999, or such earlier date as the parties shall mutually agree, at
which time the Buyer shall pay the Shareholders the Estimated Contingent
Payment, if any, which shall be paid in Exchange Shares. For purposes of the
Contingent Payment, the Exchange Shares shall be deemed to have a value, per
share, equal to the average of the last reported sales prices for Buyer's Common
Stock on the NASDAQ (or the principal national securities exchange on which the
common stock of Buyer is then traded) for each of the last 20 Business Days
preceding January 7, 1999. For purposes of determining the Estimated Contingent
Payment payable by the Buyer, no later than February 15, 1999, Shareholders'
Agent (with assistance and cooperation from CoreWest's Executives and the
Post-Closing CoreWest Business Unit's
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accountants, as requested) shall, in consultation with the Buyer, prepare and
deliver to Buyer an unaudited income statement of the Post-Closing CoreWest
Business Unit as of, and for the year ending December 31, 1998 which shall
represent the Shareholders' Agent's and CoreWest Executives' reasonable estimate
of the final profit and loss statement for CoreWest; such income statement to be
in form and detail identical to, and in its accounting principles and policies
consistent in every respect with, the procedures for calculating net income set
forth in Section 3.3(d) and accompanied by schedules setting forth in reasonable
detail the various income and expense items included therein. Such income
statement and the accompanying schedules shall contain sufficient detail for the
determination of Contingent Payment and shall be used to determine the
Contingent Payment (the "Estimated Contingent Payment").
(f) Final Determination of Contingent Payment.
(i) Within 30 days after the Contingent Payment Date,
Shareholders' Agent shall deliver to Buyer an income statement and loss
statement of the Post-Closing CoreWest Business Unit as of December 31,
1998 prepared in accordance with GAAP and in accordance with this Section
3.3 and a calculation of the Contingent Payment, which have been audited by
Post-Closing CoreWest Business Unit's Accountants. The annual profit and
loss statement shall be accompanied by detailed schedules of the
calculation of the Contingent Payment pursuant to Section 3.3 hereof and by
a report of the Post-Closing CoreWest Business Unit's independent
accountants (1) setting forth the amount of the Contingent Payment, (2)
stating that (a) an audit of the income statement has been made in
accordance with generally accepted accounting standards and (b) the income
statement has been prepared in accordance with GAAP, and (3) setting forth
the amount of any adjustment to the Contingent Payment to be paid and by
whom pursuant to Section 3.3(g) hereof. At the request of the Buyer or the
Third Party Accounting Firm, Post-Closing CoreWest Business Unit's
Accountants' workpapers, trial balances and similar materials used,
prepared or relied upon by Post-Closing CoreWest Business Unit's
accountants in connection with the calculation of the Contingent Payment to
the extent such materials are available to Shareholders' Agent.
(ii) Within 45 days following the delivery of the financial
statements and schedules, Buyer or its independent accountants ("Buyer's
Agent's Accountants") may object to any of the information contained in
said financial statements or accompanying schedules which could affect the
amount of the Contingent Payment. Any such objection shall be made in
writing and shall state Buyer's determination of the amount of the
Contingent Payment.
(iii) In the event of a dispute or disagreement relating to the
financial statements or schedules which Buyer and Shareholder's Agent are
unable to resolve, either party may elect to have all such disputes or
disagreements resolved by an Independent Accounting Firm (the "Third
Accounting Firm") to be mutually selected by Shareholder's Agent and Buyer
or, if no agreement is reached, by Post-Closing CoreWest Business Unit's
Accountants and Buyer's Accountants. The Third Accounting
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Firm shall make a resolution of the financial statement of the Post-Closing
CoreWest Business Unit and the calculation of the Contingent Payment, which
shall be final and binding for purposes of this Article 3. The Third
Accounting Firm shall be instructed to use every reasonable effort to
perform its services within 15 days of submission of the financial
statement and schedules to it and, in any case, as soon as practicable
after such admission. The fees and expenses for the services of the Third
Accounting Firm shall be shared equally by Buyer and the Shareholders.
(g) Final Payment Adjustment. Once the Contingent Payment Amount is
finally determined pursuant to Section 3.3(d), appropriate adjustments shall be
made in payment of the Contingent Payment, as finally determined, including the
issuance of additional Exchange Shares by Buyer to Shareholders and/or the
return of the Exchange Shares by Shareholders to Buyer, as appropriate.
(h) Contingent Payment Amount upon "Adverse Change". In the event of an
"Adverse Change (as defined below) before December 31, 1998, then in such event,
and at the option of the Shareholders, the Contingent Payment shall be
calculated either (x) based on the assumption that the Post-Closing CoreWest
Business Unit achieved its "Adjusted Agreed Plan" (as defined below) for 1998
and not based on the actual 1998 results of that period or (y) on the actual
results of the Post-Closing CoreWest Business Unit. The term "Adjusted Agreed
Plan" shall mean the after-tax net income of the Post-Closing CoreWest Business
Unit as shown on the Agreed Plan adjusted by multiplying the after-tax net
income of the Post-Closing CoreWest Business Unit by the percentage (which may
be more than 100%) obtained by dividing (x) by (y) where:
(x) is the actual after-tax net income of the Post-Closing CoreWest
Business Unit from the Effective Time to the end of the calendar month
preceding the month during which occurs a declaration of an Adverse Change
by the Shareholders, and
(y) is the projected after-tax net income of the Post-Closing CoreWest
Business Unit from the Effective Time to the end of the calendar month
preceding the month during which occurs a declaration of an Adverse Change
by the Shareholders as set forth in the Agreed Plan.
The declaration of an Adverse Change must be made by written notice to the Buyer
executed by Shareholders holding a majority of the Exchange Shares issued as the
Base Payment (but without counting any Escrow Shares) and delivered to Buyer not
later than thirty (30) days following the occurrence of the Adverse Change.
An "Adverse Change" shall be:
(v) Post-Closing CoreWest's Business Unit's termination of the
employment of Ronald Staake and Timothy Hayes other than for Cause and
other than as the result of a management decision by a CoreWest Executive
to terminate such
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employment or death or disability; (w) Ronald Staake or Timothy Hayes'
termination of their employment with the Post-Closing CoreWest Business
Unit with "Good Reason" (as defined in their employment contracts), (x) a
Change in Control of Buyer following which neither Tom Middleton or George
Nicholas are one of the two most senior officers of the Buyer; (y) a
material change as a result of action or inaction by Buyer in the following
which is materially adverse to the Post-Closing CoreWest Business Unit
which is not cured within 30 days following notice thereof by the
Shareholder to Buyer: (i) the ability of the Post-Closing CoreWest Business
Unit Management to control or offer its product lines and product mix in a
manner which is consistent with other products in the sub-prime mortgage
industry from time to time, or in its authority to operate or control the
Post-Closing CoreWest Business Unit day-to-day business operations pursuant
to the approved business plan and budget; (ii) a change in underwriting
criterion from that which is consistent with criterion generally in use in
the sub-prime mortgage industry from time to time; (iii) a change in the
Post-Closing CoreWest Business Unit Management's ability to manage its key
employees; (iv) Buyer fails to provide funding pursuant to the Agreed Plan;
and (v) a failure of Buyer to use commercially reasonable efforts to assist
the Post-Closing CoreWest Business Unit to obtain and maintain all licenses
as provided in the Agreed Plan.; or (z) a sale by Buyer to a party which is
not directly or indirectly owned or controlled by a majority of Buyer's
Shareholders before the transaction of the shares or substantially all the
assets of the Post-Closing CoreWest Business Unit (other than in connection
with a Change of Control of Buyer in which the Post-Closing CoreWest
Business Unit continues as a division or subsidiary of Buyer following such
Change in Control and neither Tom Middleton nor George Nicholas are one of
the two most senior officers of Buyer, the Purchaser or its parent.
(i) No Limit on Contingent Payment. There shall be no limit on the
amount of the Contingent Payment or the number of Exchange Shares that shall be
issued pursuant thereto. The Contingent Payment shall not be less than zero.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF COREWEST AND SHAREHOLDERS
CoreWest and Shareholders, jointly and severally, make the following
representations and warranties to Buyer, each of which is true and correct on
the date hereof, shall be unaffected by any investigations heretofore or
hereafter made by Buyer, or any knowledge of Buyer other than as specifically
disclosed in the Disclosure Schedule delivered to Buyer at the time of execution
of this Agreement, and shall survive the Closing of the transactions provided
for herein:
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4.1 Organization.
(a) CoreWest is a corporation duly organized, validly existing and in
good standing under the laws of the State of California with full corporate
power and authority to carry on its business as now conducted, to own the
properties and assets that it now owns, and to lease the properties and assets
that it now leases, and is duly licensed and qualified to do business and is in
good standing in each state or jurisdiction where its ownership or leasing of
property or assets or the conduct of its business requires such licensing or
qualification. The states in which CoreWest is licensed or qualified to do
business are listed on Schedule 4.1.
(b) CoreWest and Shareholders have heretofore delivered to Buyer
accurate and complete copies of the articles of incorporation and by-laws of
CoreWest, as in effect on the date thereof. Such articles and by-laws are in
full force and effect, and have not been subsequently amended, and CoreWest is
not in violation of any of the provisions thereof. The corporate minute book and
stock records of CoreWest which have been furnished to Buyer for inspection are
true, correct and complete and accurately reflect all material corporate action
taken by CoreWest and its Shareholders.
4.2 Capitalization of the Company.
The authorized capital stock of CoreWest consists entirely of 1,000,000
shares of Common Stock, no par value. No shares of such capital stock are issued
or outstanding except for 33,333.33 shares of common stock of the Company which
are owned of record and beneficially by Shareholders in the respective numbers
set forth in Schedule 4.2. All such shares of capital stock of the Company are
validly issued, fully paid and nonassessable. Except as set forth on Schedule
4.2, there are no (a) securities convertible into or exchangeable for any of the
Company's capital stock or other securities, (b) options, warrants or other
rights to purchase or subscribe to capital stock or other securities of the
Company or securities which are convertible into or exchangeable for capital
stock or other securities of the Company, or (c) contracts, commitments,
agreements, understandings or arrangements of any kind relating to the issuance,
sale or transfer of any capital stock or other equity securities of the Company,
any such convertible or exchangeable securities or any such options, warrants or
other rights.
4.3 Shareholders.
(a) Power. Each Shareholder has full power, legal right and authority
to enter into, execute and deliver this Agreement and the Ancillary Agreements.
(b) Authorization. The execution and delivery of this Agreement and the
Ancillary Agreements, and full performance thereunder, have been duly authorized
by the respective boards of directors and the shareholders of each Shareholder
which is a corporation, and no other or further corporate act on the part of any
such Shareholder is necessary therefor.
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(c) Validity. This Agreement has been duly and validly executed and
delivered by each Shareholder and is, and when executed and delivered each
Ancillary Agreements will be, the legal, valid and binding obligation of such
Shareholder, enforceable in accordance with its terms, except as such may be
limited by bankruptcy, insolvency, reorganization or other laws affecting
creditors' rights generally, and by general equitable principles.
(d) Title. Each Shareholder has, and at Closing Buyer will receive,
good and marketable title to the Shares to be sold by such Shareholder
hereunder, free and clear of all Liens including, without limitation, voting
trusts or agreements, proxies, marital or community property interests.
4.4 Subsidiaries of CoreWest
CoreWest does not own any equity interest, directly or indirectly, in
any corporation, partnership or other entity.
4.5 Authority; No Violation
(a) CoreWest has full power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed by CoreWest and all Shareholders and,
assuming this Agreement constitutes a valid and binding obligation of Buyer,
constitutes a valid and binding obligation of CoreWest and Shareholders
enforceable against CoreWest in accordance with its terms, except to the extent
that enforceability may be subject to or limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws relating
to or affecting creditors' rights generally or the appointment of a receiver or
conservator pursuant to state or federal law.
(b) Neither the execution and delivery of this Agreement by CoreWest
and Shareholders nor the consummation by CoreWest and Shareholders of the
transactions contemplated hereby, nor compliance by CoreWest and Shareholders
with any of the terms or provisions hereof, will (i) conflict with or result in
a breach of any provision of the articles of incorporation or by-laws of
CoreWest, (ii) violate any statute, code, ordinance, rule, Regulation, judgment,
order, writ, decree or injunction applicable to Shareholders or CoreWest or any
of their respective properties or assets, or (iii) violate, conflict with,
result in a breach of any provisions of, constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default) under,
result in the termination of, accelerate the performance required by, or result
in a right of termination or acceleration or the creation of any Encumbrance
upon any of the respective properties or assets of Shareholders or CoreWest
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed or trust, license, lease, agreement or other instrument, or
obligation to which Shareholders or CoreWest is a party, or by which
Shareholders, CoreWest or any of their respective properties or assets may be
bound or affected except for such violations, conflicts, breaches and defaults
which
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either individually or in the aggregate would not have a Material Adverse Effect
on CoreWest or Shareholders.
4.6 Consents and Approvals
Except as set forth in Section 4.6 of the Schedule, no consents,
permits, authorizations or approvals of, or filings or registrations with, any
governmental or regulatory authorities, government sponsored agencies or
corporations or other third parties are necessary to be obtained or made by
Shareholders or CoreWest in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
4.7 Financial Statements
CoreWest has previously delivered to Buyer copies of (i) the unaudited
balance sheet as of October 31, 1996 (the "Balance Sheet") and (ii) the
year-to-date income statement as of October 31, 1996 (the "Income Statement" and
collectively, the "Financial Statements"). Except as set forth on Schedule 4.8,
the Financial Statements have been prepared from the books and records of
CoreWest, and accurately and fairly present the financial position of CoreWest
as of the respective dates thereof and the result of operations and have been
prepared in accordance with the requirements of GAAP.
4.8 Undisclosed Liabilities.
As of the date of this Agreement, CoreWest does not have any
liabilities or obligations of any nature, whether accrued, absolute, contingent
or otherwise, asserted or unasserted, known or unknown, whether or not required
to be shown on a balance sheet prepared in accordance with GAAP (collectively,
"Liabilities"), except for (i) liabilities and obligations stated or adequately
reserved against on the Balance Sheet dated October 31, 1996, and (ii)
obligations to close Non-Conforming Mortgage Loans and Conforming Mortgage Loans
for which commitments already have been made, including obligations to borrowers
or to parties involved in the origination and funding of such loans; (iii)
liabilities arising in the ordinary course of the business of CoreWest
consistent with past practices to the extent reserved on the Balance Sheet or,
once available, the Closing Balance Sheet used to determine the Initial Net
Worth; (iv) liabilities disclosed on Schedule 4.8; and liabilities, in the
aggregate, which do not constitute a Material Adverse Effect. Notwithstanding
the foregoing, CoreWest's Tangible Net Worth at the Effective Time shall not be
less than $.01, including, to the extent required by GAAP, full reserves for all
the foregoing liabilities and reserves for all legal fees and all other fees and
expenses of CoreWest arising in connection with the Agreement, the preparation
of the Closing Balance Sheet and the transactions contemplated to occur at the
Closing (but not fees and expenses related to determination of the Contingent
Payment). The Initial Net Worth, for purposes of determining the Base Payment,
shall be equal to CoreWest's tangible net worth, calculated according to GAAP,
including full reserve for all the foregoing liabilities and expenses related to
the Acquisition as of and for the year ending December 31, 1996.
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4.9 No Material Adverse Change.
Since October 31, 1996, CoreWest has not suffered any Material Adverse
Effect nor taken any of the actions specified in Section 4.37(a) - (r).
4.10 Legal Proceedings
Except as described in Schedule 4.10, neither Shareholders, CoreWest
nor any of CoreWest's directors or officers is party to any, and there are no
legal, administrative, arbitral or other, proceedings, claims, actions or
governmental investigations of any nature pending, nor to the best knowledge of
CoreWest or Shareholders, threatened, against or affecting CoreWest or any of
its respective assets or business or challenging the validity or propriety of
the transactions contemplated by this Agreement. CoreWest is not subject to any
order, judgment, injunction, rule or decree.
4.11 Material Contracts
Section 4.11 of the Schedule is a complete and accurate list of the
following contracts, agreements, and other written or oral arrangements (or
group of related written or oral arrangements) (hereinafter collectively
referred to as "arrangements"), to which CoreWest is a party on the date hereof:
(a) any arrangement with any employee, agent or independent
contractors involved in the origination of mortgage loans for CoreWest;
(b) any arrangement (including the lease of real or personal property
from or to third parties) providing for lease payments in excess of $5,000 per
annum or in excess of $10,000 for the remaining term of the arrangement;
(c) any arrangement in which CoreWest is participating as a general
partner or joint venturer;
(d) To the best of CoreWest's knowledge, any arrangement which shall
survive the Closing (other than recourse servicing) under which CoreWest has
created, incurred, assumed, or guaranteed (or may create, incur, assume, or
guarantee) indebtedness for borrowed money (including capitalized lease
obligations) involving more than $5,000;
(e) any arrangement concerning confidentiality or noncompetition;
(f) any arrangement between any Shareholder and CoreWest or any of the
Affiliates;
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(g) any arrangement pursuant to which CoreWest or any Shareholder has
promised to pay, or loan any amount to, or sold, transferred or leased any
property or assets to or from, any Person in their capacity as an officer,
director or other employee of CoreWest;
(h) any arrangement requiring CoreWest to pay severance or similar
payments as a result of the transactions contemplated hereby;
(i) any other arrangement which will survive the Closing not entered
into in the ordinary course of business; or
(j) any power of attorney or similar arrangement.
CoreWest has delivered to Buyer a correct and complete copy of each
written arrangement listed in Section 4.11 of the Schedule. With respect to each
arrangement so listed: (A) the arrangement is in full force and effect; (B)
neither Shareholders nor CoreWest is in breach or default, and no event has
occurred which with notice or lapse of time or both would constitute a breach or
default by Shareholders or CoreWest, or permit termination, modification, or
acceleration against Shareholders or CoreWest under the arrangement applicable
to it; (C) neither Shareholders nor CoreWest has repudiated or waived any
material provision of any such arrangement; (D) to the best of the knowledge of
CoreWest, no other party to any such arrangement is in default in any respect
thereunder; and (E) no consent is required under any arrangement for CoreWest to
enter into and perform this Agreement and the transactions contemplated herein.
With respect to any lease disclosed pursuant to this Section 4.11, all rents and
other amounts currently due thereunder have been paid; no waiver or indulgence
or postponement of any obligation thereunder has been granted by any lessor or
sublessor; and CoreWest has not received any notice that it has breached any
term, condition or covenant.
4.12 Taxes
(a) Except as set forth on Schedule 4.12, CoreWest has (i) duly filed
(or there has been duly filed on its behalf) with the appropriate federal,
state, local and foreign taxing authorities all Tax Returns required to be filed
by or with respect to CoreWest, and such Tax Returns are true, correct and
complete in all material respects, and (ii) paid in full on a timely basis (or
there has been paid on its behalf) all Taxes shown to be due on such Tax
Returns. The provision for Taxes on each of the Financial Statements and the
Closing Balance Sheet is or will be adequate for the payment of all accrued but
unpaid Taxes, whether or not disputed, through the date thereof. At or before
Closing, Shareholders shall cause CoreWest to prepay all taxes arising, or
relating to any period, before the Effective Time.
(b) Neither CoreWest nor any Affiliate thereof has received any notice
of a deficiency or assessment with respect to taxes of CoreWest from any
federal, state, local or foreign taxing authority which has not been fully paid
or finally settled; there are no ongoing audits or examinations of any Tax
Return which includes CoreWest and no notice of audit or examination of any such
Tax Return has been received; CoreWest has not given and there has
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not been given on its behalf a waiver or extension of any statute of limitations
relating to the payment of Taxes; and no issue has been raised in writing on
audit or in any other proceeding with respect to Taxes of CoreWest by any
federal, state, local or foreign taxing authority which, if resolved against
CoreWest, would have a Material Adverse Effect on CoreWest.
(c) CoreWest has not filed a consent under Section 341(f) of the Code
concerning collapsible corporations. CoreWest has not made any payments, is not
obligated to make any payments, and is not a party to any contract, agreement or
other arrangement that could obligate it to make any payments that would not be
deductible under Section 280G of the Code. CoreWest has disclosed on its federal
income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income tax within the meaning of Section
6661 (or its successor, Section 6662) of the Code.
(d) For purposes of this Agreement "Taxes" shall mean all taxes,
charges, fees, levies, penalties or other assessments imposed by any United
States federal, state, local or foreign taxing authority, including, but not
limited to, income, excise, property, sales, transfer, franchise, payroll,
gains, withholding, ad valorem, social security or other taxes, including any
interest, penalties or additions attributable to Taxes.
(e) For purposes of this Agreement, "Tax Return" shall mean any
return, report or information return required to be filed with any taxing
authority with respect to Taxes.
(f) After the Closing, Shareholders shall bear responsibility for and
pay the reasonable costs and expenses relating to the preparation of any Tax
Return relating to any period before the Effective Time and shall pay, or
reimburse CoreWest for the payment of, any Taxes relating to any period before
the Effective Time.
4.13 ERISA
(a) Section 4.13(a) of the Schedule contains a true and complete list
of each employee benefit, compensation or welfare benefit plan, program or
agreement maintained or contributed to or required to be contributed to by
CoreWest (the "Plans"). CoreWest has no formal plan or commitment, whether
legally binding or not, to create any additional Plan or modify or change any
existing Plan that would affect any employee or terminated employee of CoreWest.
(b) With respect to each of the Plans, CoreWest has heretofore
delivered to Buyer true and complete copies of each of the following documents:
(i) each Plan and related trust, if any, (including all amendments thereto);
(ii) annual report and actuarial report, if required to be filed under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), for the
last two (2) years and the latest financial statement, if any, for each such
Plan; (iii) the most recent summary plan description, together with each summary
of material modifications, required under ERISA; and (iv) the most recent
determination letter received from the IRS with respect to each Plan that is
intended to be qualified under Section 401 of the Code.
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(c) All required contributions have been, or will be, made with
respect to each Plan on or prior to the Effective Time or will be properly
recorded on the Closing Balance Sheet.
(d) Each of the Plans has been operated and administered in all
material respects in accordance with applicable laws, including, but not limited
to, ERISA and the Code and each of the Plans that is intended to be "qualified"
within the meaning of Section 401(a) of the Code is so qualified.
(e) Except as set forth in Section 4.13(e) of the Schedule, no Plan
provides benefits, including, without limitation, death or medical benefits
(whether or not insured), with respect to current or former employees beyond
their retirement or other termination of service (other than (A) coverage
mandated by applicable law, (B) death benefits or retirement benefits under any
"employee pension plan," as that term is defined in Section 3(2) of ERISA, (C)
deferred compensation benefits accrued as liabilities on the books of CoreWest
or (D) benefits the full cost of which is borne by the current or former
employee (or his beneficiary)).
(f) There are no pending, threatened or anticipated claims (other than
routine claims for benefits) by, on behalf of or against any of the Plans or any
trusts related thereto.
(g) Except as set forth in other Schedules to this Agreement, the
consummation of the transactions contemplated by this Agreement will not (either
alone or upon the occurrence of any additional acts or events) (A) entitle any
current or former employee of CoreWest to severance pay, employment compensation
or any other payment, benefit or award or (B) accelerate or modify the time of
payment or vesting, or increase the amount of any benefit, award or compensation
due any such employee.
4.14 Ownership of Property
CoreWest has good and valid title to all CoreWest's assets, business
and properties, whether real or personal, tangible or intangible, including
without limitation, all assets and properties reflected in its balance sheet as
of October 31, 1996, or acquired subsequent thereto, subject to no Encumbrances,
except (i) those items that secure liabilities that are reflected in said
balance sheet or the notes thereto or incurred in the ordinary course of
business after the date of such balance sheet, including the Warehouse Lines of
Credit, (ii) statutory liens for amounts not yet delinquent or which are being
contested in good faith, (iii) liens and encumbrances on, and rights of
redemptions with respect to, foreclosed real estate, (iv) such Encumbrances that
do not in the aggregate materially detract from the value or interfere with the
use or operations of the assets and properties subject thereto and (v) the
Encumbrances set forth on Schedule 4.14. CoreWest as lessee has the right under
valid and subsisting leases to occupy, use, possess and control all property
leased by CoreWest, as presently occupied, used, possessed and controlled by
CoreWest. The properties and assets owned or leased by CoreWest are adequate for
the conduct of the current business of CoreWest. Giving effect to the
transactions contemplated by this Agreement, Buyer shall have all assets,
personnel and
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property which Shareholders believe to be necessary to conduct CoreWest's
business consistent with historical practice, subject to Buyer securing
appropriate licenses and regulatory approvals to the extent necessary.
CoreWest's assets include, without limitation, the tradename "CoreWest Banc" and
the associated goodwill, all customer and mailing lists, all rights to multiple
locations where the Business is conducted, computer programs, forms, files,
business records, documents, know-how, transactions in progress, contract
rights, furniture, fixtures, equipment, net worth and other tangible and
intangible assets, leasehold interests and other assets relating to the
Business.
4.15 Environmental Protection
CoreWest has not received from any source with respect to any property
("Operating Property") that it owns (including as a trustee), leases, or
actively participates in the management of, any Environmental Claim to the
effect that CoreWest, or any Operating Property or Loan Property, or any
predecessor is not in compliance with all environmental or health laws, rules,
Regulations, standards and requirements relating to pollution (including the
discharge of materials into the environment or indoors) or protection of the
environment, including common law ("Environmental Laws"), nor any requests for
information which could result in or help provide a basis for any Environmental
Claim, nor are there any facts which could reasonably be expected to form the
basis of an Environmental Claim against CoreWest. All environmental audits,
analyses, or surveys of any Operating Property or Loan Property which have been
submitted to or by CoreWest are identified in Section 4.15 of the Schedule, and
copies of such audits, analyses, surveys or other documents have been made
available to Buyer. CoreWest has not owned, managed, supervised or participated
in the management of any commercial real property.
4.16 Brokers and Finders
Neither Shareholders nor CoreWest, nor any of CoreWest's officers,
directors, employees or agents has employed any broker, finder or financial
advisor or incurred any liability for any fees or commissions in connection with
the transactions contemplated hereby, except for legal, accounting and other
professional fees payable by CoreWest or Shareholders in connection with the
Acquisition. The total legal, accounting and other professional fees and
expenses of CoreWest related to this transaction shall be fully reserved against
on the Closing Balance Sheet for the purpose of requiring a positive net worth.
4.17 Insurance
Section 4.17 of the Schedule sets forth all the insurance policies,
binders and bonds maintained by CoreWest. Except as disclosed therein, such
policies are in full force and effect.
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4.18 Mortgage Banking Licenses and Qualifications
CoreWest (i) is qualified as and is (A) an FHA approved investing
lender under 24 C.F.R. 'SS' 202.7; (ii) in all material respects meets all
applicable requirements of laws and regulations so as to be eligible to purchase
and hold FHA Loans and conventional mortgage loans; and (iii) has all other
material certifications, authorizations, licenses, permits and other approvals
("Licenses") necessary to conduct its current mortgage banking business, and is
in good standing under all applicable federal, state and local laws and
regulations thereunder, as a mortgage lender and servicer. A complete list of
such Licenses is set forth in Section 4.18 of the Schedule. Except as set forth
in Section 4.18 of the Schedule, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
affect the validity of any License currently possessed by CoreWest, and all such
Licenses will remain in full force and effect after the Closing Date.
Shareholders shall cause all regulatory filings and other actions required by
any contract to which CoreWest is a party or under any law in connection with
the Acquisition and change in ownership of the Business of CoreWest. Section
4.18 of the Schedule sets forth all regulatory actions and consents necessary or
appropriate in connection with the Acquisition and change in ownership of the
Business.
4.19 Loan Portfolio
Shareholders have delivered to Buyer information regarding CoreWest's
mortgage loan portfolio as of December 31, 1996, which is true and correct in
all material respects. Each Mortgage Loan (a) is evidenced by a note or other
evidence of indebtedness with such terms as are customary in the business, (b)
is duly secured by a mortgage or deed of trust with such terms as are customary
in the business and which grants the holder thereof a first lien on the subject
property (including any improvements thereon) each such mortgage or deed of
trust constituting a security interest that has been duly perfected and
maintained (or is in the process of perfection in due course) and is in full
force and effect, and (c) (i) was at the time of its closing accompanied by an
insurance policy covering improvements on the premises subject to such mortgage
or deed of trust, with a loss payee clause in favor of CoreWest or its assignee,
such insurance policy covering such risks as are customarily insured against in
accordance with industry practice and in accordance with Investor requirements,
and (ii) is currently covered by such an insurance policy, or an insurance
policy "force-placed" by CoreWest, or CoreWest's Blanket Mortgage single
Interest Impairment Policy covering the interests of the mortgagee. No Warehouse
Loan is ineligible for purchase under an investor program available to CoreWest.
4.20 Enforceability
All Mortgage Loans are valid and legally binding obligations of the
borrowers thereunder enforceable in accordance with their terms, except as
enforcement thereof may be limited by (i) bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (whether applied in a proceeding in equity or at
law), (ii) state laws requiring creditors to proceed against the collateral
before pursuing the borrower, and (iii) state laws on deficiencies. Neither the
operation of any of the
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terms of any Mortgage Loan nor the exercise of any right thereunder, has
rendered or will render the related mortgage or note unenforceable, in whole or
in part, subject it to any right of rescission, setoff, counterclaim or defense,
and no such right of rescission, setoff, counterclaim or defense has been
asserted with respect thereto.
4.21 Title to Certain Mortgage Loans
Mortgage Loans held in CoreWest's account (whether or not for future
sale or delivery to an Investor) are owned by CoreWest free and clear of any
Encumbrance other than its lender banks pursuant to warehouse lines. Such
Mortgage Loans have been duly recorded or submitted for recordation in the
appropriate filing office in the name of CoreWest as mortgagee. CoreWest has
not, with respect to any such Mortgage Loan, released any security therefor,
except upon receipt of reasonable consideration for such release or accepted
prepayment of any such Mortgage Loan which has not been promptly applied to such
Mortgage Loan.
4.22 No Recourse
Except as set forth in Section 4.22 of the Schedule, CoreWest is not a
party to (A) any agreement or arrangement with (or otherwise obligated to) any
Person, including an Investor or insurer, to repurchase from any such Person any
Mortgage Loan and mortgaged property serviced for others or any mortgage loan
sold by CoreWest with servicing released ("Servicing Released Loans"), or (B)
any agreement, arrangement or understanding to reimburse, indemnify or hold
harmless any Person or otherwise assume any liability with respect to any Loss
suffered or incurred as a result of any default under or the foreclosure or sale
of any such Mortgage Loan or mortgage property or Servicing Released Loans,
except insofar as such recourse is based upon breach by CoreWest of a customary
representation or warranty set forth in any Mortgage Servicing Agreement or
Investor Commitment.
4.23 Mortgage Servicing Agreements
Set forth in Section 4.23 of the Schedule is an accurate and complete
list dated November 30, 1996, setting forth each Mortgage Servicing Agreement in
effect as of such date. Shareholders have previously made and delivered to Buyer
true and complete copies of all Mortgage Servicing Agreements. The Mortgage
Servicing Agreements and the Regulations set forth all the terms and conditions
of CoreWest's rights against and obligations to the Agencies and Investors and
they have not been modified, orally or in writing, since the date of delivery.
All Mortgage Servicing Agreements are valid and binding obligations of the
parties thereto, in full force and effect and enforceable in accordance with
their terms, except as enforcement thereof may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether applied in a proceeding
in equity or at law). To CoreWest's knowledge, there is no default or claim of
default by any party to such Mortgage Servicing Agreements, and no event has
occurred which with the passage of time or the giving of notice or both would
constitute a default by any party
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under any such Mortgage Servicing Agreement or would result in any such Mortgage
Servicing Agreement being terminable by any party thereto. There is no pending
or, to the best knowledge of Seller, threatened cancellation of any Mortgage
Servicing Agreement, and no sanctions or penalties have been imposed upon
CoreWest under any Mortgage Servicing Agreement or under applicable rules,
regulations, guidelines, policies and handbooks of any other party to such
Mortgage Servicing Agreements. CoreWest shall retain all Mortgage Servicing
Agreements at Closing Date.
4.24 Compliance
CoreWest has been and is (and specifically the documentation,
origination, purchase, assumption, modification, sale, servicing of Mortgage
Loans (including the maintenance of and transactions with respect to custodial
Account) and maintenance of books and records by it has been and is) in
compliance with all Regulations, orders, writs, decrees, injunctions and other
requirements of any court or governmental authorities applicable to it, its
properties and assets or its conduct of business in all material respects.
CoreWest has not done or failed to do, and has not caused to be done or omitted
to be done, any act or omission, the effect of which would operate to invalidate
or materially impair (i) any approvals of the FHA, VA, FNMA, FHLMC, GNMA or HUD,
(ii) any FHA insurance or commitment of the FHA to insure, (iii) any VA
guarantee or commitment of the VA to guarantee, (iv) any private mortgage
insurance or commitment of any private mortgage insurer to insure, (v) any title
insurance policy, (vi) any hazard insurance policy, (vii) any flood insurance
policy required by the National Flood Insurance Act of 1968, as amended, (viii)
any fidelity bond, direct surety bond, or errors and omissions insurance policy
required by HUD, GNMA, FNMA, FHA, FHLMC, VA or private mortgage insurers, (ix)
any surety or guaranty agreement or (x) any guaranty issued by GNMA to CoreWest
respecting mortgage backed securities issued by CoreWest and other like
guaranties. During the twelve month period preceding the date hereof, no Agency,
Investor or private mortgage insurer has (i) claimed that CoreWest has violated
or not complied with the applicable underwriting standards with respect to
mortgage loans sold by CoreWest to such Investor or (ii) imposed restrictions on
the activities (including commitment authority) on CoreWest.
4.25 Investment Commitments
Set forth in Section 4.25 of the Schedule is a complete and correct
list of each Investor Commitment of to which CoreWest is a party on the date
hereof. Shareholders have made available to Buyer complete and correct copies of
all Investor Commitments in effect on such date. Each Investor Commitment
constitutes valid and binding obligations of CoreWest and, to the best knowledge
of CoreWest, of the other parties thereto, enforceable in accordance with its
terms, subject to bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
(whether applied in a proceeding in equity or at law). CoreWest shall retain all
Investor Commitments as of the Closing Date.
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4.26 Custodial Accounts
CoreWest maintains no escrow accounts for any serviced loans.
4.27 Accounts Receivable
All accounts receivable, are carried on the books at values determined
in accordance with GAAP (including related reserves), and to CoreWest's
knowledge are not subject to defenses, setoffs or claims of the mortgagor (other
than those already accounted for) arising from acts or omissions of CoreWest.
4.28 Data Processing
CoreWest has good and valid title or valid license to the data
processing software (including documentation, user manuals, upgrades and current
releases, etc.), currently used by it, and the data processing system (software
and hardware), used to support CoreWest's mortgage servicing business is
believed to be operating in the intended manner.
4.29 Inquiries
Section 4.29 of the Schedule contains a true and correct list of all
of the audits, investigations, complaints and inquiries of CoreWest by an
Agency, HUD, an Investor, or a private mortgage insurer since inception, the
result of which audits and investigations claimed a material failure to comply
with applicable Regulations, resulted in a repurchase of Mortgage Loans by
CoreWest, resulted in indemnification by CoreWest in connection with the
Mortgage Loans, resulted in rescission of an insurance or guaranty contract or
agreement, or resulted in payment of a penalty to a Agency, HUD, an Investor or
a private mortgage insurer, and like adverse findings. Except for customary
ongoing quality control reviews, no such audit or investigation (each an
"Inquiry") is pending or threatened. CoreWest and the Shareholders have made
available to Buyer copies of all written reports and materials received in
connection with such audits, investigations, complaints and inquiries.
4.30 CoreWest's Representations with Respect to Mortgage Loans
To CoreWest's knowledge, no breach or violation of any representation,
warranty or covenant exists which individually, or collectively, would have a
Material Adverse Effect on CoreWest with respect to any Mortgage Loans, the
ownership of which has been transferred by CoreWest to any Person.
4.31 Advances
Except as set forth in Section 4.31 of the Schedule, there are no
pooling, participation, servicing or other agreements to which CoreWest is a
party which obligate it to
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make servicing advances with respect to defaulted or delinquent Mortgage Loans
other than as provided in GNMA pooling and servicing agreements.
4.32 Pools
Except as set forth in Section 4.32 of the Schedule, all Pools
serviced by CoreWest have been certified and, if required, re-certified. With
respect to any Pools serviced by CoreWest which have not been fully certified,
CoreWest has notified the custodian with respect thereto of all deficiencies,
and such custodian has so notified the applicable Investor or Investor Program.
4.33 Commercial Mortgages
CoreWest has never taken title to any commercial mortgage loan.
CoreWest has never foreclosed on any commercial property securing any commercial
mortgage loan in its own name, is not required under any Mortgage Servicing
Agreement to foreclose on any commercial property securing any commercial
mortgage loans in default in its own name and has never taken title to any
commercial property securing any commercial mortgage loan. Any breach of any
representation or warranty set forth in this Section 4.33 shall be deemed to
render such representation or warranty to be untrue and incorrect in a material
respect.
4.34 No Tax-Sharing Agreements
CoreWest is not a party to any tax sharing agreement or similar
arrangement.
4.35 No Intercompany Accounts
CoreWest has no intercompany accounts.
4.36 CoreWest Employees
To the best of CoreWest's and Shareholders' knowledge, each employee
of CoreWest will continue his or her employment with the Post-Closing CoreWest
Business Unit after the Closing Date. CoreWest has no agreements, policies,
practices or understandings (written or oral) concerning CoreWest employee bonus
programs, employee incentive plans or employee benefit plans except as set forth
in Section 4.13(a) of the Schedule. A complete list of CoreWest's employees is
set forth in Section 4.36 of the Schedule.
4.37 Conduct Prior to Closing
Within the four (4) months prior to the date hereof, except as set
forth in Section 4.37 of the Schedule, CoreWest has conducted its business only
in the ordinary course, and except as contemplated by or resulting from their
Agreement and the transactions contemplated hereby, CoreWest has not:
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(a) issued, sold or delivered any shares of its capital stock or issue
or sell any securities convertible into, or options with respect to, or warrants
to purchase or rights to subscribe to, any shares of its capital stock;
(b) effected any recapitalization, reclassification, stock dividend,
stock split or like change in capitalization;
(c) amended its articles of incorporation or by-laws;
(d) merged or consolidated with, or, except as a result of foreclosure
or repossession in the ordinary course of its mortgage banking business,
acquired substantially all of the assets of, any other entity;
(e) sold, transferred, leased or encumbered a material amount of
assets (other than Excluded Assets) except in the ordinary course of business;
(f) materially altered or varied its methods or policies of (i)
underwriting, pricing, originating, warehousing, selling and servicing, or
buying or selling rights to service, its Mortgage Loans, (ii) hedging (which
term includes both buying futures and forward commitments from financial
institutions) its mortgage loan positions or commitments, and (iii) obtaining
financing and credit;
(g) granted to any director, officer, employee or consultant any
material increase in compensation or benefits (other than as may be required
under the terms of written agreements in effect on the date hereof and other
than normal increases made in the ordinary course of business to officers or
employees in accordance with customary past practices and policies);
(h) granted any severance or termination pay (other than as may be
required under the terms of written agreements in effect on the date hereof) to,
or entered into or amended any employment or severance agreement with, any
person, other than termination pay paid in the ordinary course of business to
officers or employees in accordance with customary past practices and policies;
(i) adopted any new or amended any existing director, officer or
employee benefit plans (including, without limitation, profit sharing, bonus,
director and officer incentive compensation, retirement, medical,
hospitalization, life or other insurance plans, arrangements and commitments) or
any trust agreement relating thereto;
(j) incurred any debt other than in the ordinary course of business in
amounts consistent with past practice;
(k) made any change in accounting principles or methods from those
currently employed, except as required by GAAP or by applicable regulatory
requirements;
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(l) granted any mortgage or security interest in, or made any pledge
of, or permitted any lien or encumbrance to be placed on, any of its assets or
properties other than in the ordinary course of business consistent with past
practice;
(m) canceled, waived, released or compromised any material debt or
claim, other than upon payment in full;
(n) failed to maintain in full force and effect all existing insurance
policies and fidelity bonds;
(o) taken any action, or failed to take any action, that would result
in a breach or violation of the representations and warranties of Sellers
contained in this Agreement or caused any condition to the transactions
contemplated hereby not to be satisfied;
(p) accelerated, terminated, modified or canceled any material
contract, lease, or license to which CoreWest is a party;
(q) entered into any employment or collective bargaining agreement, or
modified any existing employment or collective bargaining agreement; and
(r) agreed to do any of the foregoing included in (a) through (q).
4.38 Officers and Directors.
Schedule 4.38 sets forth all the officers and directors of CoreWest.
4.39 Shareholder's Investment Intention/Restricted Securities.
(a) Each Shareholder is acquiring the Exchange Shares for investment
solely for the Shareholder's account and not with a view to, or for resale in
connection with, the distribution or other disposition thereof and Shareholder
has no present intention of selling, granting any participation in, or otherwise
distributing the same. The Shareholder agrees and acknowledges that the
Shareholder will not, directly or indirectly, offer, transfer, sell, assign,
pledge, hypothecate or otherwise dispose of any Exchange Shares or solicit any
offers to purchase or otherwise acquire or take a pledge of any Shares, except
in accordance with the terms of this Agreement unless (i) the transfer, sale,
assignment, pledge, hypothecation or other disposition is pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act") and the rules and regulations thereunder and has been
registered under any applicable state securities or "blue sky" laws or (ii) no
such registration is required because of the availability of an exemption from
registration under the Securities Act and the rules and regulations in effect
thereunder and under any applicable state securities or "blue sky" laws.
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(b) Each Shareholder has such knowledge and experience in financial or
business matters that it is capable of evaluating the merits and risks of the
investment in the Exchange Shares and the Shareholder can bear the economic risk
of its investment.
(c) Each Shareholder understands that the Exchange Shares are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from Buyer in a transaction not involving a
public offering and that under such laws and applicable regulations such
securities may be resold without registration under the Securities Act, only in
certain limited circumstances. In this connection, the Shareholder represents
that it is familiar with SEC Rule 144, as presently in effect, and understands
the resale limitations imposed thereby and by the Act.
(d) Without in any way limiting the representations set forth above,
each Shareholder further agrees not to make any disposition of all or any
portion of the Exchange Shares unless:
(i) There is then in effect a Registration Statement under the Act
covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(ii) the Shareholder shall have notified Buyer of the proposed
disposition and shall have furnished the Buyer with an opinion of counsel,
reasonably satisfactory to the Buyer, that such disposition will not
require registration of such shares under the Securities Act. It is agreed
that the Buyer will not require opinions of counsel for transactions which
are shown to the Buyer's reasonable satisfaction as being made pursuant to
and in compliance with Rule 144.
(e) It is understood that the certificates evidencing the Exchange
Shares may bear one or all of the following legends:
(i) "These securities have not been registered under the
Securities Act of 1933 (the 'Act') and have been issued pursuant to
exceptions under the Act and under applicable state securities laws. They
may not be sold, offered for sale, pledged or hypothecated in the absence
of a registration statement in effect with respect to the securities under
such Act or an opinion of counsel satisfactory to the Company that such
registration is not required under the Act or under such Act." The
foregoing legend shall be removed from any such certificate at the request
of the holder thereof at such time as the shares represented thereby are
registered under the Act or become eligible for resale pursuant to Rule
144.
(ii) Any legend required by applicable state securities laws.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer makes the following representations and warranties to CoreWest and
Shareholders, each of which is true and correct on the date hereof, shall remain
true and correct to and including the Closing Date, shall be unaffected by any
investigation heretofore or hereafter made by CoreWest or any notice to
CoreWest, and shall survive the closing of the transactions provided for herein.
5.1 Organization
Buyer is a corporation duly organized and in good standing under the
laws of the State of Florida. Buyer has the corporate power and authority to own
or lease all of its properties and to carry on its business as it is now being
conducted.
5.2 Authority; No Violation
(a) Buyer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the Ancillary Agreements and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary corporate action in respect thereof and
no other corporate proceedings on the part of Buyer are necessary to consummate
the transactions so contemplated. This Agreement and the Ancillary Agreements
have been duly and validly executed and delivered by Buyer and, assuming this
Agreement and the Ancillary Agreements constitute valid and binding agreements
of CoreWest, constitutes valid and binding obligations of Buyer, enforceable
against Buyer in accordance with their respective terms (subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights generally
and subject, as to enforceability, to general principles of equity.)
(b) Neither the execution and delivery of this Agreement nor the
consummation by Buyer of the transactions contemplated hereby, nor compliance by
Buyer with any of the terms or provisions hereof, will (i) conflict with or
result in a breach of any provision of the articles of incorporation or by-laws
of Buyer, (ii) subject to making or obtaining the consents, permits,
authorizations, approvals, filings and registrations set forth in Section 5.2 of
the Buyer Schedule, violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to Buyer or any of its
properties or assets, or (iii) subject to obtaining or making the consents,
permits, authorizations, approvals, filings and registrations set forth in
Section 5.2 of the Buyer Schedule, violate, conflict with, result in a breach of
any provisions of, constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, result in the termination
of, accelerate the performance required by, or result in a right of termination
or acceleration or the creation of any Encumbrance upon any of the properties or
assets of Buyer under, any of the terms, conditions
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or provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which Buyer is a party, or
by which its properties or assets may be bound or affected except for such
violations, conflicts, breaches or defaults which either individually or in the
aggregate would not have a Material Adverse Effect on Buyer. Notwithstanding the
foregoing, the representations and warranties in this subsection (b) shall not
relate to or cover any consents, approvals, filings or registrations, if any,
arising from the regulated nature of CoreWest or made applicable to Buyer by
virtue of CoreWest or Buyer's acquisition of the Purchased Assets and business
of CoreWest or such regulations governing CoreWest and the mortgage banking
industry as a result of Buyer's purchase of the Purchased Assets.
5.3 Brokers and Finders
Neither Buyer nor any of its officers, directors, employees or agents
has employed any broker, finder or financial advisor or incurred any liability
for any fees or commissions in connection with the transactions contemplated
hereby, except for legal, accounting and other professional fees payable in
connection with the Acquisition.
5.4 Exchange Shares
The Exchange Shares, when issued in accordance with this Agreement,
will be duly and validly issued, fully paid, and non-assessable, and will be
free of restrictions on transfer other than restrictions on transfer under this
Agreement and the Registration Rights Agreement and under applicable state and
federal securities laws.
5.5 Litigation
The Buyer is not subject to any actions, suits, investigations, claims
or proceedings pending, or to the Buyer's knowledge, threatened before any court
or before any governmental or regulatory authority or arbitrator which could
have a Material Adverse Effect upon the Buyer or its business operations or
properties.
5.6 Securities Filings
The Company's filings required by the Exchange Act do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein, in light of the circumstances
under which they were made, not misleading, and the statements included therein
fairly present the financial condition and results of operating the Company as
of the dates and for the periods therein indicated, subject, and in the case of
unaudited financial statements, to normal year-end audit adjustments.
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ARTICLE 6
COVENANTS
6.1 Filings and Consents
(a) Promptly following the execution and delivery hereof, Shareholders
shall, or shall cause CoreWest to, obtain or file all consents (including Agency
and Investor consents), approvals, permits, authorizations, notices, and
registrations (collectively, "filings and consent solicitations") necessary to
consummate the Acquisition and for CoreWest to continue its Business consistent
with past practices following Closing. Buyer shall cooperate with Shareholders
and CoreWest in obtaining or making the necessary filings and consent
solicitations. Sellers will use their best efforts to cause the filings and
consent solicitations to be made as soon a practicable. The parties hereto agree
that they will consult with each other with respect to the obtaining of all
necessary permits, consents, approvals and authorizations of all third parties
and governmental bodies necessary or advisable to consummate the transactions
contemplated by this Agreement, and each party will keep the others apprised of
the status of matters relating to completion of the transactions contemplated
herein.
(b) Sellers and Buyer shall promptly furnish each other with copies of
written communications received by Shareholders, CoreWest or Buyer, as the case
may be, or delivered by any of them, of any governmental body, Agency, Investor
or private mortgage insurer in respect of the transactions contemplated hereby.
(c) Buyer shall, or shall cause CoreWest to, prepare and distribute any
and all IRS Form 1099s for the period prior to Closing.
6.2 Press Releases
CoreWest and Buyer shall cooperate with each other in the development
and distribution of all news releases and other public information disclosures
with respect to the Agreement or the transactions contemplated hereby; provided,
however, prior to the consummation of the Acquisition, no party hereto shall
make any public announcement or disclosure with respect to the transactions
contemplated hereby without the prior approval of the other parties, except
where disclosure is required by law. The parties agree to cooperate, in good
faith, to promptly issue a press release relating to the Acquisition upon
execution of this Agreement.
6.3 Employment Agreements
Buyer shall cause CoreWest or another Affiliate of Buyer to enter into
employment agreements with Ronald Staake, Timothy C. Hayes, Jon Maddox, Normand
Steeg and Steve Curry to serve as executives of the Post-Closing CoreWest
Business Unit, or of Buyer
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or an affiliate of Buyer, in the form attached hereto as Exhibit 6.3 (the
"Employment Contracts").
6.4 Marketing of Competing Products
Shareholders and CoreWest acknowledge that Buyer markets products that
directly compete with CoreWest's products, and after Closing Buyer's other
business units will market products which directly compete with the Post-Closing
CoreWest Business Unit. (Nothing contained in Section 6.4 shall release Buyer
from the obligations contained in Section 3.3(c) with respect to the operation
of the Post-Closing CoreWest Business Unit.)
6.5 Consent to CoreWest Preclosing Dividend
Buyer acknowledges that effective on or before December 31, 1996 and
before the Closing, CoreWest intends to declare certain employee bonuses, repay
certain loans and obligations to Shareholders and distribute all its capital and
earnings to Shareholders. Buyer consents to these payments, provided that this
shall not relieve CoreWest and Shareholders with the obligation to comply with
all terms and conditions of this Agreement, including, without limitation, the
representation that CoreWest shall have a tangible net worth of more than one
dollar and that all such payments shall be reflected on the Closing Balance
Sheet prior to calculation of the Initial Net Worth.
6.6 HSR Act Filing
To the extent any filing, notice or consent is required under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, each of Buyer, Shareholders
and CoreWest shall, in cooperation with the other, file any reports or
notifications that may be required to be filed by it and shall reasonably
cooperate to satisfy such requirements.
ARTICLE 7
FURTHER COVENANTS OF COREWEST AND SHAREHOLDERS
CoreWest and Shareholders covenant and agree as follows:
7.1 Access to Information and Records. During the period prior to the
Closing:
(a) CoreWest shall, and shall cause its officers, employees, agents,
independent accountants and advisors to, furnish to Buyer, its officers,
employees, agents, independent accountants and advisors, at reasonable times and
places, all information in their possession concerning CoreWest as may be
requested, and give such persons access to all of the properties, books,
records, contracts and other documents of or pertaining to CoreWest that
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CoreWest or its officers, employees, agents, independent accountants or advisors
shall have in their custody.
(b) With the prior consent of CoreWest in each instance (which consent
shall not be unreasonably withheld), Buyer and its officers, employees, agents,
independent accountants and advisors, shall have access to vendors, customers,
and others having business dealings with CoreWest for the purpose of performing
Buyer's due diligence investigation, provides,m however, that duly authorized
representatives of CoreWest shall have the opportunity to be present during any
such investigation.
7.2 Bank Accounts.
Not less than three (3) days prior to the Closing, CoreWest shall
provide to Buyer a list of each bank in which CoreWest has an account or safe
deposit box, the name and number of each such account or box and the names of
all persons authorized to draw thereon or who have access thereto, with the
amounts they are authorized to draw.
7.3 Conduct of Business Pending the Closing.
From the date hereof until the Closing, except as otherwise approved in
writing in advance by the Buyer (which approval shall not be unreasonably
withheld):
(a) No Changes. CoreWest will carry on its business diligently and in
the same manner as heretofore and will not make or institute any changes in its
methods of purchase, sale, management, accounting or operation.
(b) Maintain Organization. CoreWest will take such action as may be
necessary to maintain, preserve, renew and keep in favor and effect the
existence, rights and franchises of CoreWest and will use its best efforts to
preserve the business organization of CoreWest intact, to keep available to
Buyer the present officers and employees, and to preserve for Buyer its present
relationships with suppliers and customers and others having business
relationships with CoreWest.
(c) No Breach. CoreWest and Shareholders will not do or omit any act,
or permit any omission to act, which may cause a breach of any material
contract, commitment or obligation, or any breach of any representation,
warranty, covenant or agreement made by CoreWest and/or the Shareholders herein,
or which would have required disclosure on Exhibit 4.37 had it occurred after
October 31, 1996 and prior to the date of this Agreement.
(d) No Material Contracts. No contract or commitment will be entered
into, and no purchase of raw materials or supplies and no sale of goods or
services (real, personal, or mixed, tangible or intangible) will be made, by or
on behalf of CoreWest, except contracts, commitments, purchases or sales which
are in the ordinary course of business and consistent with past practice, are
not material to the CoreWest (individually or in the aggregate) and would
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not have been required to be disclosed in the Disclosure Schedule had they been
in existence on the date of this Agreement.
(e) No Corporate Changes. CoreWest shall not amend its Articles of
Incorporation or By-laws or make any changes in authorized or issued capital
stock.
(f) Maintenance of Insurance. CoreWest shall maintain all of the
insurance in effect as of the date hereof and shall procure such additional
insurance as shall be reasonably requested by Buyer at Buyer's expense.
(g) Maintenance of Property. CoreWest shall use, operate, maintain and
repair all property of CoreWest in a normal business manner.
(h) Interim Financials. CoreWest will provide Buyer with interim
monthly financial statements and other management reports as and when they are
available.
(i) No Negotiations. Neither CoreWest nor any Shareholder will directly
or indirectly (through a representative or otherwise) solicit or furnish any
information to any prospective buyer, commence, or conduct presently ongoing,
negotiations with any other party or enter into any agreement with any other
party concerning the sale of CoreWest, CoreWest's assets or business or any part
thereof or any equity securities of CoreWest (an "acquisition proposal"), and
CoreWest and Shareholders shall immediately advise Buyer of the receipt of any
acquisition proposal.
7.4 Cooperation with Buyer's Accountants.
The Shareholders shall cooperate and assist Buyer's Accountants in the
preparation of financial statements of the consolidated Financial Statements of
Buyer and/or CoreWest and related matters, provided that Buyer shall pay all
reasonable out-of-pocket expenses. Upon request, Shareholders shall execute
representation letters to Buyer's Accountants in form and scope reasonable for
preparation of audited financial statements. If the financial statements of
CoreWest (as a subsidiary or Division of Buyer) are required to be audited on an
annual basis to support CoreWest's operations, such services shall be obtained
by the post-closing CoreWest Business Unit.
7.5 General Releases.
At the Closing, each Shareholder shall deliver, and shall cause each
person with whom an employment agreement is being entered into pursuant to
Section 6.3 hereof to deliver, general releases to Buyer, in form and substance
satisfactory to Buyer and its counsel, releasing CoreWest and the directors,
officers, agents and employees of CoreWest from all claims to the Closing Date,
except (i) as may be described in written contracts disclosed in the Disclosure
Schedule and expressly described and excepted from such releases, and (ii) in
the case of persons who are employees of CoreWest, compensation for current
periods expressly described and
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excepted from such releases. Such releases shall also contain waivers of any
right of contribution or other recourse against CoreWest with respect to
representations, warranties made herein by CoreWest.
7.6 Consents.
CoreWest and Shareholders will use their reasonable, good faith,
commercial efforts prior to Closing to obtain all consents necessary for the
consummation of the transactions contemplated hereby.
7.7 Other Action.
CoreWest and Shareholders shall use their reasonable, good faith,
commercial efforts to cause the fulfillment at the earliest practicable date of
all of the conditions to the parties' obligations to consummate the transactions
contemplated in this Agreement and to result in the Acquisition's being treated
as a tax-free reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code.
7.8 Disclosure.
CoreWest and Shareholders shall have a continuing obligation to
promptly notify Buyer in writing with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Disclosure Schedule.
ARTICLE 8
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
Each and every obligation of Buyer to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of each of the
following conditions:
8.1 Representations and Warranties True on the Closing Date.
Each of the representations and warranties made by CoreWest and
Shareholders in this Agreement, and the statements contained in the Disclosure
Schedule or in any instrument, list, certificate or writing delivered by
CoreWest or Shareholders pursuant to this Agreement, shall be true and correct
in all material respects when made and shall be true and correct in all material
respects at and as of the Closing Date as though such representations and
warranties were made or given on and as of the Closing Date, except for any
changes permitted by the terms of this Agreement or consented to in writing by
Buyer.
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8.2 Compliance With Agreement.
CoreWest and Shareholders shall have in all material respects
performed and complied with all of their agreements and obligations under this
Agreement which are to be performed or complied with by them prior to or on the
Closing Date, including the delivery of the closing documents specified in
Section 10.1.
8.3 Absence of Litigation.
No Litigation shall have been commenced or threatened, and no
investigation by any government entity shall have been commenced, against Buyer,
CoreWest, Shareholders or any of the Affiliates, officers or directors of any of
them, with respect to the transactions contemplated hereby.
8.4 Consents and Approvals.
All approvals, consents and waivers that are required to effect the
transactions contemplated hereby shall have been received, and executed
counterparts thereof shall have been delivered to Buyer not less than two
business days prior to the Closing. Notwithstanding the foregoing, receipt of
the consent of any third party to the assignment of a Contract which is not (and
is not required to be) disclosed in the Disclosure Schedule shall not be a
condition to Buyer's obligation to close, provided that the aggregate of all
such Contracts does not represent a material portion of CoreWest's sales or
expenditures. After the Closing, CoreWest and Shareholders will continue to use
reasonable commercial effects to obtain any such consents or approvals, and
neither CoreWest nor any Shareholder shall hereby be relieved of any liability
hereunder for failure to perform any of their respective covenants or for the
inaccuracy of any representation or warranty.
8.5 Hart-Scott-Rodino Waiting Period.
All applicable waiting periods related to the HSR Act shall have
expired.
8.6 No Material Adverse Change in CoreWest.
No material adverse change in the financial condition or prospects of
CoreWest has occurred other than changes affecting the mortgage banking industry
generally.
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ARTICLE 9
CONDITIONS PRECEDENT TO COREWEST'S AND
SHAREHOLDER'S OBLIGATIONS
Each and every obligation of CoreWest and Shareholders to be performed
on the Closing Date shall be subject to the satisfaction prior to or at the
Closing of the following conditions:
9.1 Representations and Warranties True on the Closing Date.
Each of the representations and warranties made by Buyer in this
Agreement shall be true and correct in all material respects when made and shall
be true and correct in all material respects at and as of the Closing Date as
though such representations and warranties were made or given on and as of the
Closing Date.
9.2 Compliance With Agreement.
Buyer shall have in all material respects performed and complied with
all of Buyer's agreements and obligations under this Agreement which are to be
performed or complied with by Buyer prior to or on the Closing Date, including
the delivery of the closing documents specified in Section 10.2.
9.3 Absence of Litigation.
No Litigation shall have been commenced or threatened, and no
investigation by any Government Entity shall have been commenced, against Buyer,
CoreWest, Shareholders or any of the affiliates, officers or directors of any of
them, with respect to the transactions contemplated hereby; provided that the
obligations of CoreWest and Shareholders shall not be affected unless there is a
reasonable likelihood that as a result of such action, suit, proceeding or
investigation Shareholders will be unable to retain substantially all the
consideration to which it is entitled under this Agreement.
9.4 Hart-Scott-Rodino Waiting Period.
All applicable waiting periods related to the HSR Act shall have
expired.
9.5 Tax Opinion of Buyer's Counsel.
Buyer's legal counsel shall deliver a reasoned legal opinion regarding
the tax consequences of the transaction, in form and substance satisfactory to
CoreWest and its counsel.
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ARTICLE 10
CLOSING
The closing of this transaction ("the Closing") shall take place at the
offices of Foley Lardner Weissburg & Aronson, 2049 Century Park East, Suite
3200, Los Angeles, CA 90067, at 9:00 a.m. on January 7, 1997, or at such other
time and place as the parties hereto shall agree upon. Such date is referred to
in this Agreement as the "Closing Date". Regardless of the Closing Date, the
transaction shall be deemed to have occurred for all purposes as of the 12:01
a.m., January 1, 1997 (the "Effective Time") and the parties shall cooperate to
treat the transaction as having occurred as of the Effective Time.
10.1 Documents to be Delivered by CoreWest and Shareholders.
At the Closing, CoreWest and Shareholders shall deliver to Buyer the
following documents, in each case duly executed or otherwise in proper form:
(a) Stock Certificates. Stock Certificates representing the Shares,
duly endorsed for transfer or with duly executed stock powers attached.
(b) Compliance Certificate. A certificate signed by the chief
executive officer of CoreWest that each of the representations and warranties
made by CoreWest and Shareholders in this Agreement is true and correct in all
material respects on and as of the Closing Date with the same effect as though
such representations and warranties had been made or given on and as of the
Closing Date (except for any changes permitted by the terms of this Agreement or
consented to in writing by Buyer), and that CoreWest and Shareholders have
performed and complied with all of CoreWest's and Shareholders' obligations
under this Agreement which are to be performed or complied with on or prior to
the Closing Date.
(c) Opinion of Counsel. A written opinion of Troop, Meisinger, Steuber
& Pasich, LLP, counsel to CoreWest and Shareholders, dated as of the Closing
Date, addressed to Buyer, substantially in the form of Exhibit 10.1(c) hereto.
(d) Employment Agreements. The Employment Agreements referred to in
Section 6.3, duly executed by the persons referred to in such Section.
(e) Certified Resolutions. A certified copy of the resolutions of the
Board of Directors and the Shareholders of CoreWest authorizing and approving
this Agreement and the consummation of the transactions contemplated by this
Agreement.
(f) Articles; By-laws. A copy of the By-laws of CoreWest certified by
the secretary of CoreWest, and a copy of the Articles of Incorporation of
CoreWest certified by the Secretary of State of California.
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(g) Registration Rights Agreement. The Registration Rights Agreement
in the form attached as Exhibit 10.1(g).
(h) Incumbency Certificate. Incumbency certificates relating to each
person executing any document executed and delivered to Buyer pursuant to the
terms hereof.
(i) Resignations. The resignations of the officers of CoreWest, except
the CoreWest Executives and the directors of CoreWest, except Messrs. Staake and
Hayes, effective as of the Closing Date and in form satisfactory to Buyer's
counsel.
(j) Joint Designation of Peers. Joint designation of Peers pursuant to
Section 3.3(d).
(k) Agreed Plan. The Agreed Plan, as in effect at Closing, pursuant to
Section 3.3(h).
(l) Other Documents. All other documents, instruments or writings
required to be delivered to Buyer at or prior to the Closing pursuant to this
Agreement and such other certificates of authority and documents as Buyer may
reasonably request.
10.2 Documents to be Delivered by Buyer.
At the Closing, Buyer shall deliver to CoreWest and Shareholders the
following documents, in each case duly executed or otherwise in proper form:
(a) Exchange Shares. To Shareholders, the Exchange Shares representing
the Base Purchase Price.
(b) Compliance Certificate. A certificate signed by the chief
executive officer of Buyer that the representations and warranties made by Buyer
in this Agreement are true and correct on and as of the Closing Date with the
same effect as though such representations and warranties had been made or given
on and as of the Closing Date (except for any changes permitted by the terms of
this Agreement or consented to in writing by CoreWest), and that Buyer has
performed and complied with all of Buyer's obligations under this Agreement
which are to be performed or complied with on or prior to the Closing Date.
(c) Opinion of Counsel. (i) A written opinion of Mitchell W. Legler,
general counsel to Buyer, dated as of the Closing Date, addressed to CoreWest,
in substantially the form of Exhibit 10.2(c)-1, (ii) a written opinion of Foley
& Lardner, special counsel to Buyer dated as of the Closing Date, addressed to
CoreWest in substantially the form of Exhibit 10.2(c)-2 hereto and (iii) a
written opinion of Foley & Lardner, special counsel to the Buyer, dated as of
the Closing Date, addressed to CoreWest addressing tax consequences of the
transaction in form and content reasonably acceptable to CoreWest and its
counsel.
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(d) Employment Agreements. The Employment Agreements referred to in
Section 6.3 duly executed by the persons referred to in such Section.
(e) Registration Rights Agreement. The Registration Rights Agreement.
(f) Joint Designation of Peers. Joint Designation of Peers pursuant to
Section 3.3(d).
(g) The Agreed Plan. The Agreed Plan, as in effect at Closing,
pursuant to Section 3.3(h).
(h) Other Documents. All other documents, instruments or writings
required to be delivered to CoreWest at or prior to the Closing pursuant to this
Agreement and such other certificates of authority and documents as CoreWest may
reasonably request.
ARTICLE 11
TERMINATION
11.1 Right of Termination Without Breach. This Agreement may be terminated
without further liability of any party at any time prior to the Closing:
(a) by mutual written agreement of Buyer and CoreWest, or
(b) by either Buyer or CoreWest if the Closing shall not have occurred
on or before January 31, 1997, provided the terminating party has not,
through breach of a representation, warranty or covenant, prevented the
Closing from occurring on or before such date, or
(c) a major, unforeseen, intervening development, such as filing of a
major class action suit against CoreWest or Buyer which reasonably
jeopardizes the practical ability to consummate the Acquisition.
11.2 Termination for Breach.
(a) Termination by Buyer. If (i) there has been a material violation
or breach by CoreWest of any of the agreements, representations or
warranties contained in this Agreement which has not been waived in writing
by Buyer, or (ii) there has been a failure of satisfaction of a condition
to the obligations of Buyer which has not been so waived, or (iii) CoreWest
shall have attempted to terminate this Agreement under this Article or
otherwise without grounds to do so, then Buyer may, by written notice to
CoreWest at any time prior to the Closing that such violation, breach,
failure or wrongful
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termination attempt is continuing, terminate this Agreement with the effect
set forth in Section 11.2(c) hereof.
(b) Termination by CoreWest. If (i) there has been a material
violation or breach by Buyer of any of the agreements, representations or
warranties contained in this Agreement which has not been waived in writing
by CoreWest, or (ii) there has been a failure of satisfaction of a
condition to the obligations of CoreWest which has not been so waived, or
(iii) Buyer shall have attempted to terminate this Agreement under this
Article 11 or otherwise without grounds to do so, then CoreWest may, by
written notice to Buyer at any time prior to the Closing that such
violation, breach, failure or wrongful termination attempt is continuing,
terminate this Agreement with the effect set forth in Section 11.2(c)
hereof.
(c) Effect of Termination. Termination of this Agreement pursuant to
this Section 11.2 shall not in any way terminate, limit or restrict the
rights and remedies of any party hereto against any other party which has
violated, breached or failed to satisfy any of the representations,
warranties, covenants, agreements, conditions or other provisions of this
Agreement prior to termination hereof. In addition to the right of any
party under common law to redress for any such breach or violation, each
party whose breach or violation has occurred prior to termination shall
jointly and severally indemnify each other party for whose benefit such
representation, warranty, covenant, agreement or other provision was made
("indemnified party") from and against all losses, damages (including,
without limitation, consequential damages), costs and expenses (including,
without limitation, interest (including prejudgment interest in any
litigated matter), penalties, court costs, and attorneys fees and expenses)
asserted against, resulting to, imposed upon, or incurred by the
indemnified party, directly or indirectly, by reason of, arising out of or
resulting from such breach or violation. Subject to the foregoing, the
parties' obligations under Section 11.2 of this Agreement shall survive
termination.
ARTICLE 12
INDEMNIFICATION
12.1 Indemnification.
This Article 12 sets forth the sole and exclusive remedies for the
parties thereto, and any Indemnified Party and their respective successors and
assigns for any claim, suit, action or proceeding any of them may assert or
attempt to assert as a result of any alleged breach or default under this
Agreement by CoreWest or any Shareholder (as the case may be) to the extent the
claim, action, suit or proceeding in any way relates to (a) this Agreement or
its negotiation, execution, delivery or performance, transactions contemplated
hereby, regardless of whether such claim or action is based in tort (for
example, intentional or negligent misrepresentation) or contract, or arises at
law or in equity, and (b) any action or omission of (x) any director, officer
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or employee of CoreWest or (y) any Shareholder as director, officer or employee
of CoreWest. The parties each agree that it shall not institute any claim,
action, suit or proceeding against another party (as the case may be), or
otherwise assert any claim, with respect to this Agreement, or its negotiation,
execution, delivery or performance, or any alleged breach or default under this
Agreement, or any of the transactions contemplated hereby, except in accordance
with this Article 12. Notwithstanding the foregoing, this limitation on rights
and remedies shall not apply to any claim or cause of action arising out of a
breach of any Ancillary Document after the Closing.
(a) From and after the Closing Date, Shareholders shall indemnify and
hold harmless CoreWest, Buyer and each of its Affiliates from and against any
and all Losses which any of them may suffer, incur or sustain arising out of or
attributable to (whether or not arising out of third party claims) (i) any
breach of any covenant (including, without limitation, the covenant that
CoreWest has a tangible net worth under GAAP of not less than $1.00 at the
Effective Time), representation or warranty made by Shareholders or CoreWest
pursuant to this Agreement, and (ii) any claim or liability (other than payment
of benefits in the ordinary course), tax, penalty asserted, legal action or
administrative proceeding resulting from or arising in connection with any Plan
or Single Employer Plan that was accrued or incurred prior to the Closing Date.
Without limiting Buyer's other remedies, if Shareholders breach the
covenant/warranty that CoreWest's tangible net worth at the Effective Time is
not less than the Initial Net Worth, and in no event less than $1.00, calculated
according to GAAP (with all appropriate reserves) then the Shareholders shall
contribute cash to CoreWest equal to the difference between the actual tangible
net worth and the tangible net worth as warranted.
(b) From and after the Closing Date, Buyer shall indemnify and hold
harmless the Shareholders from and against, and agrees to pay (i) any and all
expenses, costs or Losses relating to the operation of Subsidiary or Buyer prior
to Closing, and (ii) any and all expenses, costs or Losses relating to
operations of CoreWest to the extent (and only up to the amount) fully accrued
or reserved against on the Closing Balance Sheet, provided that the Shareholders
have fully satisfied their obligations, if any, under the last sentence of
Section 12.1(a) with respect to a breach of the warranty/covenant regarding
CoreWest's tangible net worth at the Effective Time with all Loses fully accrued
and reserved against.
(c) From and after the Closing Date, Buyer shall indemnify and hold
harmless Shareholders from and against any and all Losses which any of them may
suffer, incur or sustain arising out of any breach of any representation,
warranty or covenant made or to be performed by Buyer pursuant to this
Agreement.
(d) If any third party makes a claim for which an Indemnified Party
under this Section 12.1 seeks indemnity from the indemnifying party
("Indemnitor"), the Indemnified Party shall as soon as practicable notify
Indemnitor of the details of the claim ("Claim Notice").
After receiving a Claim Notice, Indemnitor may elect, by written
notice to the Indemnified party, to assume the defense of such claim by using
counsel selected by
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Indemnitor, acting reasonably. If Indemnitor assumes such defense and admits
that the claim is subject to the Indemnitor's indemnity obligations, then (i)
the claim shall be deemed to be a claim indemnified by the Indemnitor; (ii) the
Indemnified Party may, at its election, participate in the defense of the claim,
but Indemnitor will have no obligation to pay for any defense costs including
attorneys' fees of the Indemnified Party after Indemnitor assumes the defense of
the claim; and (iii) Indemnitor will have the right, without cost to Indemnified
Party, to compromise and settle the claim on any basis believed reasonable, in
good faith, by Indemnitor, and Indemnified Party shall be bound thereby,
provided that Indemnitor can reasonably demonstrate the financial resources to
perform under the terms of the proposed Settlement.
After receiving a Claim Notice, if Indemnitor either does not
assume the defense thereof, or does so under a reservation of rights without
admitting that the claim is subject to the Indemnitor's indemnity obligations,
then: (i) the claim shall not be deemed to be a claim indemnified by the
Indemnitor and neither party shall have waived any rights to assert that the
claim is or is not properly a claim subject to the Indemnitor's indemnity
obligations; (ii) both Indemnitor and Indemnified Party may, at their individual
election, participate in the defense of such claim but Indemnitor will remain
responsible for the costs of defense, including reasonable attorneys' fees of
the Indemnified Party should the claim ultimately be determine to be subject to
Indemnitor's indemnity obligation; and (iii) the Indemnified Party shall have
the right to compromise and settle the claim on any basis believed reasonable,
in good faith, by the Indemnified Party, and the Indemnitor will be bound
thereby should the claim ultimately be determined to be subject to Indemnitor's
indemnity obligation.
(e) Notwithstanding anything to the contrary anywhere in this
Agreement, (i) Shareholders' maximum aggregate liability arising out of this
Agreement and the Acquisition shall be the Purchase Price actually received by
such Shareholder except for claims based on intentional fraud of CoreWest and/or
the Shareholders; (ii) CoreWest and Shareholders shall have no liability for any
claim which is not presented to them in writing within three years following the
Effective Time for all matters except taxes (of any kind or nature) and as to
taxes will expire upon expiration of the applicable statute of limitations;
(iii) Shareholders shall have the option to pay any indemnity obligation in cash
or by surrender of Exchange Shares valued at Original Purchase Price Valuation
for Exchange Shares issued as Base Payment and at the Contingent Price Valuation
for Exchange Shares issued as the Contingent Payment; and (iv) Shareholders
shall have no indemnity obligation until the amount of the aggregate claim(s)
exceeds $75,000, in which case Shareholders shall pay the amount of the
aggregate claims in excess of $75,000 (provided that the "Material Adverse
Event" floor of $75,000 shall not be applied to increase, as a personal matter,
the floor to $150,000). The notice of a potential claim shall state the general
factual basis, to the extent known, and the basis of alleged liability. Any
indemnification payment shall take into account the tax consequences of the
payment so that the claim plus the payment shall be tax neutral. Subject to the
following sentence, the amount of damages for which Buyer shall be entitled to
indemnification by the Shareholders hereunder shall be reduced by the actual
value of any tax benefit received by Buyer as a result of such damages (whether
in the form of an actual refund or a reduction in any Tax that would otherwise
be payable by Buyer). Notwithstanding the foregoing, the amount of the damages
for which Buyer
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shall be entitled to indemnification shall be reduced only if, as and when, and
only to the extent any such tax benefit is actually realized by Buyer. For
purposes of determining whether Buyer realizes a net tax benefit with respect to
a tax period, Buyer's actual tax liability for such period shall be compared to
Buyer's hypothetical tax liability for such period determined by excluding in
all periods all items attributable to the damages and indemnification payments.
The Shareholders shall indemnify Buyer against any tax imposed on the receipt of
or otherwise attributable to an indemnification payment hereunder (including any
tax imposed as a result of payments attributable to this sentence). Further, the
Shareholders shall not be obligated to make any payment or otherwise indemnify
Buyer under this Article 12 for damages suffered or incurred by Buyer as a
result of a breach if and to the extent that Buyer has received any insurance
proceeds attributable to such damages. If Buyer receives any insurance proceeds
following an indemnification payment, the Shareholders, and the insurance
proceeds are attributable to the damages for which the indemnification payment
was made. Buyer shall return the indemnification payment to the Shareholders
which made the payment (but not more than the actual amount of insurance
proceeds received).
(f) Notwithstanding the fact that Shareholders and CoreWest may have
jointly and severally made representations or warranties to Buyer in this
Agreement, the Shareholders shall not have any right of contribution from
CoreWest or other right to directly or indirectly recover from CoreWest for any
loss arising from a breach of such representation or warranty.
(g) In order to assert any claim for indemnification or loss under
this Agreement, the party seeking payment must provide written notice of the
claim to the party from whom payment is being sought within three years from the
Effective Time setting forth the background of the claim (to the extent known)
and the general nature of the claim, except that Shareholders shall have three
years from the date of any breach by Buyer to the extent Buyer breaches after
the Effective Time.
Notwithstanding the joint and several liability of the
Shareholders, Buyer shall not seek to recover more than 25% of any claim from
either Mark A. Bishop or Brian M. Levine, and shall not seek to recover more
than their individual pro rata share (based on stock ownership of CoreWest) from
Normand Steeg, Jon Maddox or Steve Curry, but Messrs. Staake and Hayes shall
each remain jointly and severally responsible for 100% of any claim.
(h) No claim shall be made under Article 12 against any shareholder
for a violation of a post-closing covenant regarding the post-closing CoreWest
Business Unit, provided that the violation shall impact calculation of the
Contingent Payment pursuant to Section 3.3, if appropriate.
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ARTICLE 13
POST-CLOSING COVENANTS
13.1 Shareholder Cooperation.
Shareholders shall encourage CoreWest employees to accept employment
with Buyer. After Closing, Shareholders shall execute accountant's
representation letters reasonably requested by Buyer's Accountants in connection
with their audits of the Buyer or the Post-Closing CoreWest Business Unit.
ARTICLE 14
AMENDMENTS
14.1 Amendment, Extension and Waiver
Subject to applicable law, at any time prior to the consummation of
the transactions contemplated by this Agreement, Sellers and Buyer may (a) amend
this Agreement, (b) extend the time for the performance of any of the
obligations or other acts of any other party hereto, (c) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto, or (d) waive compliance with any of the agreements or
conditions contained in this Agreement. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto. Any
agreement on the part of a party hereto to any extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party, but such waiver or failure to insist on strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
ARTICLE 15
MISCELLANEOUS
15.1 Survival
The representations and warranties set forth herein shall survive the
Closing subject to the limitation on asserting claims contained in Article 12.
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15.2 Expenses
Each party hereto shall bear and pay all costs and expenses incurred
by it in connection with the transactions contemplated hereby, including fees
and expenses of its own financial consultants, accountants and counsel.
15.3 Entire Agreement
This Agreement, including the documents, schedules and other writings
referred to herein or delivered pursuant hereto, contains the entire agreement
and understanding of the parties with respect to its subject matter. This
Agreement supersedes all prior arrangements and understandings between the
parties, both written or oral with respect to its subject matter.
Notwithstanding the foregoing, the Confidentiality Agreement shall remain in
full force and effect and continue if Closing does not occur.
15.4 Parties in Interest
The Agreement shall be binding upon and shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
assigns; provided, however, that nothing in this Agreement, expressed or
implied, is intended to confer upon any other person or entity, any rights,
remedies, obligations or liabilities of any nature whatsoever under or by reason
of this Agreement.
15.5 Assignment
No party hereto may assign any of its rights or obligations hereunder
to any other person, without the prior written consent of the other parties
provided, however, Buyer may assign its rights and obligations hereunder to any
one or more of its Affiliates (whether existing on the date hereof or hereafter
created). Moreover, shareholders may pledge their rights under this Agreement to
a financial institution pursuant to a bona fide loan transaction or transfer to
any family member or any trust or other estate planning vehicle established for
the benefit of a family member, provided that any such pledge, assignment or
transfer is expressly subject to Buyer's right of setoff under this Agreement.
15.6 Setoff
(a) Subject to the following procedure and compliance with the
limitations and procedures of Article 12, the Buyer shall have the right to
setoff against the Contingent Payment and the Exchange Shares for any damages
for any breach of Shareholders' or CoreWest's representations, warranties or
covenants. This shall not limit any of Buyer's other remedies under this
Agreement, at law or in equity, to the extent otherwise permitted under Section
12.1 hereof.
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(b) In order to assert a setoff against Shareholders, the Buyer must
provide written notice of the claim to the Shareholders within 3 years of the
Effective Time setting forth the background of the claim (to the extent known)
and a reasonably detailed description of the general nature of the claim,
together with a Buyer's reasonable calculation of the Buyer's damages. Within
five (5) business days thereafter, the Buyer shall deposit the Contingent
Payment or Exchange Shares, against which setoff is sought, in an amount not to
exceed the Buyer's estimated damages, with a third party escrow agent pending
final resolution of the issue, provided that the escrow arrangement shall
provide that Buyer shall retain a first priority, perfected security interest in
such Purchase Price or Exchange Shares being placed in escrow to secure the
subject matter of the setoff claim and shall be on such other terms and
conditions as shall be reasonably acceptable to Buyer and Shareholders. In the
event that any Shareholder contest(s) the amount of the proposed setoff or that
a bona fide, commercially reasonable basis exists for asserting the setoff
(including a bona fide, good faith dispute of the underlying claim), the parties
shall mutually select a commercial litigator in California listed in the Best
Lawyers in America (most recent volume) to review the basis for CoreWest's
setoff and the underlying claim and the amount. If the lawyer determines that,
in his opinion, Buyer is acting without a commercially reasonable basis for the
claim, or that the amount placed in escrow exceeds a commercially reasonable
amount or that Article 12 does not provide for indemnification of such a claim,
then the lawyer shall decide how much, if any, should be placed in escrow.
Notwithstanding the foregoing, in no event shall a setoff be taken unless the
reasonable amount of the claim is more than $250,000.
15.7 Notices
All notices or other communications hereunder shall be in writing and
shall be deemed given if delivered personally or mailed by prepaid registered or
certified mail (return receipt requested), or by overnight courier, cable,
telegram or telex addressed as follows:
(a) If to Shareholders to:
c/o Mr. Ronald E. Staake
CoreWest Banc
2566 Overland Avenue, Suite 650
Los Angeles, CA 90064
Facsimile: (818) 815-2299
Mr. Ronald E. Staake
10501 Ayres Avenue
Los Angeles, CA 90064
Mr. Timothy C. Hayes
3903 Coral Place
Calabasas, CA 91302
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Mr. Mark A. Bishop
15805 El Camino Real
Rancho Santa Fe, CA 92067
Mr. Brian M. Levine
15805 El Camino Real
Rancho Santa Fe, CA 92067
Normand M. Steeg
7906 Cowan Avenue
Los Angeles, CA 90045
Steven M. Curry
10747 Wilshire Blvd. #1368
Los Angeles, CA 90024
Jon Maddox
24376 Patricia Street
Laguna Hills, CA 92656
John A. Cutajar
2708 Darlene Court
Castro Valley, CA 94546
Laurence V. Nair
8623 Disa Alpine Way
Elk Grove, CA 95624
(b) If to CoreWest to:
CoreWest Banc
2566 Overland Avenue, Suite 650
Los Angeles, CA 90064
(c) If to Buyer or Subsidiary to:
Mr. George Nicholas
Industry Mortgage Company
3450 Buschwood Park Drive, Suite 250
Tampa, FL 33618
Facsimile: (813) 935-0227
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Copy to:
Mitchell W. Legler, Esquire
Mitchell W. Legler, P.A.
One Independent Drive, Suite 3104
Jacksonville, FL 32202
Facsimile: (904) 791-9333
and Copy to:
Mr. Stuart Marvin
Chief Financial Officer
Industry Mortgage Company
3450 Buschwood Park Drive, Suite 250
Tampa, FL 33618
Facsimile: (813) 935-0227
15.8 Captions
The table of contents and captions contained in this Agreement are
for reference purposes only and are not part of this Agreement.
15.9 Counterparts
This Agreement may be executed in any number of counterparts, and
each such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one Agreement.
15.10 Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of Florida, without giving effect to the principles of
conflict of laws thereof. Neither party shall be construed as the draftsperson
of this Agreement for purposes of interpretation or construction.
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15.11 No Third Party Beneficiaries
There are no third party beneficiaries and no third party shall have
any rights or remedies under this Agreement provided, that for purposes of
Article 3, John Cutajar and Laurence Nair shall be beneficiaries of this
Agreement to the extent of the ownership percentages set forth in Schedules 3.1
and entitled to receive any Exchange Shares issuable hereunder.
15.12 Further Assurances/Merger
The parties agree to provide reasonable further assistance and
cooperation following the Closing in order to accomplish the technical merger of
Subsidiary into CoreWest as a matter of state law and as otherwise may be
necessary or appropriate to carry into effect the transactions contemplated by
this Agreement.
IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement as
of the day and year first above written.
COREWEST BANC
By: /s/ RONALD STAAKE
---------------------------------
Title: President
-----------------------------
IMC MORTGAGE COMPANY
By: /s/ THOMAS G. MIDDLETON
---------------------------------
Title: President
------------------------------
CWB ACQUISITIONS, INC.
By: /s/ THOMAS G. MIDDLETON
---------------------------------
Title: President
------------------------------
/s/ RONALD E. STAAKE
------------------------------------
RONALD E. STAAKE
/S/ TIMOTHY C. HAYES
-----------------------------------
TIMOTHY C. HAYES
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/s/ BRIAN M. LEVINE
-----------------------------------
BRIAN M. LEVINE
/s/ MARK M. BISHOP
-----------------------------------
MARK A. BISHOP
-----------------------------------
NORMAND STEEG
-----------------------------------
JON MADDOX
-----------------------------------
STEVE CURRY
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LIST OF EXHIBITS
Exhibit 2.1 - Plan and Agreement of Merger
Exhibit 3.3(b) - Escrow Agreement for Contingent Payment
Exhibit 4.37 - Conduct Prior to Closing
Exhibit 6.3 - Employment Agreements of Ronald Staake, Timothy Hayes,
Jon Maddox, Normand Steeg and Steve Curry
Exhibit 9.5 - Tax Opinion of Buyer's Counsel
Exhibit 10.1(c) - Opinion of CoreWest's Counsel
Exhibit 10.1(g) - Registration Rights Agreement
Exhibit 10.2(c) - Opinion of Buyer's Counsel
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SHAREHOLDER'S SCHEDULE
Section 3.1 - Shareholder Percentage Ownership of CoreWest
Section 4.1 - List of states in which CoreWest licensed to do business
Section 4.2 - List of issued and outstanding Shares
Section 4.2 - Shareholders' Agreements
Section 4.6 - List of consents
Section 4.6 - Financial statements
Section 4.8 - List of liabilities not previously disclosed
Section 4.10 - List of legal proceedings
Section 4.11 - List of material contracts
Section 4.13(a) - List of employee benefits
Section 4.13(e) - List of plan benefits
Section 4.15 - List of environmental audits, analyses or surveys of any
Operating Property or Loan Property
Section 4.17 - List of insurance policies
Section 4.18 - List of licenses
Section 4.22 - List of agreements to repurchase, etc.
Section 4.23 - List of Mortgage Servicing Agreements
Section 4.25 - List of Investor Commitments
Section 4.29 - List of audits, investigation, complaints and inquiries of
CoreWest
Section 4.31 - List of Pooling and Participation Agreements
Section 4.32 - List of pools not serviced by CoreWest
Section 4.36 - List of CoreWest employees
Section 4.37 - List of matters not handled in ordinary course of business
Section 4.38 - List of CoreWest officers and directors
Section 5.2 - List of consents, permits, authorizations and approvals
61
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of this 1st day of
January, 1997, by and between IMC MORTGAGE COMPANY, a Florida corporation (the
"Company"), COREWEST BANC, a California corporation ("CoreWest") and RONALD E.
STAAKE ("Staake"), TIMOTHY HAYES ("Hayes"), MARK A. BISHOP ("Bishop"), BRIAN M.
LEVINE ("Levine"), NORMAND STEEG ("Steeg"), JON MADDOX ("Maddox"), STEVE CURRY
("Curry"), JOHN CUTAJAR ("Cutajar"), and LAURENCE NAIR ("Nair") (Staake, Hayes,
Bishop, Levine, Steeg, Maddox and Curry are referred to individually as
"Shareholder" and collectively the "Shareholders"; Levine and Bishop are
sometimes referred to as "Outside Shareholders;" and Staake, Hayes, Steeg,
Maddox, Curry, Cutajar and Nair are sometimes referred to as "Management
Shareholders").
RECITALS
WHEREAS, the Company, CoreWest and the Shareholders are parties to an
Agreement and Plan of Reorganization dated January 1, 1997 (the "Acquisition
Agreement"), by which the Company has acquired all the stock of CoreWest from
the Shareholders pursuant to a reverse subsidiary merger and the Shareholders
are receiving fully paid, nonassessable shares of common stock, $.01 par, of the
Company (the "Common Stock").
WHEREAS, as an inducement to the Shareholders, CoreWest and the Company
to enter into the Acquisition Agreement, the Shareholders and the Company hereby
agree that this Agreement shall govern the rights of the Shareholders to
register shares of Common Stock issuable to the Shareholders pursuant to the
Acquisition Agreement and the related reverse subsidiary merger.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Definitions.
(a) The term "Abbreviated Registration Statement" means a
registration statement on Form S-3 or any similar or successor form in which
financial statements and other detailed information about the issuer are
incorporated by reference from the issuer's periodic reports filed under
Securities Exchange Act of 1934.
(b) The term "Act" means the Securities Act of 1933, as amended,
or any successor legislation thereto.
(c) The terms "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document;
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(d) The term "Registrable Securities" means the Common Stock
issuable or issued to a Shareholder pursuant to the terms of the Acquisition
Agreement and the related reverse subsidiary merger.
2. Registration.
2.1 Right to Include Registrable Stock on Piggyback Basis. If the
Company at any time proposes to register any of its shares of Common Stock under
the Act for its own account for sale for cash (other than a registration on Form
S-4 or Form S-8, or any successor or similar forms and other than pursuant to
Registration of Contingent Payment under Section hereof) (the "Offering"), it
will each such time promptly give written notice thereof to the Shareholders.
Upon the written request of any Shareholder (the "Requesting Shareholders") made
within 20 days after the receipt of any such notice (which request shall specify
the Registrable Securities intended to be disposed of by such Shareholders and
the intended method of distribution thereof), subject to the limitations
contained in Section 2.4, the Company will use its reasonable good faith efforts
to effect the registration under the Act of all Registrable Securities which the
Company has been so requested to register by the Requesting Shareholders to the
extent necessary to permit the disposition of the Registrable Securities so to
be registered in accordance with the intended methods of distribution thereof
specified in such request; provided that (i) if, at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any bona fide good faith business
reason to terminate or not proceed with the Offering of which the Requesting
Shareholder's Registrable Securities are a part, the Company may, at its
election, give written notice of such determination to the Requesting
Shareholders and, thereupon, shall be relieved of its obligation to register any
Registrable Securities in connection with such registration, and (ii) in case of
a determination by the Company to delay registration of its securities, the
Company shall be permitted to delay the registration of Registrable Securities
for the same period as the delay in registering such other securities.
2.2 Priority in Piggyback Registrations. If the managing underwriter for
a piggyback registration involving an underwritten Offering shall advise the
Company in writing that, in its opinion, the number of securities of the Company
(including Registrable Securities) requested to be included in such registration
by the holders thereof exceeds the number of securities of the Company (the
"Sale Number") which can be sold in an orderly manner in such offering within a
price range acceptable to the Company, the Company shall, subject to the
requirements of the following sentence, include (i) first, all securities of the
Company that the Company proposes to register for its own account; (ii) second,
to the extent that the number of securities of the Company to be included by the
Company is less than the Sale Number, all Registrable Securities requested to be
included by the Shareholders and all other securities of the Company requested
to be included by the holders thereof, pro rata based on the relative numbers of
securities requested to be included by each.
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2.3 Limitation on Number of Shares Registered/No Cutback/Demand.
Notwithstanding any provision contained herein to the contrary, each Shareholder
may not register more Registrable Securities than set forth below.
(a) During 1997 and 1998, an Outside Shareholder may not register
each calendar year more than 24.9% of the Registrable Securities received by
such Shareholder as the "Base Payment" under the Acquisition Agreement; provided
that an Outside Shareholder may register in excess of 24.9% (but not more than
49.8%) in 1998 to the extent he was unable to register up to 24.9% of the
Registrable Securities received by such Shareholder as the Base Payment under
the Acquisition Agreement during an Offering in 1997 (except to the extent such
inability resulted from an election by the Outside Shareholder to include less
than 24.9% in the notice delivered pursuant to Section 2.1 hereof.
(b) During 1997 and 1998, if the "Post-Closing CoreWest Business
Unit" (as defined in the Acquisition Agreement) is performing at or above its
Agreed Plan (as defined in the Acquisition Agreement) each Management
Shareholder may not register each calendar year more than 24.9% of the
Registrable Securities received by such Management Shareholder as the "Base
Payment" under the Acquisition Agreement; provided that such Management
Shareholder may register in excess of 24.9% (but not more than 49.8%) in 1998 to
the extent he was unable to register up to 24.9% of the Registrable Securities
received by such Shareholder as the Base Payment under the Acquisition Agreement
during an Offering in 1997 (except to the extent such inability resulted from an
election by the Management Shareholder to include less than 24.9% in the notice
delivered pursuant to Section 2.1 hereof. For purposes of this Agreement, the
Post-Closing CoreWest Business Unit shall be deemed to be performing at or above
its Agreed Plan if it has achieved on a rolling 12-month basis (i) 90% or better
of its net income and 80% or better of its gross originations; or (ii) 80% or
better of its net income and 90% or better of its gross originations.
(c) During 1997 and 1998, if the Post-Closing CoreWest Business
Unit is not performing at or above its Agreed Plan, a Management Shareholder may
not register more than 15% of the Registrable Securities received by such
Management Shareholder as the "Base Payment" under the Acquisition Agreement.
(d) To the extent that a Shareholder has the right to register
certain Registrable Securities in a piggyback registration under subparagraphs
(a), (b) and (c) above, but does not register the full number of shares
available, the Shareholder may assign such unused allotment to another
Shareholder by written agreement signed by both the assignor Shareholder and
assignee Shareholder, which agreement is delivered to the Company.
(e) Each Shareholder may notify the Company in writing by January
31, 1997 as to the number of Registrable Securities he desires to have
registered during 1997, up to the limits set forth in subparagraphs (a), (b) and
(c), as applicable. To the extent the Company cannot arrange for the
registration of such Registrable Securities on a piggyback
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basis pursuant to Sections 2.1 and 2.2 during 1997, the Company shall effect the
registration under the Act of such Registrable Securities prior to the end of
1997. Each Shareholder may notify the Company in writing by January 15, 1998 as
to the number of Registrable Securities he desires to have registered during
1998, up to the limits set forth in subparagraphs (a), (b) and (c), as
applicable. To the extent the Company cannot arrange for the registration of
such Registrable Securities on a piggyback basis pursuant to Sections 2.1 and
2.2 during 1998, the Company shall effect the registration under the Act of such
Registrable Securities prior to the end of 1998.
2.4 Registration of Registrable Securities received on "Contingent
Payment". The Company will use its reasonable good faith efforts to effect as
promptly as practical the registration of all Registrable Securities
constituting the Contingent Payment under the Act, provided, however:
(a) registration may be delayed by the Company until the first to
occur of June 30, 1999 or the first registration of shares conducted by the
Company in 1999 if the Company believes that such registration of Registrable
Securities would require the disclosure of material information that the Company
has a bona fide business purpose for preserving as confidential or the
disclosure of which would impede the Company's ability to consummate a
significant transaction;
(b) the Company may register less than all the Registrable
Securities constituting the Contingent Payment (but not less than 37.5% thereof
paid to each Shareholder, at some time during each of 1999 and 2000 [or 75% in
the aggregate during both years], which 37.5% allocation can be assigned among
the Shareholders by written agreement signed by both transfer Shareholder and
transferee Shareholder and delivered to Company) if the Company is advised in
writing by its investment banker that, based on market capitalization of the
Company's stock and the number of shares constituting the Contingent Payment,
registration of such shares would exceed the number of shares it is advisable to
register at the time. In the event the Company limits the number of shares
registered based upon the written advice of its investment bankers, subject to
the limitations set forth in the immediately preceding sentence, the Company
shall register any remaining Registrable Securities constituting the Contingent
Payment as soon as practical thereafter; and
(c) any Registrable Securities constituting the Contingent
Payment in excess of 37.5% of the total Registrable Securities issued to each
Shareholder as the Contingent Payment shall not be sold or otherwise disposed of
by the Shareholder without the prior written consent of the Company for six
months following registration of such Registrable Securities, provided that the
Shareholders may assign among each other their respective rights to sell up to
37.5% of such shares without consent during this period by written agreement
signed by both transferor Shareholder and transferee Shareholder and delivered
to the Company.
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2.5 Force Majeure. Notwithstanding anything to the contrary contained in
this Agreement, the Company's obligations to register any Registrable Securities
shall be suspended or extended as reasonably necessary to protect Company in the
event registration cannot be performed due to causes which are outside the
control of the Company and could not be avoided by the exercise of due care. For
example, if the SEC suspends operation due to a federal budget crisis, the
Company shall receive a sufficient extension to permit the SEC to resume
operations and process the Company's filings.
3. Obligations of the Company. Whenever required under this Agreement to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such of the Registrable Securities as are set forth in the request,
use its reasonable good faith efforts to cause such registration statement to
become effective and use its reasonable good faith efforts to keep such
registration statement effective for up to one year (nine months in the case of
a registration statement that is not an Abbreviated Registration Statement) but
not after such securities cease being Registrable Securities.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Requesting Shareholders such numbers of copies
of a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by such
Shareholders.
(d) Use its best reasonable efforts to register or qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions within the United States as shall be
reasonably requested by the Requesting Shareholders, provided that the Company
shall not be required in connection therewith or as a condition thereto to
qualify to do business, subject itself to taxation or to file a general consent
to service of process in any such states or jurisdictions.
(e) In the event the registration statement is used in an
underwritten public offering, enter into and perform its obligations under an
underwriting agreement, in usual and customary form, with the managing
underwriter of such offering, provided that the Requesting Shareholders also
have entered into and performed their obligations under such an agreement.
5
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(f) Notify the Requesting Shareholders, at any time when a
prospectus relating thereto is required to be delivered under the Act, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
4. Furnish Information. The Company's obligation to cause any registration
statement to become effective in connection with distribution of any Registrable
Securities pursuant to this Agreement shall be contingent upon each of the
Shareholders, with reasonable promptness, furnishing to the Company such
information regarding such Shareholder, the Registrable Securities held by such
Shareholder, and the intended method of disposition of such securities, as shall
be required to effect the registration of the Registrable Securities.
5. Indemnification. In the event of any registration under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless the Requesting Shareholders, any underwriter (as defined in
the Act) for such Shareholders and each person, if any, who controls such
Shareholders or underwriter within the meaning of the Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Act, or the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, or the 1934 Act or any state
securities law, and the Company will pay to the Requesting Shareholders,
underwriter or controlling person, as incurred, any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 5(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon (1) a Violation which occurs in reliance upon and
in conformity with written information furnished expressly for use in connection
with such registration by the Requesting Shareholders, underwriter or
controlling person or (2) a Violation which results from the fact that there was
not sent or given to a person who bought Registrable Stock, at or prior to the
written confirmation of the sale, a copy of the final
6
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prospectus, as then amended or supplemented, if the Company had previously
furnished copies of such prospectus hereunder and such prospectus corrected the
misstatement or omission forming the basis of the Violation.
(b) To the extent permitted by law, the Requesting Shareholders
will indemnify and hold harmless, to the extent of the proceeds received by such
Shareholders, the Company, each of its directors, each of its officers who has
signed the registration statement, each person, if any, who controls the Company
within the meaning of the Act, any underwriter, any other shareholder of the
Company selling securities in such registration statement and any controlling
person of any such underwriter or other shareholder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, or the 1934 Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or action in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by the Requesting
Shareholders expressly for use in connection with such registration; and such
Shareholders will pay, as incurred, any legal or other expenses reasonably
incurred by any person intended to be indemnified pursuant to this subsection
5(b), in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection 5(b) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Requesting Shareholders, which consent shall
not be unreasonably withheld; provided further, that in no event shall any
indemnity under this subsection 5(b) exceed the gross proceeds from the Offering
(excluding underwriting discounts and commissions) received by the Requesting
Shareholders.
(c) If any third party makes a claim for which an indemnifying
party under this Section ("Indemnified Party") seeks indemnity from the
indemnifying party ("Indemnitor"), the Indemnified Party shall as soon as
practicable notify Indemnitor of the details of the claim ("Claim Notice").
After receiving a Claim Notice, Indemnitor may elect, by written
notice to the Indemnified party, to assume the defense of such claim by using
counsel selected by Indemnitor, acting reasonably. If Indemnitor assumes such
defense and admits that the claim is subject to the Indemnitor's indemnity
obligations, then (i) the claim shall be deemed to be claim indemnified by the
Indemnitor; (ii) the Indemnified Party may, at its election, participate in the
defense of the claim, but Indemnitor will have no obligation to pay for any
defense costs including attorneys' fees of the Indemnified Party after
Indemnitor assumes the defense of the claim; and (iii) Indemnitor will have the
right, without cost to Indemnified Party, to compromise and settle the claim on
any basis believed reasonable, in good faith, by Indemnitor, and Indemnified
Party shall be bound thereby, provided that Indemnitor can reasonably
demonstrate the financial resources to perform under the terms of the proposed
Settlement.
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After receiving a Claim Notice, if Indemnitor either does not
assume the defense thereof, or does so under a reservation of rights without
admitting that the claim is subject to the Indemnitor's indemnity obligations,
then: (i) the claim shall not be deemed to be a claim indemnified by the
Indemnitor and neither party shall have waived any rights to assert that the
claim is or is not properly a claim subject to the Indemnitor's indemnity
obligations; (ii) both Indemnitor and Indemnified Party may, at their individual
election, participate in the defense of such claim but Indemnitor will remain
responsible for the costs of defense, including reasonable attorneys' fees of
the Indemnified Party should the claim ultimately be determine to be subject to
Indemnitor's indemnity obligation; and (iii) the Indemnified Party shall have
the right to compromise and settle the claim on any basis believed reasonable,
in good faith, by the Indemnified Party, and the Indemnitor will be bound
thereby should the claim ultimately be determined to be subject to Indemnitor's
indemnity obligation.
(d) If the indemnification provided for in this Section 5 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) The obligations of the Company and the Requesting
Shareholders under this Section shall survive the completion of any offering of
Registrable Securities in a registration statement under this agreement, and
otherwise.
6. Expenses of Registration. All expenses incurred in connection with any
registration, qualification or compliance pursuant to this Agreement, including,
without limitation, all registration, filing and qualification fees, printing
expenses, fees and disbursements of counsel for the Company and expenses of any
special audits incidental to or required by such registration, qualification or
compliance shall be borne by the Company, except that the Company shall not be
required to pay underwriters' discounts, commissions, or stock transfer taxes
relating to the Registrable Securities or the fees and disbursements of counsel
to the Shareholders.
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7. Holdback Agreement. If requested by the Company, the Shareholders agree not
to effect any public sale or distribution, including any sale pursuant to Rule
144 under the Act, of any Registrable Securities (in each case, other than as
part of the offering to which such registration statement relates) within 7 days
before or for such time after the effective date of a registration statement
filed pursuant to this Agreement for an underwritten offering as is required by
the Underwriter in connection with the Offering, provided that the two most
senior executives of the Company agree to hold back on the same terms and
conditions.
8. Rule 144 Exemption. Company shall reasonably cooperate with Shareholders in
the delivery of such representation letters and other certificates as may be
reasonably necessary to effectuate sales of Common Stock received by
Shareholders pursuant to the Acquisition Agreement under the exemption from
registration under the Act provided by Rule 144 or such other exemptions as may
be available at that time.
9. Miscellaneous.
9.1 Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties; provided that the Shareholders may not assign its rights
under this Agreement without the consent of the Company. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto any rights, remedies, obligations, or liabilities under or by
reason of this Agreement.
9.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Florida.
9.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.5 Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given (i) upon personal delivery to the party to be notified, (ii) on the
seventh business day after deposit with the United States Post Office, by
registered or certified mail, postage prepaid, (iii) on the next business day
after dispatch via nationally recognized overnight courier or (iv) upon
confirmation of transmission by facsimile, all addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties. Notices should be provided in accordance
with this Section at the following addresses:
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If to the Shareholders to:
Mr. Ronald E. Staake
10501 Ayres Avenue
Los Angeles, CA 90064
Mr. Timothy C. Hayes
3903 Coral Place
Calabasas, CA 91302
Mr. Mark A. Bishop
7310 Miramar Road, #650
San Diego, CA 92126
Mr. Brian M. Levine
c/o Brentwood
7310 Miramar Road #650
San Diego, CA 92126
Normand M. Steeg
7906 Cowan Avenue
Los Angeles, CA 90045
Steven M. Curry
10747 Wilshire Blvd. #1368
Los Angeles, CA 90024
Jon Maddox
24376 Patricia Street
Laguna Hills, CA 92656
John A. Cutajar
2708 Darlene Court
Castro Valley, CA 94546
Laurence V. Nair
8623 Disa Alpine Way
Elk Grove, CA 95624
CoreWest Banc
2566 Overland Avenue, Suite 650
Los Angeles, CA 90024-3902
ATTN: Mr. Timothy C. Hayes
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If to the Company, to:
Mr. George Nicholas, Chairman
IMC Mortgage Company
c/o Industry Mortgage Corp.
3450 Buschwood Park Drive, Suite 250
Tampa, FL 33618
Facsimile: (813) 935-0227
with a copy to:
Mitchell W. Legler, Esquire
Mitchell W. Legler, P.A.
One Independent Drive, Suite 3104
Jacksonville, FL 32202
Facsimile: (904) 791-9333
9.8 Expenses. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the prevailing party shall be entitled
to reasonable attorneys' fees, costs and necessary disbursements in addition to
any other relief to which such party may be entitled.
9.9 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company.
9.10 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
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9.11 Entire Agreement; Amendment; Waiver. This Agreement constitutes the
full and entire understanding and agreement between the parties with regard to
the subjects hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
IMC MORTGAGE COMPANY
By: /s/ THOMAS G. MIDDLETON /s/ RONALD E. STAAKE
------------------------------- ----------------------------
its President RONALD E. STAAKE
Address: /s/ TIMOTHY C. HAYES
3450 Buschwood Park Drive, Suite 250 ----------------------------
Tampa, FL 33618 TIMOTHY C. HAYES
Fax: (813) 935-0227
"COMPANY" ----------------------------
MARK A. BISHOP
----------------------------
BRIAN M. LEVINE
----------------------------
NORMAND STEEG
----------------------------
JON MADDOX
----------------------------
STEVEN M. CURRY
----------------------------
JOHN A. CUTAJAR
----------------------------
LAURENCE V. NAIR
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9.11 Entire Agreement; Amendment; Waiver. This Agreement constitutes the
full and entire understanding and agreement between the parties with regard to
the subjects hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
IMC MORTGAGE COMPANY
By:
------------------------------- ----------------------------
its President RONALD E. STAAKE
Address:
3450 Buschwood Park Drive, Suite 250 ----------------------------
Tampa, FL 33618 TIMOTHY C. HAYES
Fax: (813) 935-0227
/s/ MARK A. BISHOP
"COMPANY" ----------------------------
MARK A. BISHOP
/s/ BRIAN M. LEVINE
----------------------------
BRIAN M. LEVINE
----------------------------
NORMAND STEEG
----------------------------
JON MADDOX
----------------------------
STEVEN M. CURRY
----------------------------
JOHN A. CUTAJAR
----------------------------
LAURENCE V. NAIR
12
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- --------------------------------------------------------------------------------
LOAN AGREEMENT
between
IMC MORTGAGE COMPANY,
a Florida corporation
INDUSTRY MORTGAGE COMPANY, L.P.,
a Delaware limited partnership
and
IMC CORPORATION OF AMERICA,
a Delaware corporation
as Borrowers
and
NOMURA ASSET CAPITAL CORPORATION,
as Lender
DATED AS OF SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
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TABLE OF CONTENTS
<TABLE>
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SECTION 1. DEFINITIONS AND REFERENCES....................................................1
1.1 Definitions...................................................................1
1.2 Time References...............................................................8
1.3 Other References..............................................................8
1.4 Accounting Principles.........................................................9
SECTION 2. BORROWING PROVISIONS..........................................................9
2.1 Commitment....................................................................9
2.2 Borrowing Request.............................................................9
2.3 Fundings.....................................................................10
2.4 Wet-Borrowings...............................................................10
2.5 Multiple Borrowers...........................................................10
2.6 HELOC Characteristics........................................................11
SECTION 3. PAYMENT TERMS................................................................11
3.1 Note.........................................................................11
3.2 Payment Procedures...........................................................11
3.3 Scheduled Payments...........................................................11
3.4 Prepayments; Margin Calls....................................................12
3.5 Order of Application.........................................................12
3.6 Interest Rates...............................................................12
3.7 Basis Unavailable or Inadequate for LIBOR....................................13
3.8 Additional Costs.............................................................13
3.9 Change in Laws...............................................................14
SECTION 4. RELEASE OF COLLATERAL; SERVICING.............................................14
4.1 Release of Collateral........................................................14
SECTION 5. CONDITIONS PRECEDENT.........................................................15
SECTION 6. REPRESENTATIONS AND WARRANTIES...............................................16
6.1 Purpose of Credit............................................................16
6.2 About the Borrowers..........................................................16
6.3 Authorization and Contravention..............................................16
6.4 Binding Effect...............................................................16
6.5 Fiscal Year..................................................................16
6.6 Current Financials...........................................................16
6.7 Solvency.....................................................................17
6.8 Litigation...................................................................17
6.9 Transactions with Affiliates.................................................17
6.10 Taxes........................................................................17
6.11 Employee Plans...............................................................17
6.12 Property.....................................................................17
6.13 Intellectual Property........................................................17
6.14 Environmental Matters........................................................18
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6.15 Government Regulations.......................................................18
6.16 Insurance....................................................................18
6.17 Full Disclosure..............................................................18
6.18 Collateral...................................................................18
6.19 Conflicts....................................................................19
SECTION 7. AFFIRMATIVE COVENANTS........................................................19
7.1 Reporting Requirements.......................................................19
7.2 Use of Proceeds..............................................................19
7.3 Books and Records............................................................20
7.4 Inspections..................................................................20
7.5 Taxes........................................................................20
7.6 Expenses.....................................................................20
7.7 Maintenance of Existence, Assets, and Business...............................20
7.8 Insurance....................................................................20
7.9 INDEMNIFICATION..............................................................21
7.10 Management...................................................................21
7.11 Records......................................................................21
7.12 Collection Efforts...........................................................21
7.13 Servicing....................................................................21
SECTION 8. NEGATIVE COVENANTS...........................................................21
8.1 Debt.........................................................................21
8.2 Liens........................................................................21
8.3 Merger or Consolidation......................................................21
8.4 Liquidations and Dispositions of Assets......................................22
8.5 Use of Proceeds..............................................................22
8.6 Compliance with Laws and Documents...........................................22
8.7 Assignment...................................................................22
8.8 HELOCs.......................................................................22
SECTION 9. DEFAULTS AND REMEDIES........................................................22
9.1 Default......................................................................22
9.2 Remedies.....................................................................23
9.3 Right of Offset..............................................................24
9.4 Waivers......................................................................24
9.5 Performance by Lender........................................................24
9.6 No Responsibility............................................................25
9.7 No Waiver....................................................................25
9.8 Cumulative Rights............................................................25
9.9 Costs........................................................................25
SECTION 10. MISCELLANEOUS................................................................25
10.1 Nonbusiness Days.............................................................25
10.2 Communications...............................................................25
10.3 Form and Number of Documents.................................................26
10.4 Exceptions to Covenants......................................................26
10.5 Survival.....................................................................26
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10.6 Governing Law................................................................26
10.7 Invalid Provisions...........................................................26
10.8 Conflicts Between Loan Documents.............................................26
10.9 Discharge and Certain Reinstatement..........................................26
10.10 Amendments, Consents, Conflicts, and Waivers.................................26
10.11 Multiple Counterparts........................................................26
10.12 Parties......................................................................27
10.13 Participations...............................................................27
10.14 Jurisdiction; Venue; Service of Process; and Jury Trial......................27
10.15 Entire Agreement.............................................................28
</TABLE>
SCHEDULES AND EXHIBITS
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<S> <C> <C>
Schedule 2.1 - Underwriting Guidelines
Schedule 2.6 - HELOC Characteristics
Schedule 5 - Closing Conditions
Schedule 6.2 - Information Regarding Borrowers
Schedule 6.8 - Litigation and Judgments
Schedule 6.9 - Affiliate Transactions
Exhibit A - Form of Note
Exhibit B-1 - Form of Custodial Agreement
Exhibit B-2 - Form of Liquidity Agreement
Exhibit C-1 - Form of Security Agreement
Exhibit C-2 - Form of Financing Statement
Exhibit D - Form of Borrowing Request
Exhibit E-1 - Form of Opinion of Counsel to Borrowers
Exhibit E-2 - Form of Opinion of Counsel to Custodian
Exhibit F - Form of Amendment
</TABLE>
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LOAN AGREEMENT
THIS LOAN AGREEMENT (the "AGREEMENT") is entered into as of September
30, 1996, between IMC MORTGAGE COMPANY, a Florida corporation, INDUSTRY MORTGAGE
COMPANY, L.P., a Delaware limited partnership, and IMC CORPORATION OF AMERICA, a
Delaware corporation (collectively, "BORROWERS"), and NOMURA ASSET CAPITAL
CORPORATION, a Delaware corporation ("LENDER").
RECITALS
Borrowers originate and acquire mortgage loans evidencing home equity
lines of credit. Borrowers have jointly and severally requested Lender to
provide Borrowings as may be requested from time to time by Borrowers to finance
their mortgage lending business. Lender has agreed to extend those Borrowings
subject to the terms and conditions of the Loan Documents, including, without
limitation, that the total Borrowings may never exceed the then-applicable
Commitment and that a Borrowing Excess may never exist. Borrowers are granting
to Lender first-priority Liens upon, among other things, the Collateral
delivered to Lender under the Loan Documents.
ACCORDINGLY, for adequate and sufficient consideration, Borrowers and
Lender agree as follows:
SECTION 1. DEFINITIONS AND REFERENCES. Unless stated otherwise, the following
provisions apply to each Loan Document and annexes, exhibits, and schedules to
- -- and certificates, reports, and other writings delivered under -- the Loan
Documents.
1.1 Definitions.
AFFILIATE means, for any Person, any other individual or entity that --
directly or indirectly through ownership, voting securities, contract, or
otherwise -- controls, is controlled by, or under common control with that
Person.
ALTERNATE RATE BORROWINGS is defined in SECTION 3.7.
BORROWER or BORROWERS is defined in the preamble to this Agreement.
BORROWING means any amount disbursed by Lender whether in the form of a
HELOC Borrowing or a Liquidity Borrowing.
BORROWING BASE means an amount, as of any date of determination, equal
to 97% of the aggregate Market Value of the HELOCs, but in no event more than
the aggregate outstanding balances of the HELOCs.
BORROWING DATE means, for any Borrowing, the date it is disbursed.
BORROWING EXCESS means, at any time, the amount by which the Principal
Debt exceeds the Borrowing Base.
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BORROWING REQUEST means a request executed by Borrowers and delivered to
Lender in substantially the form of EXHIBIT D.
BUSINESS DAY means any day other than Saturday, Sunday, and any other
day that Lender is authorized or obligated by Law to be closed in New York, New
York, and which is a day for trading by and between banks for dollar deposits in
the London Interbank Market.
CALENDAR MONTH means any calendar month or portion of a calendar month
that occurs at any time from the date of this Agreement to the date that the
Obligation is paid in full and all commitments to lend under this Agreement have
terminated or been canceled.
CALENDAR QUARTER means any calendar quarter or portion of any calendar
quarter that occurs at any time from the date of this Agreement to the date that
the Obligation is paid in full and all commitments to lend under this Agreement
have terminated or been canceled.
CASH INTEREST EXPENSE means, for Borrowers and their Subsidiaries for
any period, total interest expense in respect of Debt actually paid or that is
payable during such period, including without limitation, all commissions,
discounts and other fees and charges with respect to letters of credit, but
excluding interest expense not payable in cash, all as determined in accordance
with GAAP.
CLOSING DATE means September 30, 1996.
COLLATERAL means all collateral defined in the Security Agreement.
COLLATERAL CUSTODIAN means, at any time, LaSalle National Bank -- or its
successor appointed under the Custodial Agreement -- acting as custodian for
Lender under the Loan Documents.
COLLATERAL DOCUMENTS means the documents and other items required to be
delivered under the Custodial Agreement.
COLLECTION ACCOUNT means a deposit account established by Borrowers with
Sub-Servicer -- styled and numbered "IMC Collection Account, in trust for Nomura
Asset Capital Corporation," Account No. ___________ -- for deposit of payments
from Mortgagors and deposit of Liquidity Contributions by Sub-Servicer.
COMMITMENT means -- initially, an amount equal to $30 million provided,
however, that, so long as no Default or Potential Default has occurred and is
continuing, upon the written request of Borrowers, the Commitment may be, at the
sole discretion of Lender, increased by $10 million or integral multiples
thereofs, provided further that the total Commitment shall in no event exceed
$100 million.
CONSOLIDATED ADJUSTED NET INCOME means consolidated net earnings after
income taxes of Borrowers and their Subsidiaries, but excluding (a)
extraordinary gains, (b) gains due to sales or write-up of assets, (c) earnings
of any Person newly acquired, if earned prior to acquisition or (d) gains due to
acquisitions of any securities of Borrowers or any of their Subsidiaries.
CURRENT FINANCIALS means either (a) the Borrowers' Financials for the
year ended December 31, 1995, as supplemented by the quarterly financials for
the period through March 31, 1996, as delivered to
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Lender prior to the Closing Date or (b) at any time after the Borrowers' annual
Financials are first delivered under SECTION 7.1, the Borrowers' annual
Financials then most recently delivered to Lender and subsequent quarterly
Financials then most recently delivered to Lender.
CUSTODIAL AGREEMENT means the Custodial Agreement, in the form of
EXHIBIT B-1 hereto, dated as of the date hereof by and between Collateral
Custodian, Borrowers and Lender, as such Custodial Agreement may be amended or
supplemented from time to time.
DEBT, for any Person and without duplication, means (a) all obligations
required by GAAP to be classified upon that Person's balance sheet as
liabilities, (b) liabilities secured (or for which the holder of the liabilities
has an existing Right, contingent or otherwise, to be so secured) by any Lien
existing on property owned or acquired by that Person, (c) obligations that
under GAAP should be capitalized for financial reporting purposes, and (d) all
guaranties, endorsements, and other contingent obligations with respect to Debt
of others or in respect of any Employee Plan.
DEBTOR LAWS means all applicable liquidation, conservatorship,
bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization,
or similar Laws from time to time in effect and generally affecting creditors'
Rights.
DEFAULT is defined in SECTION 9.1.
DEFAULT RATE means, as of any day on which a Default has occurred and is
continuing, an annual interest rate equal to LIBOR plus 5.5%.
DELINQUENT HELOC means any HELOC that is 30 or more days contractually
past due.
DISTRIBUTION -- with respect to any shares of any capital stock or other
equity securities issued by a Person -- means (a) the retirement, redemption,
purchase, or other acquisition for value of those securities, (b) the
declaration or payment of any dividend with respect to those securities, (c) any
loan or advance by that Person to, or other investment by that Person in, the
holder of any of those securities, and (d) any other payment by that Person with
respect to those securities.
DRY BORROWING means a HELOC Borrowing which is not a Wet Borrowing.
DRY FUNDING ACCOUNT means a deposit account established by Borrowers,
styled and numbered "IMC Dry Funding Account, in trust for Nomura Asset Capital
Corporation" Account No. ________________, for deposit of Dry Borrowings.
EMPLOYEE PLAN means an employee-pension-benefit plan covered by Title IV
of ERISA and established or maintained by any Borrower.
ENVIRONMENTAL LAW means any Law that relates to pollution, the
protection of human health and the environment, health and safety, or to
Hazardous Substances, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended (42
U.S.C. Section 9601, et seq.), the Solid Waste Disposal Act, as amended (42
U.S.C. Section 6901 et seq.), the Hazardous Materials Transportation Act, as
amended (49 U.S.C. Section 1801, et seq.), the Clean Air Act, as amended (42
U.S.C. Section 7401, et seq.), the Federal Water Pollution Control Act, as
amended (33
3
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U.S.C. Section 1251, et seq.), the Toxic Substances Control Act, as amended (15
U.S.C. Section 2601 et seq.), the Safe Drinking Water Act, as amended (42 U.S.C.
Section 300f et seq.), the Atomic Energy Act, as amended (42 U.S.C. Section 2014
et seq.), the Federal Insecticide, Fungicide and Rodenticide Act, as amended (7
U.S.C. Section 136, et seq.), the Oil Pollution Act of 1990, as amended (33
U.S.C. Section 2701, et seq.), the Emergency Planning and Community
Right-to-Know Act of 1986, as amended (42 U.S.C. Section 11001, et seq.), the
Occupational Safety and Health Act, as amended (29 U.S.C. Section 651 et seq.),
the Texas Water Code, as amended, and the Texas Health and Safety Code, as
amended, as well as the regulations adopted and publications promulgated
pursuant to the above.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all regulations issued pursuant
thereto.
ERISA AFFILIATES means Borrowers and every trade or business (whether or
not incorporated) that, together with any Borrower, would be treated as a
single-employer under 'SS' 4001 of ERISA.
FINANCIALS means, with respect to each Borrower, balance sheets, profit
and loss statements, statements of cash flow, and any other financial
statements, reports, or information specified by Lender.
FIXED CHARGES means, for any period for Borrowers and their
Subsidiaries, the sum of (a) Cash Interest Expense, (b) operating lease expenses
and (c) rent expenses.
GAAP means generally accepted accounting principles of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the Financial Accounting Standards Board that are applicable from time to time.
HAZARDOUS SUBSTANCE means any substance, material or waste (a) the
presence or release of which requires reporting, investigation or remediation
under any Environmental Law, (b) which is defined or listed as a hazardous
waste, hazardous substance, extremely hazardous waste, restricted hazardous
waste, hazardous material, toxic substance, or other similar or related term
under any Environmental Law, (c) which is toxic, radioactive, or otherwise
classified as hazardous or toxic and is or becomes regulated by any governmental
authority as a threat to human health or the environment, (d) the presence of
which causes or threatens to cause a nuisance upon the property or to adjacent
property, (e) the presence of which on adjacent properties could constitute a
trespass, (f) which is asbestos, (g) which is polychlorinated biphenyls, or (h)
which contains petroleum or any petroleum-derived product.
HELOC means a home equity line of credit pledged as Collateral to Lender
that is evidenced by a valid promissory note and is secured by a mortgage, deed
of trust or trust deed that grants a first or second priority lien on underlying
one-to-four family residences, townhouses, condominiums, and planned unit
developments.
HELOC BORROWING is defined in SECTION 2.1(b).
INTEREST DETERMINATION DATE means the day LIBOR is redetermined which
day shall be the first Business Day of each Calendar Month.
INTEREST RATE means an annual interest rate equal to LIBOR plus 1.5%.
4
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IRC means the Internal Revenue Code of 1986, as amended.
LAWS means all applicable statutes, laws, treaties, ordinances, rules,
regulations, orders, writs, injunctions, decrees, judgments, opinions, and
interpretations of any Tribunal.
LENDER is defined in the Preamble to this Agreement.
LENDER LIEN means any present or future first-priority (except as
otherwise specifically provided in the Loan Documents) Lien securing the
Obligation and assigned, conveyed, and granted to or created in favor of Lender
under the Loan Documents.
LIBOR BORROWINGS means any Borrowing that bears interest based on LIBOR.
LIBOR shall mean the rate of interest determined by Lender at which
deposits in dollars for a one-month period are offered based on information
presented on Bloomberg on the day which is two (2) Business Days prior to the
date of a Borrowing; provided, that if at least two such offered rates appear on
the Bloomberg in respect of such one-month period, the arithmetic mean of all
such rates (as determined by Lender) will be the rate used; provided, further,
that if Bloomberg ceases to provide LIBOR quotations, such rate shall be the
average rate of interest determined by Lender at which deposits in Dollars are
offered for a one-month period by Citibank, N.A. (or its successor) to Lender in
the London interbank market as of 11:00 A.M. (London time) on the applicable
Borrowing Date. LIBOR for each Borrowing shall be initially established as of
the date of such Borrowing and such Borrowing shall bear interest at such rate
through the date preceding the next succeeding Interest Determination Date. On
such Interest Determination Date, and on each Interest Determination Date
thereafter, LIBOR shall be recalculated as of such Interest Determination Date
and the Borrowing shall bear interest at LIBOR from such Interest Determination
Date through the day preceding the next succeeding Interest Determination Date.
LIEN means any lien, mortgage, security interest, pledge, assignment,
charge, title retention agreement, or encumbrance of any kind and any other
arrangement for a creditor's claim to be satisfied from assets or proceeds prior
to the claims of other creditors or the owners.
LIQUIDITY AGREEMENT means the Liquidity Agreement, in the form of
Exhibit B-2 hereto, dated as of the date hereof by and between Sub-Servicer,
Lender, and Borrowers, as such Liquidity Agreement may be amended or
supplemented from time to time.
LIQUIDITY BORROWING is defined in SECTION 2.1(b).
LIQUIDITY CONTRIBUTIONS means any amount advanced by Sub-Servicer from
its own funds or funds in the Collection Account in accordance with the
Liquidity Agreement.
LITIGATION means any action by or before any Tribunal.
LOAN DOCUMENTS means (a) this Agreement, certificates and reports
delivered under this Agreement, and exhibits and schedules to this Agreement,
(b) all agreements, documents, and instruments in favor of Lender ever delivered
under this Agreement or otherwise delivered in connection with any of the
Obligation, including, but not limited to, the Custodial Agreement, and the
Liquidity Agreement, and
5
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(c) all renewals, extensions, and restatements of, and amendments and
supplements to, any of the foregoing.
LOCKBOX ACCOUNT means a deposit account established by Borrowers with
Sub-Servicer -- styled and numbered "IMC Lockbox Account, in trust for Nomura
Asset Capital Corporation," Account No. ___________ -- for deposit of payments
from Mortgagors by Sub-Servicer.
MARKET VALUE means, for each HELOC, the value thereof as determined by
Lender in its sole discretion at any time.
MATERIAL-ADVERSE EVENT means any circumstance or event that,
individually or collectively, is reasonably expected to result in any (a)
impairment of any Borrower's ability to perform any of its payment or other
material obligations under any Loan Document or other Material Agreement or
Lender's ability to enforce any of those obligations or any of its Rights under
any Loan Document, (b) material adverse effect on any Collateral, or (c) Default
or Potential Default.
MATERIAL AGREEMENT means, for any Person, any agreement to which that
Person is a party, by which that Person is bound, or to which any assets of that
Person may be subject, and that is not cancelable by that Person upon less than
30-days notice without liability for further payment other than nominal penalty,
and the default under which or cancellation or forfeiture of which would be a
Material- Adverse Event.
MATURITY DATE means the earlier of either (a) occurrence of a Default,
or (b) September ____, 1997, unless extended pursuant to SECTION 2.1.
MAXIMUM AMOUNT and MAXIMUM RATE respectively mean -- for any day the
maximum non- usurious amount and the maximum non-usurious rate of interest that,
under applicable Law, Lender is permitted to contract for, charge, take,
reserve, or receive on the Obligation.
MORTGAGED PROPERTY means, for each HELOC, the underlying real property
securing payment of the HELOC consisting of one-to-four family residences.
MORTGAGOR means each Person obligated to Borrowers under a HELOC.
MULTIEMPLOYER PLAN means a multiemployer plan as defined in 'SS''SS'
3(37) or 4001(a)(3) of ERISA or 'SS' 414(f) of the IRC to which any ERISA
Affiliate is making, or has made, or is accruing, or has accrued, an obligation
to make contributions.
NET WORTH means, for any Person, its stockholder's equity as determined
under GAAP.
NOTE means a promissory note executed and delivered by Borrowers,
payable to Lender's order, initially in the stated principal amount of
$30,000,000.00 and substantially in the form of EXHIBIT A, as renewed, extended,
amended, or replaced.
OBLIGATION means all (a) present and future indebtedness, obligations,
and liabilities of any Borrower to Lender under any Loan Document, whether
principal, interest, fees, costs, attorneys' fees, or otherwise, (b) amounts
that would become due but for operation of 11 U.S.C. 'SS''SS' 502 and 503 or
any other
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provision of Title 11 of the United States Code, (c) pre- and post-maturity
interest on any of the foregoing, including, without limitation, all
post-petition interest if any Borrower voluntarily or involuntarily files for
protection under any Debtor Law, and (d) all renewals, extensions, and
modifications of any of the foregoing.
OUTSTANDING NOTES REPORT means a report prepared by Collateral Custodian
and delivered to Lender in accordance with the terms of the Custodial Agreement.
PBGC means the Pension Benefit Guaranty Corporation.
PERMITTED DEBT means (i) the Obligation; (ii) obligations to pay Taxes;
(iii) liabilities for accounts payable, non-capitalized equipment or operating
leases, and other liabilities if in each case incurred in the ordinary course of
business; (iv) accrued expenses, deferred credits, and loss contingencies that
are properly classified as liabilities under GAAP; (v) any Debt existing as of
the date hereof; (vi) any other Debt permitted by Lender, and (vii) warehouse
lines of credit and subordinated debt.
PERSON means any individual, entity, or Tribunal.
POTENTIAL DEFAULT means the occurrence of any event or existence of any
circumstance that would -- upon notice, time lapse, or both -- become a Default.
PRINCIPAL DEBT means, at any time, the aggregate principal amount
outstanding under the Note.
REPRESENTATIVES means representatives, officers, directors, employees,
attorneys, and agents.
RESPONSIBLE OFFICER means, with respect to each Borrower, the chairman,
president, vice president, chief executive officer, chief financial officer, or
any other officer designated as a "Responsible Officer" by any of the above in
writing to Lender.
RIGHTS means rights, remedies, powers, privileges, and benefits.
SECURITY AGREEMENT means the Security Agreement, dated as of the date
hereof, executed by Borrowers and Lender in substantially the form of EXHIBIT
C-1.
SOLVENT means, for any Person, that (a) the fair-market value of its
assets exceeds its liabilities, (b) it has sufficient cash flow to enable it to
pay its debts as they mature, and (c) it does not have unreasonably small
capital to conduct its businesses.
SUB-SERVICER means, at any time, LaSalle National Bank, or its successor
appointed under the Sub-Servicing Agreement.
SUB-SERVICING AGREEMENT means the Sub-Servicing Agreement dated as of
the date hereof, by and between Borrowers and Sub-Servicer, together with all
amendments and modifications thereto.
SUBSIDIARY of any Person means any entity of which at least 50% (in
number of votes) of the stock (or equivalent interests) is owned of record or
beneficially, directly or indirectly, by that Person.
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TAXES means, for any Person, taxes, assessments, or other governmental
charges or levies imposed upon it, its income, or any of its properties,
franchises, or assets.
TERMINATION DATE means the earlier of (a) the occurrence of a Default,
or (b) that date which is six months following the Maturity Date.
TRIBUNAL means any (a) local, state, or federal judicial, executive, or
legislative instrumentality, (b) private arbitration board or panel, or (c)
central bank.
UCC means the Uniform Commercial Code as enacted in New York or other
applicable jurisdictions.
UNDERWRITING GUIDELINES means those guidelines attached hereto on
SCHEDULE 2.1 under which each HELOC has been underwritten and originated and
which guidelines have been approved by Lender prior to the use thereof. Borrower
may, from time to time, modify the Underwriting Guidelines, provided such
modifications are approved in writing by Lender prior to the implementation
thereof.
WET BORROWING means a Borrowing as defined in the Custodial Agreement.
WET FUNDING ACCOUNT means a deposit account established by Sub-Servicer
__________, styled and numbered "IMC Wet Funding Account in trust for Nomura
Asset Capital Corporation," Account No. _________, for deposit of Wet
Borrowings.
WIRE INSTRUCTIONS mean, for any Person, the information for wire
transfers of funds to that Person, which (until changed by written notice to all
other parties to this Agreement) are stated for Borrowers and Lender beside
their names on the signature pages below.
1.2 Time References. Unless otherwise specified, in the Loan Documents
(a) time references (e.g., 10:00 a.m.) are to time in New York, New York, and
(b) in calculating a period from one date to another, the word "from" means
"from and including" and the word "to" or "until" means "to but excluding."
1.3 Other References. Unless otherwise specified, in the Loan Documents
(a) where appropriate, the singular includes the plural and vice versa, and
words of any gender include each other gender, (b) heading and caption
references may not be construed in interpreting provisions, (c) monetary
references are to currency of the United States of America, (d) section,
paragraph, annex, schedule, exhibit, and similar references are to the
particular Loan Document in which they are used, (e) references to "telecopy,"
"facsimile," "fax," or similar terms are to facsimile or telecopy transmissions,
(f) references to "including" mean including without limiting the generality of
any description preceding that word, (g) the rule of construction that
references to general items that follow references to specific items as being
limited to the same type or character of those specific items is not applicable
in the Loan Documents, (h) references to any Person include that Person's heirs,
personal representatives, successors, trustees, receivers, and permitted
assigns, (i) references to any Law include every amendment or supplement to it,
rule and regulation adopted under it, and successor or replacement for it, and
(j) references to any Loan Document or other document include every renewal and
extension of it, amendment and supplement to it, and replacement or substitution
for it.
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1.4 Accounting Principles. Unless otherwise specified, in the Loan
Documents (a) GAAP determines all accounting and financial terms and compliance
with financial covenants, (b) otherwise, all accounting principles applied in a
current period must be comparable in all material respects to those applied
during the preceding comparable period, and (c) while Borrowers have any
consolidated Subsidiaries (i) all accounting and financial terms and compliance
with reporting covenants must be on a consolidating and consolidated basis, as
applicable and (ii) compliance with financial covenants must be on a
consolidated basis.
SECTION 2. BORROWING PROVISIONS.
2.1 Commitment, Use of Proceeds.
(a) Subject to the conditions of this Agreement, Lender agrees to
extend to Borrowers a revolving line of credit which shall not exceed at
any time the then-applicable Commitment. The amount of the
then-applicable Commitment available to Borrowers at any time shall be
equal to the then-applicable Commitment less the aggregate face amount
of the HELOCs.
(b) Borrowings advanced hereunder may be used by Borrowers to (i)
acquire, originate and purchase HELOCs which meet the criteria specified
in the Underwriting Guidelines ("HELOC BORROWINGS") and (ii) reimburse
Sub-Servicer and/or the Collection Account for Liquidity Contributions
pursuant to the terms of the Liquidity Agreement ("LIQUIDITY
BORROWINGS"). From and after the Maturity Date, Borrowers shall not
request, and Lender shall have no obligation to fund, any HELOC
Borrowing, Lender's sole remaining commitment being to fund Liquidity
Borrowings through the Termination Date.
(c) Prior to the Maturity Date and in accordance with the terms
of this Agreement, Lender is hereby authorized, but is not required, to
record the date and principal amount of each Borrowing and any repayment
in respect of principal due under the Note on the schedule attached to
the Note.
(d) Lender and Borrower may mutually agree to extend the Maturity
Date provided, however, that Lender shall have no obligation to extend
the Maturity Date, such decision being at Lender's sole discretion, and,
provided further, that any such agreement to extend shall be in writing
and signed by Lender and Borrower.
(e) If at any time a HELOC fails to conform to the Underwriting
Guidelines, becomes a Delinquent HELOC or fails to meet the document
delivery requirements under the Custodial Agreement, then such HELOC
may, at Lender's sole discretion, be excluded from all calculations of
the Borrowing Base. In addition, with respect to each HELOC as to which
Lender has received an Outstanding Note Report from Collateral Custodian
in accordance with the Custodial Agreement, Lender may request that
Borrower repurchase such HELOC the next Business Day.
2.2 Borrowing Request. Borrowers may only request a borrowing by timely
delivery to (i) lender and collateral custodian the information required
pursuant to Exhibit i of the Custodial Agreement, (ii) collateral custodian the
collateral documents as required under section 2 of the custodial agreement and
(iii) lender a borrowing request for the borrowing before 4:00 p.m. of the
business day before the borrowing date. A borrowing request is irrevocable and
binding on borrowers when
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delivered. HELOC Borrowings shall not be requested more frequently than once
per Business Day. Liquidity Borrowings shall be made on the first Business Day
of each week.
2.3 Fundings. Upon receipt of the documents set forth in SECTION 2.2,
Lender shall, for any Borrowing no later than 3:30 p.m. on the Borrowing Date --
unless to its actual knowledge any of the applicable conditions precedent have
not been satisfied by Borrowers or waived by the Lender -- either (i) wire
transfer funds into the Wet Funding Account for a HELOC Borrowing if a Wet
Borrowing or into the Dry Funding Account if a Dry Borrowing, or (ii) wire
transfer funds into the account designated by Sub-Servicer for a Liquidity
Borrowing. In addition, by 3:30 p.m. on each Borrowing Date Lender shall forward
to Collateral Custodian via modem a file containing the information required
pursuant to Exhibit I to the Custodian Agreement confirming the Wet Borrowings
occurring on such day.
2.4 Wet-Borrowings. With respect to each HELOC as to which a Wet
Borrowing is made, Borrowers confirm their grant under this Agreement of Lender
Liens as of the Borrowing Date thereof.
2.5 Multiple Borrowers.
(a) Borrowers. Each representation and warranty in the Loan
Documents by a Borrower is deemed to be its separate representation and
warranty and the joint and several representation and warranty of all
Borrowers. Each covenant and agreement by any Borrower under the Loan
Documents is the joint and several covenant and agreement of all
Borrowers. Any communication under the Loan Documents to any one
Borrower is deemed to have been concurrently received by each other
Borrower.
(b) Basis for Structure. Borrowers desire to utilize their
borrowing potential on a combined basis to the same extent possible if
they were merged into a single-corporate entity. Each Borrower has
determined that it will specifically and materially benefit from all
Borrowings. Borrowers intend and Lender has required that all Borrowers
jointly and severally execute and deliver this Agreement, the Note, and
certain other Loan Documents. Borrowers have requested and bargained for
the structure and terms of, and security for, all Borrowings.
(c) Joint and Several Obligation. Each Borrower irrevocably and
unconditionally agrees (i) that it is jointly and severally liable to
Lender for full payment and performance of the Obligation and all
obligations of Borrowers under the Loan Documents, (ii) to fully pay and
perform the Obligation and all of those obligations of Borrowers, and
(iii) TO INDEMNIFY, AS A PRIMARY OBLIGOR, LENDER AGAINST ANY LOSS LENDER
MAY INCUR AS A RESULT OF ANY OBLIGATIONS OF ANY BORROWER BEING OR
BECOMING VOID, VOIDABLE, UNENFORCEABLE, OR INEFFECTIVE FOR ANY REASON
WHATSOEVER, -- WHETHER KNOWN TO LENDER OR ANY OTHER PERSON -- THE AMOUNT
OF THAT LOSS BEING THE AMOUNT WHICH LENDER WOULD OTHERWISE HAVE BEEN
ENTITLED TO RECOVER FROM ANY BORROWER. THIS INDEMNITY SURVIVES THE
PAYMENT AND PERFORMANCE OF THE OBLIGATION AND TERMINATION OF THE LOAN
DOCUMENTS.
(d) Contribution Rights. Borrowers each intend that their joint
and several obligations under the Loan Documents are not subject to
challenge on any basis. Therefore, as of the date any transfer is deemed
to occur under the Loan Documents, each Borrower's liabilities under the
Loan Documents and all other liabilities -- calculated in each case to
the full extent of that Borrower's probable-net exposure when and if
those liabilities become absolute and mature (i.e.,
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"DATED LIABILITIES") -- are intended by that Borrower to be less than
the fair valuation of all of its assets as of that date (i.e., its
"DATED ASSETS"). To that end, each Borrower (i) grants to and
recognizes in each other Borrower ratable Rights of subrogation and
contribution in the amount, if any, by which the granting Borrower's
dated assets (but for the total subrogation and contribution in its
favor under this section) would exceed the granting Borrower's dated
liabilities, and (ii) acknowledges receipt of and recognizes its ratable
Rights to subrogation and contribution from each other Borrower in the
amount that the other Borrower's dated assets (but for the total
subrogation and contribution in its favor under this section) would
exceed the other Borrower's dated liabilities. Each Borrower will
recognize Rights of subrogation and contribution at least equal to its
obligations under the Loan Documents. It is a material objective of this
section that each Borrower recognize Rights to subrogation and
contribution rather than be deemed not to be Solvent by reason of an
arbitrary interpretation of its joint and several obligations under the
Loan Documents.
2.6 HELOC Characteristics. By 10:00 a.m. each Monday (or, if such is not
a Business Day, the next succeeding Business Day), Borrower shall forward to
Lender via modem a file containing the information set forth in SCHEDULE 2.6
with respect to each HELOC as of the immediately preceding Friday.
SECTION 3. PAYMENT TERMS.
3.1 Note. The Principal Debt (and related interest) due to Lender
hereunder shall be evidenced by the Note. Notwithstanding the principal amount
of the Note as stated on the face thereof, the amount of principal actually
owing on the Note in any given time shall be the aggregate of all Borrowings
theretofore made to Borrowers hereunder, less all payments of principal
theretofore actually received hereunder, by Lender. Lender is authorized, but is
not required, to endorse on a schedule attached to the Note appropriate
notations evidencing the date and amount of each Borrowing as well as the amount
of each principal payment made by Borrowers hereunder.
3.2 Payment Procedures. Borrowers shall jointly and severally make each
payment and prepayment on the Obligation to Lender in funds that are available
for immediate use by Lender. Payments that are received by 3:00 p.m. on a
Business Day are deemed received on that Business Day. Payments that are
received after 3:00 pm on a Business Day are deemed received on the next
Business Day. Interest on the Note shall continue to accrue through the calendar
day immediately before the Business Day on which the payment is deemed received.
3.3 Scheduled Payments. Unless otherwise provided in this Agreement,
Borrowers shall jointly and severally pay the Obligation in accordance with the
following table:
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<TABLE>
<CAPTION>
OBLIGATION PAYABLE
========== =======
<S> <C>
Interest on the Principal Debt unless a Default has occurred and is As it accrues (a) by 12:00 noon on the 1st Business Day of each
continuing Calendar Month, and (b) on the Termination Date.
Interest at the Default Rate if a Default has occurred and is On demand as it accrues
continuing
Principal Debt and any other unpaid Obligation On the Termination Date
</TABLE>
3.4 Prepayments; Margin Calls.
(a) Borrowing Excess. If at any time a Borrowing Excess exists,
then -- on DEMAND -- Borrowers shall eliminate such Borrowing Excess by
(i) delivering to Lender, in accordance with this Agreement, additional
Collateral that causes the Borrowing Base to increase, (ii) prepaying
Principal Debt to Lender, or (iii) any combination of the actions under
CLAUSES (I) and (II) above.
(b) Voluntary Prepayments. Borrowers may voluntarily prepay all
or any part of the Obligation at any time without premium or penalty
upon five (5) days prior written notice to Lender. Any prepayment of the
Note hereunder shall be (i) made together with interest accrued (through
the date of such prepayment) on the Principal Debt prepaid, and (ii)
applied first to accrued interest and then in reduction of the Principal
Debt.
3.5 Order of Application. All payments and proceeds -- whether
voluntary, involuntary, through the exercise of any Right of set-off or other
Right, realization against any Collateral, or otherwise -- shall be applied in
the following order:
(a) All reasonable costs and expenses incurred by Lender in
connection with its duties under the Loan Documents -- including,
without limitation, fees and expenses paid by Lender to any servicing
companies retained by Lender to assist it in servicing any Collateral
required to be serviced, to any attorneys, or to any agents -- that have
not been reimbursed by Lender, payable solely to Lender.
(b) Accrued and unpaid interest on the Obligation at the
applicable rate.
(c) Principal Debt .
(d) Any other portions of the Obligation.
(e) Either to any Borrower or to its successors or assigns on
behalf of all Borrowers, to be divided between them as they may agree or
as a court of competent jurisdiction may direct.
3.6 Interest Rates.
(a) Non-Default Rate. Unless a Default has occurred and is
continuing, all Principal Debt shall bear an annual interest rate equal
to the lesser of either (i) the Maximum Rate or (ii) the Interest Rate.
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(b) Default Rate. Upon the occurrence, and during the
continuation, of a Default, all Principal Debt and any past-due interest
on the Principal Debt shall bear an annual interest rate equal to the
lesser of either (i) the Maximum Rate or (ii) the Default Rate, from the
date due (stated or by acceleration) until paid, whether or not payment
is before or after entry of a judgment.
(c) Rate Changes. Each change in the Interest Rate, Default Rate,
and Maximum Rate shall be effective upon the effective date of change
without notice to Borrowers or any other Person.
(d) Calculations. Interest is calculated on the basis of actual
days (including the first but excluding the last) over a 360-day year --
unless the calculation would result in an interest rate greater than the
Maximum Rate, in which event interest is calculated on the basis of the
actual number of days in that year. All interest rate determinations and
calculations by Lender are conclusive and binding absent manifest error.
(e) Maximum Rate. Regardless of any Loan Document provision,
Lender is not entitled to contract for, charge, take, reserve, receive,
or apply, as interest on all or any of the Obligation any amount in
excess of the Maximum Rate. If Lender ever does so, then any excess is
to be treated as a partial prepayment in reduction of Principal Debt,
and any remaining excess shall be refunded to Borrowers, as the case may
be.
3.7 Basis Unavailable or Inadequate for LIBOR. If, on or before any date
when LIBOR is to be determined for a Borrowing, Lender determines that the basis
for determining the applicable rate is not available or that the resulting rate
does not accurately reflect the cost to Lender of making Borrowings at that rate
then Lender shall promptly notify Borrowers of that determination (which is
conclusive and binding on Borrowers, absent manifest error) and that until
Lender notifies Borrowers that it has determined that those circumstances no
longer exist -- which it shall promptly do -- Lender's Commitment under this
Agreement to make LIBOR Borrowings are suspended. In such event, Borrowers shall
either (i) repay in full the then-outstanding principal amount of LIBOR
Borrowings, together with accrued interest thereon or (ii) notify Lender of
Borrowers' desire to convert such LIBOR Borrowings to Borrowings bearing a
comparable alternative interest rate as reasonably determined by Lender (the
"ALTERNATE RATE BORROWINGS").
3.8 Additional Costs. This section shall survive the full satisfaction
of the Obligation and termination of the Loan Documents, and release of Lender
Liens.
(a) For any LIBOR Borrowing, if (i) (A) any change after the date
of this Agreement in any present Law -- and for purposes of this SECTION
3.8, Law includes interpretations and guidelines of any Tribunal whether
or not having the force of Law -- or any future Law imposes, modifies,
or deems applicable (or if compliance by Lender with any requirement of
any Tribunal results in) any requirement that any reserves (including,
without limitation, any marginal, emergency, supplemental, or special
reserves) be maintained, (B) those reserves reduce any sums receivable
by Lender under this Agreement or increase the costs incurred by Lender
in advancing or maintaining any portion of any LIBOR Borrowing, and (C)
Lender determines that the reduction or increase is material (and it
may, in determining the material nature of the reduction or increase,
utilize reasonable assumptions and allocations of costs and expenses and
use any reasonable averaging or attribution method), then (ii) Lender
shall deliver to Borrowers a
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certificate stating in reasonable detail the calculation of the amount
necessary to compensate it for its reduction or increase (which
certificate is conclusive and binding absent manifest error), and
Borrowers shall pay that amount to Lender within ten days after demand.
(b) For any Borrowing, if (i) (A) any change after the date of
this Agreement in any present Law or any future Law regarding capital
adequacy or compliance by Lender with any request, directive, or
requirement now or in the future imposed by any Tribunal regarding
capital adequacy or any change in the risk category of this transaction
reduces the rate of return on its capital as a consequence of its
obligations under this Agreement to a level below that which it
otherwise could have achieved (taking into consideration its policies
with respect to capital
adequacy) by an amount deemed by it to be material (and it may, in
determining the amount, utilize reasonable assumptions and allocations
of costs and expenses and use any reasonable averaging or attribution
method), then (ii) Lender shall notify Borrowers and deliver to
Borrowers a certificate stating in reasonable detail the calculation of
the amount necessary to compensate it (which certificate is presumed
correct), and Borrowers shall pay that amount to Lender within ten days
after demand.
(c) Any Taxes payable by Lender or ruled (by a Tribunal) payable
by Lender in respect of any Loan Document shall -- if permitted by Law
and if deemed material by Lender (who may, in determining the material
nature of the amount payable, utilize reasonable assumptions and
allocations of costs and expenses and use any reasonable averaging or
attribution method) -- be paid by Borrowers, together with interest and
penalties, if any (except for Taxes payable on the overall net income of
Lender and except for interest and penalties incurred as a result of the
gross negligence or willful misconduct of Lender). Lender shall notify
Borrowers and deliver to Borrowers a certificate stating in reasonable
detail the calculation of the amount of payable Taxes, which certificate
is conclusive and binding (absent manifest error), and Borrowers shall
pay that amount to Lender within ten days after demand. If Lender
subsequently receives a refund of the Taxes paid to it by Borrowers,
then the recipient shall promptly pay the refund to Borrowers.
3.9 Change in Laws. If any change, after the date of this Agreement, in
any present Law or any future Law makes it unlawful for Lender to make or
maintain LIBOR Borrowings, then Lender shall promptly notify Borrowers and (a)
as to undisbursed funds, any requested Borrowing shall be made as a an
Alternative Rate Borrowing and (b) as to any outstanding Borrowing, the
Borrowing shall be converted to an Alternative Rate Borrowing as of the date of
notice.
SECTION 4. RELEASE OF COLLATERAL; SERVICING.
4.1 Release of Collateral.
Satisfaction of Obligation. If the Obligation is fully
paid and performed and Lender has no further obligation to fund any
Borrowing, Borrowers may -- by written request to Lender -- request that
Lender release the Lender Liens on all of the Collateral, instruct the
Collateral Custodian to return to Borrowers or its designee all
Collateral Documents then held by Collateral Custodian, and execute a
release of any financing statements or other documents filed or recorded
to perfect the Lender Liens.
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4.2 Servicing.
(a) Borrowers shall maintain or cause the servicing of the HELOC
to be maintained in conformity with accepted servicing practices in the
industry and in a manner at least equal in quality to the servicing
Borrowers provide to mortgage loans which they service for their own
account. In the event Borrowers enter into any sub-servicing agreements
(including the Sub- Servicing Agreement), Borrowers shall remain
responsible for servicing of the HELOCs in accordance with the standards
required hereunder.
(b) For each HELOC serviced by Borrowers, Borrowers grant to
Lender a lien and security interest in all servicing rights and records,
including but not limited to any and all servicing agreements, files,
documents, records, data bases, computer tapes, copies of computer
tapes, proof of insurance coverage, insurance policies, appraisals,
other closing documentation, payment history records, and any other
records relating to or evidencing the servicing of HELOC (the "SERVICING
RECORDS") to secure the Obligation. Borrowers covenant to safeguard
such Servicing Records and to deliver them promptly to Lender or its
designee (including the Collateral Custodian) at Lender's request.
(c) Borrowers (i) shall provide a copy of the Sub-Servicing
Agreement or any other sub-servicing agreement to Lender; (ii) shall
provide copies of all reports from time to time required under the
Sub-Servicing Agreement or any other sub-servicing agreement from time
to time entered in replacement thereof to Lender, and (iii) hereby
irrevocably assign to the Lender and Lender's successors and assigns all
right, title interest and the benefits of the Sub-Servicing Agreement
and any other sub-servicing agreement with respect to the HELOCs.
(d) Upon the occurrence of a Default, Lender may, in its sole
discretion, transfer the servicing of the HELOCS to a third party, at no
cost or expense to Lender, it being agreed that Borrowers will pay any
and all fees required to effectuate the transfer of servicing to such
party.
SECTION 5. CONDITIONS PRECEDENT. Lender is not obligated to fund any Borrowing
unless Lender has received all of the documents and items described on SCHEDULE
5. In addition, Lender is not obligated to fund any Borrowing unless on the
applicable Borrowing Date: (a) Lender has timely received a Borrowing Request;
(b) all of the representations and warranties of Borrowers in the Loan Documents
are true and correct in all material respects; (c) no Default exists; (d) the
funding of the Borrowing is permitted by Law and is in compliance with the
limitations set forth in SECTION 2; (e) all requirements under the Custodial
Agreement and all other Loan Documents related to such Borrowing shall have been
satisfied; and (f) if reasonably requested by Lender, it has received evidence
substantiating any of the matters in the Loan Documents that are necessary to
enable Borrowers, as the case may be, to qualify for the Borrowing. Each
condition precedent in this Agreement (including, without limitation, those on
SCHEDULE 5) is material to the transactions contemplated by this Agreement, and
time is of the essence with respect to each. Lender may, in its sole discretion,
fund any Borrowing without all conditions being satisfied. However, to the
extent lawful, that funding is not a waiver of the requirement that each
condition precedent be satisfied as a prerequisite for any subsequent funding,
unless Lender specifically waives an item in writing.
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SECTION 6. REPRESENTATIONS AND WARRANTIES. As of the date hereof and each
Borrowing, Borrowers jointly and severally represent and warrant to Lender as
follows:
6.1 Purpose of Credit. Borrowings are to be used as stated in the
recitals of this Agreement. No Borrower is engaged principally (or as one of its
important activities) in the business of extending credit for the purpose of
purchasing or carrying any "margin stock."
6.2 About the Borrowers.
(a) Subsidiaries and Trade Names. Except as described on SCHEDULE
6.2 (i) no Borrower has any Subsidiaries and (ii) no Borrower has used
or transacted business under any other corporate or trade name in the
six-month period preceding the date of this Agreement.
(b) Existence, Qualification, and Compliance. Each Borrower is
duly organized, validly existing, and in good standing under the Laws of
the jurisdiction in which it is incorporated as stated on SCHEDULE 6.2.
Except where failure is not a Material-Adverse Event, each Borrower (i)
is duly qualified to transact business and is in good standing as a
foreign corporation or other entity in each jurisdiction where the
nature and extent of its business and properties require due
qualification and good standing (as described on SCHEDULE 6.2), (ii)
possesses all requisite authority, permits, and power to conduct its
business as is now being -- or is contemplated by this Agreement to be
-- conducted, and (iii) is in compliance with all applicable Laws.
(c) Offices. Each Borrower's chief executive office and other
principal offices are described on SCHEDULE 6.2. The present and
foreseeable location of each Borrower's books and records concerning
accounts and accounts receivable is at its chief executive office, and
all of its books, and records are in its possession.
6.3 Authorization and Contravention. The execution and delivery by each
Borrower of each Loan Document to which it is a party and the performance by it
of its related obligations (a) are within its corporate power, (b) have been
duly authorized by all necessary corporate action, (c) except for any action or
filing that has been taken or made on or before the date of this Agreement,
require no action by or filing with any Tribunal, (d) do not violate any
provision of its articles of incorporation, charter or bylaws, (e) except where
not a Material-Adverse Event, do not violate any provision of Law applicable to
it or any material agreements to which it is a party, and (f) except for Lender
Liens, do not result in the creation or imposition of any Lien on any asset of
any Borrower.
6.4 Binding Effect. Upon execution and delivery by all parties to it,
each Loan Document will constitute a legal and binding obligation of each
Borrower party to it, enforceable against it in accordance with its terms,
except as enforceability may be limited by applicable Debtor Laws and general
principles of equity.
6.5 Fiscal Year. The Borrowers' fiscal years end each December 31.
6.6 Current Financials. The Current Financials were prepared in
accordance with GAAP and present fairly, in all material respects, the financial
condition, results of operations, and cash flows of the Borrowers as of, and for
the portion of the fiscal year ending on their date or dates (subject only to
normal
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year-end adjustments). All material liabilities of the Borrowers as of the
date or dates of the Current Financials are reflected in them or notes to
them. Except for transactions directly related to, or specifically contemplated
by, the Loan Documents, no subsequent material adverse changes have occurred in
the financial condition of the Borrowers from that shown in the Current
Financials, nor has any Borrower incurred any subsequent material liability.
6.7 Solvency. On the date of each Borrowing, each Borrower is, and after
giving effect to the requested Borrowing will be, Solvent.
6.8 Litigation. Except as disclosed on SCHEDULE 6.8, (a) no Borrower is
subject to, or aware of the threat of, any Litigation that is reasonably likely
to be determined adversely to it or, if so adversely determined, would be a
Material-Adverse Event, and (b) no outstanding or unpaid judgments against any
Borrower exists.
6.9 Transactions with Affiliates. No Borrower is a party to a material
transaction with any of its Affiliates except (a) transactions in the ordinary
course of business and upon fair and reasonable terms not materially less
favorable than it could obtain or could become entitled to in an arm's-length
transaction with a Person that was not its Affiliate, and (b) transactions
described on SCHEDULE 6.9.
6.10 Taxes. All Tax returns of each Borrower required to be filed have
been filed (or extensions have been granted) before delinquency, except for
returns for which the failure to file is not a Material-Adverse Event, and all
Taxes imposed upon each Borrower that are due and payable have been paid before
delinquency.
6.11 Employee Plans. Except where occurrence or existence is not a
Material-Adverse Event, (a) no Employee Plan has incurred an "accumulated
funding deficiency" (as defined in 'SS' 302 of ERISA or 'SS' 412 of the IRC),
(b) no Borrower has incurred liability under ERISA to the PBGC in connection
with any Employee Plan, (c) no Borrower has withdrawn in whole or in part
from participation in a Multiemployer Plan, (d) no Borrower has engaged in
any "prohibited transaction" (as defined in 'SS' 406 of ERISA or 'SS' 4975 of
the IRC), and (e) no "reportable event" (as defined in 'SS' 4043 of ERISA)
has occurred in respect of any Employee Plan, excluding events for which the
notice requirement is waived under applicable PBGC regulations.
6.12 Property. Each Borrower has good and marketable title to all its
property reflected on the Current Financials except for property that is
obsolete or that has been disposed of in the ordinary course of business or,
after the date of this Agreement, as otherwise permitted by this Agreement.
6.13 Intellectual Property. Each Borrower owns all material licenses,
patents, patent applications, copyrights, service marks, trademarks, trademark
applications, and trade names necessary to continue to conduct its businesses as
presently conducted and proposed to be conducted immediately after the date of
this Agreement. Each Borrower is conducting its business without infringement or
claim of infringement of any license, patent, copyright, service mark,
trademark, trade name, trade secret, or other intellectual property right of
others, other than any infringements or claims that, if successfully asserted
against or determined adversely to any Borrower, are not a Material-Adverse
Event. No Borrower has knowledge of any infringement or claim of infringement by
others of any material license, patent, copyright, service mark, trademark,
trade name, trade secret, or other intellectual property of Borrower.
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6.14 Environmental Matters. Except where not a Material-Adverse Event,
no Borrower (a) knows of any environmental condition or circumstance adversely
affecting any Borrower's properties or operations or any material portion of the
properties underlying the Collateral, (b) has received any report of any
Borrower's violation of any Environmental Law, or (c) knows that any Borrower is
under any obligation to remedy any violation of any Environmental Law. Each
Borrower has taken prudent steps to determine that its properties and operations
and that substantially all of the properties underlying the Collateral do not
violate any Environmental Law except violations that are not a Material-Adverse
Event.
6.15 Government Regulations.
(a) Inapplicable Regulations. No Borrower is subject to
regulation under the Investment Borrower Act of 1940, as amended, or the
Public Utility Holding Borrower Act of 1935, as amended.
(b) Borrowers' Eligibility. Each Borrower is approved and
qualified and in good standing as an issuer, mortgagee, or
seller/Sub-Servicer, and meets all requirements applicable to its status
as such, including, without limitation all necessary governmental and
third-party approvals in connection with the HELOCs and the financing
provided by Lender shall have been obtained and remain in effect.
6.16 Insurance. Each Borrower maintains with financially sound,
responsible, and reputable insurance companies or associations (or, as to
workers' compensation or similar insurance, with an insurance fund or by
self-insurance authorized by the jurisdictions in which it operates) insurance
concerning its properties and businesses against casualties and contingencies
and of types and in amounts (and with co-insurance and deductibles) as is
customary in the case of similar businesses.
6.17 Full Disclosure. Each material fact or condition relating to the
Loan Documents or the financial condition, business, or property of the
Borrowers that is a Material-Adverse Event has been disclosed in writing to
Lender. All information previously furnished by any Borrower to Lender in
connection with the Loan Documents was -- and all information furnished in the
future by any Borrower to Lender will be -- true and accurate in all material
respects or based on reasonable estimates on the date the information is stated
or certified.
6.18 Collateral. As of the date of each Borrowing.
(a) Borrowers are the lawful owners of, and have good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except any lien or security interest granted pursuant
hereto.
(b) with respect to each HELOC (i) it has been duly executed by
the parties thereto and constitutes a valid and binding obligation
enforceable in accordance with its terms, (ii) it is not delinquent or
otherwise in default, (iii) it complies with the Underwriting
Guidelines, (iv) the Collateral File (as defined in the Custodial
Agreement) related thereto includes each document required to be
delivered under EXHIBIT E to the Custodial Agreement, and (v) it is, and
all associated advances thereunder are, in full compliance with all
applicable requirements of law.
(c) Lender has a valid and perfected first priority security
interest in the Collateral.
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6.19 Conflicts. There shall not exist any judgment, order, injunction or
other restraint prohibiting or, in the reasonable judgment of Lender, imposing
materially adverse conditions upon the consummation of the financing.
SECTION 7. AFFIRMATIVE COVENANTS. Until the commitment by Lender to extend
credit under this Agreement has been canceled or terminated and the Obligation
is fully paid and performed, Borrowers jointly and severally covenant and agree
with Lender as follows:
7.1 Reporting Requirements. Borrowers shall cause to be furnished to
Lender (except as otherwise required below) the following, all in form and
detail reasonably satisfactory to Lender:
(a) Annual Financials. Promptly when available but at least
within 90 days after each fiscal-year end of Borrowers (except as may be
extended in accordance with regulations adopted by the Securities and
Exchange Commission), the consolidated Financials of the Borrowers as of
that year end, each reflecting the corresponding figures for the
preceding fiscal year in comparative form, accompanied by (i) the
related report prepared by independent certified public accountants
acceptable to Lender and stating that those statements were prepared in
accordance with GAAP applied on a basis consistent with prior periods
except for such changes in GAAP concurred in by Borrowers' independent
public accountants, and (ii) a Compliance Certificate.
(b) Quarterly Financials. Promptly when available but at least
within 45 days after the last day of each Calendar Quarter (except as
may be extended in accordance with regulations adopted by the Securities
and Exchange Commission), the consolidated Financials of the Borrowers
as of the end of that Calendar Quarter, accompanied by a Compliance
Certificate.
(c) Notices. Notice, promptly after any Borrower knows or has
reason to know, of (i) the existence and status of any Litigation that,
if determined adversely to any Borrower, would be a Material-Adverse
Event, (ii) any change in any material fact or circumstance represented
or warranted by any Borrower in any Loan Document that constitutes a
Material-Adverse Event, (iii) the receipt by any Borrower of notice of
any violation or alleged violation of ERISA or any Environmental Law or
other Law if that violation is a Material-Adverse Event, or (iv) a
Default or Potential Default specifying the nature thereof and what
action the Borrowers have taken, are taking, or propose to take with
respect to it.
(d) Additional Reports. Furnish to Lender, upon request, copies
of the reports furnished to Borrowers under the Custodial Agreement and
the Liquidity Agreement not otherwise required to be delivered to
Lender, and such other reports as Lender may from time to time request
in form reasonably satisfactory to Lender.
(e) Other Information. Promptly upon reasonable request by
Lender, information (not otherwise required to be furnished under the
Loan Documents) respecting the business affairs, assets, and liabilities
of any Borrower and opinions, certifications, and documents in addition
to those mentioned in this Agreement.
7.2 Use of Proceeds. Borrowers shall use the proceeds of Borrowings only
for the purposes stated in SECTION 6.1 of this Agreement.
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7.3 Books and Records. Each Borrower shall maintain books, records, and
accounts necessary to prepare Financials in accordance with GAAP.
7.4 Inspections. Upon reasonable request, each Borrower shall allow
Lender or its Representatives to inspect any of its properties, to review
reports, files, and other records in connection with the HELOCs and to make and
take away copies of such reports, files, and other records, to conduct tests or
investigations in connection with the HELOCs, and to discuss any of its affairs,
conditions, and finances with its directors, officers, employees,
representatives, or accountants from time to time during reasonable business
hours.
7.5 Taxes. Each Borrower shall promptly pay when due any and all Taxes
other than Taxes of which the failure to pay is not a Material-Adverse Event or
which are being contested in good faith by lawful proceedings diligently
conducted, against which reserve or other provision required by GAAP has been
made, and in respect of which levy and execution of any Lien have been and
continue to be stayed.
7.6 Expenses. Borrowers shall pay (a) all reasonable legal fees and
expenses incurred by Lender in connection with the preparation, negotiation, and
execution of the Loan Documents, (b) all reasonable legal fees and expenses
incurred by Lender in connection with each separate future amendment, consent,
waiver, or approval executed in connection with any Loan Document, (c) all fees,
charges, or Taxes for the recording or filing of any Loan Document to create or
perfect Lender Liens, (d) all other reasonable out-of-pocket expenses of Lender
in connection with the preparation, negotiation, execution, or administration of
the Loan Documents -- including, without limitation, courier expenses incurred
in connection with the Collateral, (e) all amounts expended, advanced, or
incurred by Lender to satisfy any obligation of any Borrower under any Loan
Document, to collect the Obligation, or to enforce the Rights of Lender under
any Loan Document -- including, without limitation, all court costs, attorneys'
fees (whether for trial, appeal, other proceedings, or otherwise), fees of
auditors and accountants, and investigation expenses reasonably incurred by
Lender in connection with any such matters, (f) interest at an annual interest
rate equal to the Default Rate on each item specified in CLAUSES (a) through (e)
above from 30 days after the date of written demand or request for reimbursement
to the date of reimbursement, and (g) any and all stamp and other Taxes payable
or determined to be payable in connection with the execution, delivery, or
recordation of any Loan Document -- IN CONNECTION WITH WHICH BORROWERS SHALL
INDEMNIFY AND SAVE LENDER HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES WITH
RESPECT TO OR RESULTING FROM ANY DELAY IN PAYING OR OMISSION TO PAY THOSE TAXES
TO THE EXTENT THOSE LIABILITIES ARISE SOLELY BECAUSE BORROWERS FAILED TO PAY THE
TAXES UPON DEMAND BY LENDER, WHICH INDEMNITY SURVIVES THE PAYMENT AND
PERFORMANCE OF THE OBLIGATION AND TERMINATION OF THE LOAN DOCUMENTS.
7.7 Maintenance of Existence, Assets, and Business. Each Borrower shall
(a) except as permitted by SECTION 8.3, maintain its corporate existence and
good standing in its state of incorporation and its authority to transact
business in all other states where failure to maintain its authority to transact
business is a Material-Adverse Event, and (b) maintain all licenses, permits,
and franchises necessary for its business where failure to do so is a
Material-Adverse Event -- including, without limitation, each Borrowers's
eligibility as a lender, seller/servicer, and issuer.
7.8 Insurance. Each Borrower shall (a) maintain with financially sound
and reputable insurers, insurance with respect to its assets and business
against such liabilities, casualties, risks, and contingencies and in such types
and amounts -- including, without limitation, a fidelity bond or bonds in form
and with coverage, with a Borrower, and with respect to such individuals or
groups of individuals -- as is customary
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in the case of Persons engaged in the same or similar businesses and similarly
situated, and (b) upon Lender's request, furnish to Lender from time to time
(i) a summary of its insurance coverage in form and substance satisfactory to
Lender, and (ii) originals or copies of the applicable policies.
7.9 INDEMNIFICATION. IN CONSIDERATION OF THE COMMITMENTS BY LENDER UNDER
THE LOAN DOCUMENTS, BORROWERS SHALL INDEMNIFY AND DEFEND LENDER AND ITS
AFFILIATES AND REPRESENTATIVES (COLLECTIVELY, THE "INDEMNIFIED PARTIES") -- AND
DEFEND THEM, WHETHER OR NOT THEY ARE A PARTY TO SUCH INVESTIGATION, LITIGATION,
OR PROCEEDING, AND HOLD EACH OF THEM HARMLESS -- AGAINST ANY AND ALL LOSSES,
LIABILITIES, CLAIMS, DAMAGES, DEFICIENCIES, INTEREST, JUDGMENTS, COSTS, AND
EXPENSES -- INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES AND
EXPENSES -- INCURRED BY ANY OF THEM ARISING FROM OR BECAUSE OF (a) ANY
INVESTIGATION, LITIGATION, OR OTHER PROCEEDING BROUGHT OR THREATENED IN
CONNECTION WITH ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED BY THE LOAN
DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY USE BY ANY BORROWER OF THE
PROCEEDS OF BORROWINGS, (b) ANY IMPOUNDMENT, ATTACHMENT, OR RETENTION OF ANY
COLLATERAL, (c) ANY ALLEGED VIOLATION OF ANY FEDERAL OR STATE LAW RELATING TO
USURY IN CONNECTION WITH ANY COLLATERAL, AND (d) ANY REPRESENTATION MADE BY
ANY BORROWER UNDER ANY LOAN DOCUMENT. ALTHOUGH EACH INDEMNIFIED PARTY IS
ENTITLED TO INDEMNIFICATION FOR ANY INDEMNIFIED PARTY'S ORDINARY NEGLIGENCE,
NO INDEMNIFIED PARTY IS ENTITLED TO INDEMNIFICATION FOR ITS OWN GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT. THIS INDEMNITY SURVIVES THE PAYMENT AND PERFORMANCE OF
THE OBLIGATION AND TERMINATION OF THE LOAN DOCUMENTS.
7.10 Management. Borrowers shall give Lender prompt notice of (a) all
senior management changes and (b) any substantial material change in any
Borrower's management structure.
7.11 Records. Borrowers shall maintain complete and accurate records and
files pertaining to each HELOC delivered to Collateral Custodian, and retain
such records and files together with any HELOC loan documents in their
restricted access secure facilities reasonably safe from loss or destruction.
7.12 Collection Efforts. Borrowers will exercise collection efforts with
respect to each HELOC as is consistent with sound business practice and shall be
responsible for collections on each delinquent HELOC.
7.13 Servicing. Borrowers shall service each HELOC in accordance with
the standards set forth in this Agreement.
SECTION 8. NEGATIVE COVENANTS. Until all commitments by Lenders to extend credit
under this Agreement have been canceled or terminated and the Obligation is
fully paid and performed, Borrowers jointly and severally covenant and agree
with Lender as follows:
8.1 Debt. No Borrower may directly or indirectly create, incur, or
suffer to exist (a) any Debt except Permitted Debt.
8.2 Liens. No Borrower may directly or indirectly create or incur any
Lien on the Collateral except Liens in favor of Lender.
8.3 Merger or Consolidation. No Borrower may directly or indirectly
merge or consolidate with or into any other Person except that any Borrower may
merge into or be consolidated with any other
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entity so long as any Borrower involved is the surviving corporation and such
merger or consolidation does not create a Material-Adverse Event.
8.4 Liquidations and Dispositions of Assets. No Borrower may directly or
indirectly dissolve or liquidate or sell, transfer, lease, or otherwise dispose
of (i) any material portion of its assets or business except for sales or other
dispositions by any Borrower in the ordinary course of business subject to
SECTION 4, or (ii) Collateral.
8.5 Use of Proceeds. Borrowers may not directly or indirectly use the
proceeds of Borrowings for any purpose other than as represented in this
Agreement.
8.6 Compliance with Laws and Documents. No Borrower may directly or
indirectly (a) violate the provisions of any Laws applicable to it or of any
Material Agreement to which it is a party if that violation alone or with all
other violations is a Material-Adverse Event or (b) violate the provisions
of its articles of incorporation, charter or bylaws or repeal, replace or amend
any provision of its articles of incorporation, charter or bylaws if any such
action is a Material-Adverse Event.
8.7 Assignment. No Borrower may directly or indirectly assign or
transfer any of its Rights, interests, duties, or obligations under any of the
Loan Documents or in any of the HELOCs.
8.8 HELOCs. No Borrower may originate or acquire any home equity lines
of credit except with the proceeds of a Borrowing unless Lender has otherwise
permitted in writing.
8.9 Delinquent HELOCs. Delinquent HELOCs, for any period of 15
consecutive days, represent more than 12.5% of the HELOCs.
SECTION 9. DEFAULTS AND REMEDIES.
9.1 Default. The term "DEFAULT" means the existence or occurrence of any
one or more of the following:
(a) Obligation. Borrowers fail to pay the Obligation in whole or
in part or the full amount of any interest thereon when due under the
Loan Documents.
(b) Covenants. Any Borrower fails to punctually and properly
perform, observe, and comply with any (i) any covenant, agreement, or
condition under SECTION 7 or 8, (ii) any covenant, agreement, or
condition contained in any of the Loan Documents -- other than covenants
to pay the Obligation and the covenants listed in CLAUSE (I) above --
and that failure continues for a period of five (5) calendar days after
any Borrower has, or, with the exercise of reasonable investigation,
should have, notice of it, or (iii) any event of default occurs and is
continuing under any other document or agreement between Borrower and
Lender.
(c) Misrepresentation. Any material statement, warranty, or
representation by or on behalf of any Borrower in any Loan Document or
other writing authored by or on behalf of any Borrower and furnished in
connection with the Loan Documents, proves to have been incorrect or
misleading in any material respect as of the date made or deemed made.
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(d) Debtor Law. Any Borrower (i) is not Solvent, (ii) fails to
pay its Debts generally as they become due, (iii) voluntarily seeks,
consents to, or acquiesces in the benefit of any Debtor Law, or (iv)
becomes a party to or is made the subject of any proceeding provided for
by any Debtor Law -- other than as a creditor or claimant -- that could
suspend or otherwise adversely affect the Rights of Lender granted in
the Loan Documents unless, if the proceeding is involuntary, the
applicable petition is dismissed within 60 days after its filing.
(e) Other Debt. Any Borrower fails to make any payment due on any
Debt of at least $250,000 or security (with respect to which any
Borrower has redemption, sinking fund, or other purchase obligations) or
any event occurs or any condition exists in respect of any Debt or
security of any Borrower, the effect of which is (i) to cause or to
permit any holder of that Debt or security or a trustee to cause
(whether or not it elects to cause) any of that Debt or security to
become due before its stated maturity or its regularly scheduled payment
dates, or (ii) to permit a trustee or the holder of any security (other
than common stock of any Borrower) to elect (whether or not it does
elect) a majority of the directors on the board of directors of that
Borrower.
(f) Judgments. A judgment by any competent court in the United
States of America for the payment of money in an amount of at least
$100,000 is rendered against any Borrower, and the same remains
undischarged or unpaid for a period of sixty (60) days during which
execution of such judgment is not effectively stayed.
(g) Attachments. The failure to have discharged within a period
of 30 days after the commencement of any attachment, sequestration, or
similar proceeding against any of the assets of any Borrower.
(h) Unenforceability. Any material provision of any Loan Document
for any reason ceases to be in full force and effect or is fully or
partially declared null and void or unenforceable or the validity or
enforceability of any Loan Document is challenged or denied by any
Borrower.
(i) Change of Control. Either (i) any material change in the
management of any Borrower from that management as it exists on the date
of this Agreement, (ii) failure to provide advance notice of any
material change in management, or (iii) any change in the majority
ownership or control of any Borrower from that ownership or control as
it exists on the date of this Agreement.
(j) Material Adverse Change. Any material adverse change in the
condition (financial or otherwise) of the Borrowers or their
Subsidiaries, whether shown on the financials delivered under SECTION
7.1, or otherwise.
9.2 Remedies.
(a) Debtor Law. Upon the occurrence of a Default under SECTION
9.1(d), the commitment of Lender to extend credit under this agreement
automatically terminates and the full Obligation is automatically due
and payable, without presentment, demand, notice of default, notice of
the intent to accelerate, notice of acceleration, or other requirements
of any kind, all of which are expressly waived by Borrowers.
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(b) Other Defaults. While a Default exists -- other than those
described in CLAUSE (a) above -- Lender may declare the Obligation to be
immediately due and payable, whereupon it shall be due and payable and
the commitment of Lender to extend credit under this Agreement is then
automatically terminated.
(c) Other Remedies. Following the termination of the commitment
of Lender to extend credit under this Agreement and the acceleration of
the Obligation, Lender may do any one or more of the following: reduce
any claim to judgment; foreclose upon or otherwise enforce any Lender
Liens; and exercise any other Rights in the Loan Documents, at Law, in
equity, or otherwise that Lender may elect.
9.3 Right of Offset. Borrowers hereby grant to Lender a right of offset,
to secure the repayment of the Obligation, upon any and all monies, securities,
or other property of Borrowers, and the proceeds therefrom now or hereafter held
or received by or in transit to Lender from or for the account of Borrowers,
whether for safekeeping, custody, pledge, transmission, collection, or
otherwise, and also upon any and all deposits (general or special,
time or demand, provisional or final) and credits of Borrowers, and any
and all claims of Borrowers against Lender at any time existing. Upon the
occurrence of any Default, Lender is authorized at any time and from time to
time, without notice to any Borrower, to offset, appropriate, and apply any and
all of those items against the Obligation, subject to SECTION 3.6.
Notwithstanding anything in this section or elsewhere in this Agreement to the
contrary, Lender shall not have any right to offset, appropriate, or apply any
accounts of Borrowers which consist of escrowed funds (except and to the extent
of any beneficial interest which Borrowers have in such escrowed funds) which
have been so identified by any Borrower in writing at the time of deposit
thereof.
9.4 Waivers. Borrowers waive any right to require Lender to (a) proceed
against any Person, (b) proceed against or exhaust any of the Collateral or
pursue its Rights and remedies as against the Collateral in any particular
order, or (c) pursue any other remedy in its power. Lender shall not be required
to take any steps necessary to preserve any Rights of any Borrower against any
Person from which any Borrower purchased any Collateral or to preserve Rights
against prior parties. Borrowers and each surety, endorser, guarantor, pledgor,
and other party ever liable or whose property is ever liable for payment of any
of the Obligation jointly and severally waive presentment and demand for
payment, protest, notice of intention to accelerate, notice of acceleration, and
notice of protest and nonpayment, and agree that their or their property's
liability with respect to the Obligation, or any part thereof, shall not be
affected by any renewal or extension in the time of payment of the Obligation,
by any indulgence, or by any release or change in any security for the payment
of the Obligation, and hereby consent to any and all renewals, extensions,
indulgences, releases, or changes, regardless of the number thereof.
9.5 Performance by Lender. Should any covenant, duty, or agreement of
any Borrower fail to be performed in accordance with the terms of this Agreement
or of any document delivered under this Agreement, Lender may, at its option,
after notice to Borrowers, perform, or attempt to perform, such covenant, duty,
or agreement on behalf of that Borrower. In such event, Borrowers shall jointly
and severally, at the request of Lender, promptly pay any amount expended by
Lender in such performance or attempted performance to Lender at its principal
place of business, together with interest thereon at the Default Rate from the
date of such expenditure by Lender until paid. Notwithstanding the foregoing, it
is expressly understood that Lender does not assume and shall never have, except
by express written consent of Lender, any liability or responsibility for the
performance of any duties of any Borrower under this Agreement or under any
other document delivered under this Agreement.
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9.6 No Responsibility. Except in the case of fraud, gross negligence, or
willful misconduct, neither Lender nor any of its officers, directors,
employees, or attorneys shall assume -- or ever have any liability or
responsibility for -- any diminution in the value of the Collateral or any part
of the Collateral.
9.7 No Waiver. The acceptance by Lender at any time and from time to
time of partial payment or performance by any Borrower of any of their
respective obligations under this Agreement or under any Loan Document shall not
be deemed to be a waiver of any Default then existing. No waiver by Lender shall
be deemed to be a waiver of any other then existing or subsequent Default. No
delay or omission by Lender in exercising any right under this Agreement or
under any other document required to be executed under or in connection with
this Agreement shall impair such right or be construed as a waiver thereof or
any acquiescence therein, nor shall any single or partial exercise of any such
right preclude other or further exercise thereof, or the exercise of any other
right under this Agreement or otherwise.
9.8 Cumulative Rights. All Rights available to Lender under this
Agreement or under any other document delivered under this Agreement shall be
cumulative of and in addition to all other Rights granted to Lender at Law or in
equity, whether or not the Note be due and payable and whether or not Lender
shall have instituted any suit for collection, foreclosure, or other action in
connection with this Agreement or any other document delivered under this
Agreement.
9.9 Costs. All court costs, reasonable attorneys' fees, other costs of
collection, and other sums spent by Lender in the exercise of any Right provided
in any Loan Document is payable to Lender on demand, is part of the Obligation,
and bears interest at the Default Rate from the date paid by Lender to the date
repaid by Borrowers.
SECTION 10. MISCELLANEOUS.
10.1 Nonbusiness Days. Any action that is due under any Loan Document on
a non-Business Day may be delayed until the next Business Day. However, interest
accrues on any payment until it is made.
10.2 Communications. Unless otherwise stated, a communication under any
Loan Document to a party to this Agreement must be written to be effective and
is deemed given:
For Borrowing Requests, only when actually received by Lender, as
applicable.
Otherwise, if by fax, when transmitted to the appropriate fax
number -- but, without affecting the date deemed given, the fax
must be promptly confirmed by telephone.
Otherwise, if by mail, on the third Business Day after enclosed
in a properly addressed, stamped, and sealed envelope deposited
in the appropriate official postal service.
Otherwise, when actually delivered.
Until changed by written notice to each other party to this Agreement, the
address and fax number are stated for Borrowers and Lender beside their names on
the signature pages below.
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10.3 Form and Number of Documents. The form, substance, and number of
counterparts of each writing to be furnished under the Loan Documents must be
satisfactory to Lender and its counsel.
10.4 Exceptions to Covenants. An exception to any Loan Document covenant
does not permit violation of any other Loan Document covenant.
10.5 Survival. All Loan Document provisions survive all closings and are
not affected by any investigation made by any party.
10.6 Governing Law. Unless otherwise stated, each Loan Document must be
construed -- and its performance enforced -- under the Laws of the State of New
York and the United States of America.
10.7 Invalid Provisions. If any provision of a Loan Document is
judicially determined to be unenforceable, all other provisions of it remain
enforceable. If the provision determined to be unenforceable is a material part
of that Loan Document, then, to the extent lawful, it shall be replaced by
a judicially-construed provision that is enforceable but otherwise as similar in
substance and content to the original provision as the context of it reasonably
allows.
10.8 Conflicts Between Loan Documents. The provisions of this Agreement
control if in conflict (i.e., the provisions contradict each other as opposed to
a Loan Document containing additional provisions not in conflict) with the
provisions of any other Loan Document.
10.9 Discharge and Certain Reinstatement. Borrowers' obligations under
the Loan Documents remain in full force and effect until Lender has no
commitment to extend credit under the Loan Documents and the Obligation is fully
paid (except for provisions under the Loan Documents which by their terms
expressly survive payment of the Obligation and termination of the Loan
Documents). If any payment under any Loan Document is ever rescinded or must be
restored or returned for any reason, then all Rights and obligations under the
Loan Documents in respect of that payment are automatically reinstated as though
the payment had not been made when due.
10.10 Amendments, Consents, Conflicts, and Waivers. An amendment (which
may be in substantially the form of EXHIBIT F) of -- or an approval, consent, or
waiver by Lender under -- any Loan Document must be in writing executed by
Borrowers and Lender.
No course of dealing or any failure or delay by Lender or any of its
Representatives with respect to exercising any Right of Lender under the Loan
Documents operates as a waiver of that Right. An approval, consent, or waiver is
only effective for the specific instance and purpose for which it is given. The
Loan Documents may only be supplemented by agreements, documents, and
instruments delivered according to their respective express terms.
10.11 Multiple Counterparts. Any Loan Document may be executed in any
number of counterparts with the same effect as if all signatories had signed the
same document, and all of those counterparts must be construed together to
constitute the same document; but in making proof of this Agreement, it shall
not be necessary to produce or account for more than one such counterpart. This
Agreement is effective when counterparts of it have been executed and delivered
to Lender.
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10.12 Parties. This Agreement binds and inures to Borrowers, Lender, and
their respective successors and permitted assigns. Only those Persons may rely
upon or raise any defense about this Agreement.
(a) Assignment by Borrowers. No Borrower may assign any Rights or
obligations under any Loan Document without first obtaining the written
consent of Lender.
(b) Assignment by Lender. Lender may assign, pledge, and
otherwise transfer all or any of its Rights and obligations under the
Loan Documents in the ordinary course of its lending business and in
accordance with all Laws, without the consent of any party to this
Agreement. Upon any such assignment or transfer as of the Effective Date
in the assignment documents, then (i) any such assignee shall be for all
purposes a Lender party to -- with all the Rights and obligations of
Lender under -- this Agreement, with a Commitment as stated in the
Assignment, (ii) Lender is released from its obligations under the Loan
Documents to a corresponding extent, (iii) this Agreement is
automatically deemed to reflect the name, address, and Commitment of any
such assignee and the reduced Commitment of Lender, and Lender shall
deliver to Borrowers a written notice reflecting those changes, (iv)
Borrowers shall execute and deliver to each of Lender
and such assignee a Note, each based upon their respective Commitments
following the transfer, (v) upon delivery of the one or more Notes under
CLAUSE (IV) above, Lender shall return to Borrowers the Note previously
delivered to it under this Agreement, and (vi) such assignee is subject
to all the provisions in the Loan Documents.
(c) Otherwise Void. Any purported assignment, pledge, or other
transfer in violation of this section is void from the beginning and not
effective.
10.13 Participations. Lender may at any time sell to one or more Persons
(each a "PARTICIPANT") participating interests in its Commitment and its share
of the Obligation provided that, for each participation (i) Lender's obligations
under the Loan Documents must remain unchanged, (ii) Lender must remain solely
responsible for the performance of those obligations, (iii) Lender must remain
the holder of the Note for all purposes under the Loan Documents, and (iv)
Borrowers may continue to deal solely and directly with Lender in connection
with those Rights and obligations. Lender may obtain for each of its
Participants the benefits of the Loan Documents related to participations in its
share of the Obligation, but Borrowers are never obligated to pay any greater
amount that would be due to Lender under the Loan Documents calculated as though
no participation had been made. Otherwise, Participants have no Rights under the
Loan Documents.
10.14 Jurisdiction; Venue; Service of Process; and Jury Trial. EACH
PARTY, IN EACH CASE FOR ITSELF, ITS SUCCESSORS AND ASSIGNS (AND IN THE CASE OF
EACH BORROWER, FOR EACH OF ITS SUBSIDIARIES), (A) IRREVOCABLY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN NEW YORK,
AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL
PROCEEDING ARISING OUT OF OR IN CONNECTION WITH THE LOAN DOCUMENTS AND THE
OBLIGATION BY SERVICE OF PROCESS AS PROVIDED BY NEW YORK LAW, (B) IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF OR IN
CONNECTION WITH THE LOAN DOCUMENTS AND THE OBLIGATION BROUGHT IN ANY SUCH COURT,
(C) IRREVOCABLY WAIVES ANY CLAIMS THAT ANY LITIGATION BROUGHT IN ANY SUCH COURT
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM,
27
<PAGE>
<PAGE>
(D) AGREES TO DESIGNATE AND MAINTAIN AN AGENT FOR SERVICE OF
PROCESS IN NEW YORK, NEW YORK, IN CONNECTION WITH ANY SUCH LITIGATION
AND TO DELIVER TO LENDER EVIDENCE THEREOF, IF REQUESTED, (E) IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH LITIGATION BY THE MAILING OF COPIES THEREOF BY CERTIFIED
MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, AT ITS ADDRESS SET FORTH
HEREIN, (F) IRREVOCABLY AGREES THAT ANY LEGAL PROCEEDING AGAINST ANY PARTY
ARISING OUT OF OR IN CONNECTION WITH THE LOAN DOCUMENTS OR THE OBLIGATION SHALL
BE BROUGHT IN ONE OF THE AFOREMENTIONED COURTS, AND (G) IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY LAW, ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY LOAN DOCUMENT OR
THE TRANSACTIONS CONTEMPLATED THEREBY. The scope of each of the foregoing
waivers is intended to be all- encompassing of any and all disputes that may be
filed in any court and that relate to the subject matter of this transaction,
including, without limitation, contract claims, tort claims, breach of duty
claims, and all other common law and statutory claims. Borrowers (for themselves
and on behalf of each of their Subsidiaries) and each other party to this
Agreement acknowledge that this waiver is a material inducement to the agreement
of each party hereto to enter into a business relationship, that each has
already relied on this waiver in entering into this Agreement, and each will
continue to rely on each of such waivers in related future dealings. Borrowers
(for themselves and on behalf of each of their Subsidiaries) and each other
party to this Agreement warrant and represent that they have reviewed these
waivers with their legal counsel, and that they knowingly and voluntarily
agree to each such waiver following consultation with legal Counsel. THE
WAIVERS IN THIS SECTION ARE IRREVOCABLE, MEANING THAT THEY MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THESE WAIVERS SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, SUPPLEMENTS, AND REPLACEMENTS TO OR OF THIS OR ANY
OTHER LOAN DOCUMENT. In the event of Litigation, this Agreement may be filed
as a written consent to a trial by the court.
10.15 Entire Agreement. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGE FOLLOWS.]
28
<PAGE>
<PAGE>
EXECUTED as of the date first stated in this Agreement.
BORROWERS:
(address) IMC MORTGAGE COMPANY
IMC Mortgage Company
3450 Buschwood Park Drive, Suite 250
Tampa, FL 33618
Attn: Tom Middleton By /s/ Thomas G. Middleton
Tel 813/915-2503 _________________________________
Fax 813/933-6023 (Name) THOMAS G. MIDDLETON
______________________________
(Title) President
______________________________
(address) INDUSTRY MORTGAGE COMPANY, L.P.,
By: Industry Mortgage Corporation,
its general partner
Industry Mortgage Company, L.P.
3450 Buschwood Park Drive, Suite 250
Tampa, FL 33618
Attn: Tom Middleton By /s/ Thomas G. Middleton
Tel 813/915-2503 _________________________________
Fax 813/933-6023 (Name) THOMAS G. MIDDLETON
______________________________
(Title) President
______________________________
(address) IMC CORPORATION OF AMERICA
IMC Corporation of America
3450 Buschwood Park Drive, Suite 250
Tampa, FL 33618
Attn: Tom Middleton By /s/ Thomas G. Middleton
Tel 813/915-2503 _________________________________
Fax 813/933-6023 (Name) THOMAS G. MIDDLETON
______________________________
(Title) President
______________________________
LENDER:
(address) NOMURA ASSET CAPITAL CORPORATION,
2 World Financial Center, Building B
New York, New York 10281-1198
Attn: Helaine F. Hebble, By:
Vice President _________________________________
Tel (212) 667-9087 Helaine F. Hebble, Vice President
Fax (212) 667-1391
SIGNATURE PAGE TO LOAN AGREEMENT
<PAGE>
<PAGE>
EXECUTED as of the date first stated in this Agreement.
BORROWERS:
(address) IMC MORTGAGE COMPANY
IMC Mortgage Company
3450 Buschwood Park Drive, Suite 250
Tampa, FL 33618
Attn: Tom Middleton By
Tel 813/915-2503 _________________________________
Fax 813/933-6023 (Name)
______________________________
(Title)
______________________________
(address) INDUSTRY MORTGAGE COMPANY, L.P.,
By: Industry Mortgage Corporation,
its general partner
Industry Mortgage Company, L.P.
3450 Buschwood Park Drive, Suite 250
Tampa, FL 33618
Attn: Tom Middleton By
Tel 813/915-2503 _________________________________
Fax 813/933-6023 (Name)
______________________________
(Title)
______________________________
(address) IMC CORPORATION OF AMERICA
IMC Corporation of America
3450 Buschwood Park Drive, Suite 250
Tampa, FL 33618
Attn: Tom Middleton By
Tel 813/915-2503 _________________________________
Fax 813/933-6023 (Name)
______________________________
(Title)
______________________________
LENDER:
(address) NOMURA ASSET CAPITAL CORPORATION,
2 World Financial Center, Building B
New York, New York 10281-1198
Attn: Helaine F. Hebble, By: /s/ Helaine F. Hebble
Vice President _________________________________
Tel (212) 667-9087 Helaine F. Hebble, Vice President
Fax (212) 667-1391
SIGNATURE PAGE TO LOAN AGREEMENT
<PAGE>
<PAGE>
SCHEDULE 2.1
UNDERWRITING GUIDELINES
<PAGE>
<PAGE>
SCHEDULE 2.6
HELOC CHARACTERISTICS
1. Loan Number
2. Primary Borrower First Name
3. Primary Borrower Last Name
4. Primary Borrower Social Security Number
5. Co-Borrower First Name
6. Co-Borrower Last Name
7. Co-Borrower Social Security Number
8. Borrower Self Employed
9. Co-Borrower Self Employed
10. Property Address
11. Property City
12. Property State
13. Property Zip Code
14. Billing Address
15. Billing City
16. Billing State
17. Billing Zip Code
18. Primary Phone No.
19. Secondary Phone No.
20. Lien Position
21. Adjustment Type (ARM)
22. Ownership Type (Fee Simple or Leasehold)
23. Assumability
24. Documentation Level (full, NIQ, NIV)
25. Property type
26. Purpose
27. Occupancy Status (primary, secondary or investment)
28. Original Rate
29. Actual Gross Rate
30. Original P&I
31. Current P&I
32. Original Balance
33. Actual Balance
34. Maximum Credit Line Balance
35. Current Unsecuritized Credit Line Balance
36. Senior Balance
37. Senior Lien Type
38. Origination/Closing Date
39. First Payment Date
40. Maturity Date
41. Original Term (in months)
42. Amortized Original Term (in months)
43. Balloon Flag
44. Next Payment Due Date
45. Service Fee
46. Maximum Combined LTV - as specified on the UW Cert
47. Current Appraisal
SCHEDULE 2.6
<PAGE>
<PAGE>
48. Purchase Price
49. Debt Ratio
50. Index Type (Prime)
51. Gross Margin
52. Maximum Rate
53. Minimum Rate
54. Prior Bankruptcy
55. Prior Foreclosure
56. Funding Date by Nomura (Purchase Date)
57. Originator Code
58. IMC Loan Program Code
59. Annual Fee
SCHEDULE 2.6
2
<PAGE>
<PAGE>
SCHEDULE 5
CLOSING CONDITIONS
Unless otherwise specified, all dated as of the Closing Date or a date
(a "CURRENT DATE") within 30 days before the Closing Date.
H&B [1.] LOAN AGREEMENT dated as of September __, 1996, between Borrowers
and Lender -- all of the terms in which have the same meanings
when used in this schedule -- accompanied by:
Schedule 5 - Closing Conditions
Schedule 2.6 - HELOC Characteristics
Schedule 6.2 - Borrowers
Schedule 6.8 - Litigation and Judgments
Schedule 6.9 - Affiliate Transactions
Exhibit A - Form of Note
Exhibit B-1 - Form of Custodial Agreement
Exhibit B-2 - Form of Liquidity Agreement
Exhibit C-1 - Form of Security Agreement
Exhibit C-2 - Form of Financing Statement
Exhibit D - Form of Borrowing Request
Exhibit E-1 - Form of Opinion of Counsel to Borrowers
Exhibit E-2 - Form of Opinion of Counsel to Custodian
Exhibit F - Form of Amendment
H&B [2.] NOTE in the original principal amount of $100,000,000, executed
by Borrowers, payable to the order of Nomura Asset Capital
Corporation, and in substantially the form of EXHIBIT A to the
Loan Agreement.
H&B [3.] SECURITY AGREEMENT executed by Borrowers as debtor and Lender as
secured party, and in substantially the form of EXHIBIT C-1 to
the Loan Agreement.
H&B [4.] FINANCING STATEMENTS executed by Borrowers as debtor and Lender
as secured party, for filing with the following UCC filing
offices, and in substantially the form of EXHIBIT C-2 to the Loan
Agreement:
<TABLE>
<CAPTION>
NAME JURISDICTION NUMBER DATE
==== ============ ====== =====
<S> <C> <C> <C>
IMC Mortgage Company Florida
IMC Corporation of America Delaware
Industry Mortgage Company, L.P. Delaware
</TABLE>
H&B [5.] UCC SEARCH REPORTS for financing statements filed against
Borrowers as Debtor with the following UCC filing offices as of
Current Dates:
- --------
[ ] indicates items not complete at time of this draft of this schedule,
together with names of parties or counsel with responsibility for each.
SCHEDULE 5
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
DEBTOR FILE NO. FILE DATE DESCRIPTION
- ------------------------ ----------------- ---------- -----------------------------
<S> <C> <C> <C>
IMC Mortgage Company
IMC Corporation of
America
Industry Mortgage
Company, L.P.
</TABLE>
IMC [6.] TERMINATIONS OR AMENDMENTS OF FINANCING STATEMENTS reflected in
the UCC Search Reports described above that, in the judgment of
Lender and its special counsel, conflict with the priority of the
Lender Liens contemplated by the Loan Documents, each executed by
the appropriate secured party and (if necessary) debtor, and in
form acceptable to Agent for filing with the applicable UCC
filing offices: [TO BE DETERMINED].
IMC [7.] CORPORATE CHARTER for IMC Mortgage Company, certified as of a
Current Date, by the Secretary of the State of Florida.
IMC [8.] OFFICERS' CERTIFICATE for IMC Mortgage Company, executed by the
President and Secretary of IMC Mortgage Company as to (a) the due
incumbency of its officers authorized to execute or attest to the
Loan Documents, (b) resolutions duly adopted by its directors
approving and authorizing the execution of the Loan Documents,
(c) its corporate charter, and (d) bylaws, accompanied by:
Exhibit A - Resolutions
Exhibit B - Charter
Exhibit C - Bylaws
IMC [9.] CORPORATE CHARTER for IMC Corporation of America, certified as of
a Current Date, by the Secretary of the State of Delaware.
IMC [10.] OFFICERS' CERTIFICATE for IMC Corporation of America, executed by
the President and Secretary of IMC Corporation of America as to
(a) the due incumbency of its officers authorized to execute or
attest to the Loan Documents, (b) resolutions duly adopted by its
directors approving and authorizing the execution of the Loan
Documents, (c) its corporate charter, and (d) bylaws, accompanied
by:
Exhibit A - Resolutions
Exhibit B - Charter
Exhibit C - Bylaws
IMC [11.] CERTIFICATE OF LIMITED PARTNERSHIP, certified as of a Current
Date, by the Secretary of the State of Delaware for Industry
Mortgage Company, L.P.
IMC [12.] OFFICERS' CERTIFICATE for IMC Mortgage Company, as general
partner of Industry Mortgage Company, L.P., executed by the
President and Secretary of IMC Mortgage Company as to (a) the due
incumbency of its officers authorized to execute or attest to the
Loan Documents, (b) resolutions duly adopted by its directors
approving and authorizing the execution of the Loan Documents,
(c) its corporate charter, and (d) bylaws, accompanied by:
SCHEDULE 5
2
<PAGE>
<PAGE>
Exhibit A - Resolutions
Exhibit B - Charter
Exhibit C - Bylaws
IMC [13.] CERTIFICATES OF QUALIFICATION, GOOD STANDING, AND AUTHORITY for
Borrowers, issued as of Current Dates by the appropriate
Tribunals for the following jurisdictions:
<TABLE>
<CAPTION>
COMPANY JURISDICTION CERTIFICATE DATE
------- ------------ ----------- ----
<S> <C> <C> <C>
IMC Mortgage Company Florida
IMC Corporation of America Delaware
Industry Mortgage Company, L.P Delaware
</TABLE>
IMC [14.] OPINION of _________________, as counsel to Borrowers, addressed
to Lender, and in substantially the form of EXHIBIT E-1.
IMC [15.] OPINION of _________________, as counsel to LaSalle National
Bank, in its capacity as Sub-Servicer under the Liquidity
Agreement and the Sub-Servicing Agreement, and in its capacity as
Collateral Custodian under the Custodial Agreement in
substantially the form of EXHIBIT E-2.
H&B [16.] Sub-Servicing Agreement.
H&B [17.] Custodial Agreement.
H&B [18.] Lockbox Agreement.
H&B [19.] Liquidity Agreement.
IMC [20.] Partnership Agreement forming Industry Mortgage Company, L.P.
IMC [21.] Payment of all fees and expenses of Lender, including without
limitation, those of attorneys, Collateral Custodian, and
Sub-Servicer.
22. Such other documents and items as Lender may reasonably request.
SCHEDULE 5
3
<PAGE>
<PAGE>
SCHEDULE 6.2
<TABLE>
<CAPTION>
COMPANIES
STATE OF STATES QUALIFIED TRADE NAMES STILL USING
INCORPORATION AS FOREIGN USED IN LAST NAME
NAME OWNERSHIP OR ORGANIZATION CORP. FOUR MONTHS Y/N
<S> <C> <C> <C> <C> <C>
IMC Mortgage
Company Annex A Florida Annex B IMCC Financial Y
IMC Corporation 100% Industry Mortgage Delaware Annex C Industry Mortgage Y
of America Company, LP Company, LP
Industry Mortgage 99% IMC Mortgage Delaware Annex C Equitystars Y -- Equitystars
Company, LP Company IMCO, Limited N -- IMCO
1% Industry Mortgage Partnership
Corporation
<CAPTION>
COMPANIES
CHIEF EXECUTIVE OTHER PRINCIPAL
NAME OFFICE OFFICES
<S> <C> <C>
IMC Mortgage
Company Tampa, FL Annex D
IMC Corporation Tampa, FL Annex D
of America
Industry Mortgage Tampa, FL Annex D
Company, LP
</TABLE>
Schedule 6.2
<PAGE>
<PAGE>
ANNEX A
PRINCIPAL STOCKHOLDERS
(AS OF 6/25/96)
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 PRIOR TO
THE PUBLIC OFFERING THE PUBLIC OFFERING(1)
------------------- ----------------------
PERCENT OF PERCENT OF
NAME OF BENEFICIAL OWNER NUMBER CLASS NUMBER CLASS
- -------------------------------------------- --------- ------------------- --------- ----------------------
<S> <C> <C> <C> <C>
ContiTrade Services Corporation ............ 1,350,000 17.72% 1,350,000 12.59%
277 Park Avenue
New York, New York 10172
Branchview, Inc. ........................... 830,928 13.25 830,928 8.87
989 McBride Avenue
West Patterson, New Jersey 07424
JRJ Associates Inc. ........................ 572,669 9.13 572,669 6.11
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 ........................... 567,226 9.05 567,226 6.05
305 5th Street, Suite 200
Bay City, Michigan 48708
Investors Mortgage, a Washington LP 494,988 7.89 494,988 5.28
10220 N.E. Points Drive, Suite 200
Kirkland, Washington 98033
American Industrial Loan Association ....... 599,884 9.57 599,884 6.40
3420 Holland Road, Suite 107
Virginia Beach, Virginia 23452
The Money Store ............................ 381,584 6.09 381,584 4.07
3301 C Street, Suite 100M
Sacramento, California 95816
George Nicholas ............................ 715,175 11.11 715,175 7.50
3450 Buschwood Park Drive
Tampa, Florida 33618
Thomas G. Middleton ........................ 188,209 2.96 192,097 2.03
3450 Buschwood Park Drive
Tampa, Florida 33618
Karen S. Bausman ........................... 13,759 0.22 14,037 0.15
3450 Buschwood Park Drive
Tampa, Florida 33618
</TABLE>
<PAGE>
<PAGE>
ANNEX A (CONT.)
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED PRIOR TO
THE PUBLIC OFFERING THE PUBLIC OFFERING(1)
------------------- ----------------------
PERCENT OF PERCENT OF
NAME OF BENEFICIAL OWNER NUMBER CLASS NUMBER CLASS
- -------------------------------------------- --------- ------------------- --------- ----------------------
<S> <C> <C> <C> <C>
Susan W. McCarthy .......................... 104,733 1.67 104,733 1.12
3450 Buschwood Park Drive
Tampa, Florida 33618
Timothy W. Griffin ......................... 32,962 0.52 33,517 0.36
3450 Buschwood Park Drive
Tampa, Florida 33618
David McDonald ............................. 273,412 4.36 273,412 2.92
3450 Buschwood Park Drive
Tampa, Florida 33618
Joseph P. Goryeb ........................... 576,549 9.19 590,437 6.30
Waterview Corporate Centre
20 Waterview Boulevard
Parsippany, New Jersey 07054-1267
Allen D. Wykle ............................. 3,880 0.06 9,435 0.10
3420 Holland Road
Virginia Beach, Virginia 23452
Mitchell W. Legler ......................... 22,487 0.36 36,375 0.39
Independent Drive, Suite 3104
Jacksonville, Florida 32202
All directors and executive officers as a
group (13 persons)........................ 1,958,923 29.53 2,011,141 20.66
</TABLE>
<PAGE>
<PAGE>
ANNEX B
IMC Mortgage Company
Foreign Registration/Qualifications
(a Florida domestic)
<TABLE>
<CAPTION>
REGISTRATION D/B/A MORTGAGE LENDER LICENSE
STATE DATE NAME (EXACTLY AS IT READS)
- -------------------------------- ------------ -------------------------------- --------------------------------
<S> <C> <C> <C>
ALABAMA
ALASKA
ARIZONA
ARKANSAS
CALIFORNIA
COLORADO
CONNECTICUT
DELAWARE 08/29/96
D.C.
FLORIDA (Domestic) 12/26/95
GEORGIA 08/26/96
HAWAII
IDAHO 08/26/96
ILLINOIS
INDIANA
IOWA
KANSAS
KENTUCKY
LOUISIANA
MAINE 07/29/96
MARYLAND
MASSACHUSETTS
MICHIGAN
MINNESOTA
MISSISSIPPI
MISSOURI
MONTANA
NEBRASKA
NEVADA
NEW HAMPSHIRE 07/29/95
NEW JERSEY
NEW MEXICO
NEW YORK
NORTH CAROLINA
NORTH DAKOTA
OHIO
OKLAHOMA
OREGON
PENNSYLVANIA
PUERTO RICO
RHODE ISLAND
SOUTH CAROLINA
SOUTH DAKOTA
TENNESSEE
TEXAS
UTAH
VERMONT
VIRGINIA
WASHINGTON
WEST VIRGINIA
WISCONSIN
WYOMING
</TABLE>
** Indicates that the GP's d/b/a is 'Industry Mortgage Corporation, General P
<PAGE>
<PAGE>
ANNEX C
Industry Mortgage Company, L.P.
Foreign Registration/Qualifications
<TABLE>
<CAPTION>
(GP) (LP)
FOREIGN FOREIGN
STATE CORPORATION PARTNERSHIP
<S> <C> <C>
ALABAMA 04/18/94
ALASKA 04/18/94
ARIZONA 10/21/93
ARKANSAS N/A
CALIFORNIA 10/25/93
COLORADO 10/05/93
CONNECTICUT 10/02/93
DELAWARE 05/12/93 07/01/93
D.C. 04/22/94 04/22/94
FLORIDA 09/24/93 09/24/93
GEORGIA *10/21/93* 10/04/93
HAWAII 05/12/94 05/02/94
IDAHO 10/14/93
ILLINOIS 11/15/93 11/02/93
INDIANA 10/04/93
IOWA 10/12/93
KANSAS 04/21/94
KENTUCKY 10/13/93
LOUISIANA 04/18/94
MAINE 10/12/93
MARYLAND 09/27/93 09/27/93
MASSACHUSETTS 10/01/93 10/06/93
MICHIGAN 10/08/93 10/08/93
MINNESOTA 10/12/93
MISSISSIPPI 04/18/94 04/25/94
MISSOURI 10/12/93
MONTANA 05/02/94 05/02/94
NEBRASKA 04/22/94
NEVADA 10/26/93
NEW HAMPSHIRE 10/11/93
NEW JERSEY 10/01/93
NEW MEXICO 10/29/93
NEW YORK 12/28/93
NORTH CAROLINA *09/28/93* 10/11/93
NORTH DAKOTA 04/25/94 06/13/94
OHIO 10/04/93 10/04/93
OKLAHOMA 01/18/94
OREGON 10/20/93 10/20/93
PENNSYLVANIA 10/01/93
RHODE ISLAND 10/12/93
SOUTH CAROLINA 05/23/94 04/18/94
SOUTH DAKOTA 04/18/94 04/18/94
TENNESSEE 10/04/93
TEXAS 01/11/94
UTAH 02/07/94 02/07/94
VERMONT 10/12/93 10/12/93
VIRGINIA 09/29/93 09/29/93
WASHINGTON 10/01/93
WEST VIRGINIA 07/28/95 07/01/93
WISCONSIN *03/10/94* 10/20/93
WYOMING 04/18/94 01/23/95
</TABLE>
IMC Corporation of America
<TABLE>
<CAPTION>
DATE FOREIGN
OF OR
STATE QUALIFICATION DOMESTIC
<S> <C> <C>
DELAWARE 09/09/94 Domestic
CALIFORNIA 07/28/95 Foreign
CALIFORNIA 07/28/95 Foreign
PENNSYLVANIA 09/28/94 Foreign
OHIO 10/13/95 Foreign
KANSAS 10/13/95 Foreign
ARIZONA 05/14/96 Foreign
</TABLE>
<PAGE>
<PAGE>
ANNEX D
Industry Mortgage Company, LP
Full Service Offices
3450 Buschwood Park Drive, Suite #250
Tampa, FL 33618
144 Merchant Street, Suite #225
Cincinnati, OH 45246
501 Office Center Drive, Suite #450
Ft. Washington, PA 19034
1060 Kings Hwy. North, Suite #303
Cherry Hill, NJ 08034
25 Blackstone Valley Place
Lincoln, RI 02865
<PAGE>
<PAGE>
SCHEDULE 6.8
LITIGATION AND JUDGMENTS
NONE
SCHEDULE 6.8
<PAGE>
<PAGE>
SCHEDULE 6.9
AFFILIATE TRANSACTIONS
NONE
SCHEDULE 6.9
<PAGE>
<PAGE>
CUSTODIAL AGREEMENT
THIS AGREEMENT is entered into as of September , 1996, between
INDUSTRY MORTGAGE COMPANY, L.P., a Delaware limited partnership, IMC MORTGAGE
COMPANY, a Florida corporation, and IMC CORPORATION OF AMERICA, a Delaware
corporation (whether one or more, "BORROWER"), NOMURA ASSET CAPITAL CORPORATION
("LENDER"), and LASALLE NATIONAL BANK, a national banking association
("COLLATERAL CUSTODIAN").
RECITALS
WHEREAS, Borrower and Lender have entered into a loan agreement dated of
even date herewith (the "LOAN AGREEMENT");
WHEREAS, pursuant to the Loan Agreement, Lender may from time to time
make Borrowings to Borrower, which Borrowings are to be secured by, among other
things, certain HELOCs pledged by Borrower to Lender; and
WHEREAS, Borrower and Lender wish to provide for the delivery of certain
documentation relating to such HELOCs to Collateral Custodian, which is to hold
such documentation on behalf of Lender as secured party under the Loan
Agreement, and certain related matters.
NOW THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, and for adequate and sufficient consideration the receipt
of which is hereby acknowledged, the parties hereto agree as follows:
SECTION 1. REFERENCES AND DEFINITIONS. Unless otherwise stated, (a)
references in this Agreement to "Sections" and "Exhibits" are to Sections and
Exhibits of this Agreement, (b) all time references (e.g. 10:00 a.m.) are to
time in New York, New York, and (c) any terms defined herein shall be equally
applicable to the singular and the plural forms of such terms.
AGREEMENT means this Custodial Agreement, as supplemented or amended
from time to time.
AUTHORIZED SIGNATORY or SIGNATORIES means those parties described on
EXHIBIT D, which parties are authorized to execute documents for his or her
respective entity.
BORROWING REQUEST means a Borrowing Request as required to be executed
and delivered by Borrower to Lender in accordance with the Loan Agreement.
BUSINESS DAY means any day other than Saturday, Sunday, and any other
day that Lender is authorized or obligated by law to be closed in New York, New
York, and which is a day for trading by and between banks for dollar deposits in
the London Interbank Market.
COLLATERAL means all collateral defined in the Security Agreement.
COLLATERAL CUSTODIAN means LaSalle National Bank, or its successor.
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COLLATERAL DOCUMENTS means those items listed on EXHIBIT E that are
required to be delivered to Collateral Custodian pursuant to SECTION 2 and the
Loan Agreement in connection with a Borrowing Request.
COLLATERAL FILE means, with respect to each HELOC, a file containing
each of the items referenced on EXHIBIT E.
COLLATERAL REVIEW PROCEDURES means the procedures and standards of
review set forth on EXHIBIT F to be used by the Collateral Custodian when
reviewing Collateral Documents.
COLLATERAL STATUS REPORT means a collateral status report prepared by
Collateral Custodian and delivered to Lender in accordance with SECTION 3(c) and
substantially in the form of either EXHIBIT A-1 or A-2, as applicable, together
with attachments to such Exhibits.
CUSTODIAN'S CERTIFICATION means, as appropriate, a Custodian's
Certification executed and delivered by Collateral Custodian to Lender in
substantially the form of EXHIBIT A-1 for each HELOC Borrowing other than Wet
Borrowings and in the form of EXHIBIT A-2 for each Wet Borrowing.
DEFAULT means a Default by Borrower under this Agreement, the Loan
Agreement, or any other Loan Document.
DOCUMENT EXCEPTION REPORT means a report substantially in the form of
EXHIBIT H listing each Collateral Document which is incomplete, incorrect, or
otherwise missing from the Collateral Documents.
HELOC means a home equity line of credit pledged as Collateral to Lender
that is evidenced by a valid promissory note and is secured by a mortgage, deed
of trust or trust deed that grants a first or second priority lien on underlying
one-to-four family residences.
HELOC BORROWING means a borrowing by Borrower to acquire, originate, and
purchase HELOCs which meet specified criteria in the underwriting guidelines.
LENDER has the meaning set forth in the preamble of this Agreement.
LOAN AGREEMENT has the meaning set forth in the recitals of this
Agreement.
OUTSTANDING NOTES REPORT means a report prepared by Collateral Custodian
and delivered to Lender in accordance with SECTION 3(b), and substantially in
the form of EXHIBIT G, which lists each HELOC for which an original executed
note has not been delivered to Collateral Custodian within three (3) Business
Days of the related HELOC Borrowing.
PERSON means any individual, entity, or tribunal.
POTENTIAL DEFAULT means the occurrence of any event or existence of any
circumstance that would -- upon notice, time lapse, or both -- become a Default.
REQUEST FOR RELEASE OF DOCUMENTS means a trust receipt executed and
delivered by Borrower to Collateral Custodian in accordance with SECTION 4(b)(i)
and substantially in the form of EXHIBIT B.
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WET BORROWINGS shall mean HELOC Borrowings for which all of the
Collateral Documents have not been delivered to Collateral Custodian in
accordance with SECTION 2.
SECTION 2. DELIVERY.
(a) By 4:00 p.m. on each Business Day prior to which Borrower wishes to
make a HELOC Borrowing, Borrower shall provide to Lender and Collateral
Custodian via modem a schedule containing the information, including wire
instructions for any Wet Borrowings, listed on EXHIBIT I with respect to each
related HELOC. In addition, Borrower shall simultaneously deliver a Borrowing
Request to Lender with respect to such HELOC Borrowing.
(b) On or prior to the date upon which Borrower wishes Lender to make a
HELOC Borrowing, Borrower shall deliver to Collateral Custodian the Collateral
Documents referred to in EXHIBIT E which are required to be delivered in
connection with such Borrowing Request. In the case of Wet Borrowings, Borrower
shall deliver to Collateral Custodian the remaining required Collateral
Documents within three (3) Business Days after the date upon which the related
Wet Borrowing is made.
SECTION 3. COLLATERAL CUSTODIAN'S EXAMINATION AND CERTIFICATION OF
COLLATERAL DOCUMENTS.
(a) Receipt, Examination and Certification by Collateral Custodian.
Collateral Custodian shall examine and review in accordance with the Collateral
Review Procedures the Collateral Documents delivered to it in connection with
each Borrowing Request by 2:30 p.m. on each day a HELOC Borrowing is to be made.
If Collateral Custodian determines on the basis of such examination that it is
able to make each of the certifications in the Custodian's Certification,
Collateral Custodian shall promptly telecopy to Lender and Borrower, by 2:30
p.m., an executed Custodian's Certification in the form of EXHIBIT A-1 or A-2,
as applicable, including a current Collateral Status Report, with respect to
such documents and Borrowing Request. If Collateral Custodian determines, on the
basis of such examination, that it is unable to make such certifications, it
promptly shall advise Borrower and Lender in writing that it is unable to
deliver a Custodian's Certification with respect to such documents and Borrowing
Request. Such written advice shall identify the HELOCs and the deficiencies in
the documents so examined which prevent Collateral Custodian from making such
certifications. If such deficiencies can be cured without returning any
documents to Borrower, Collateral Custodian shall request that the Borrower cure
such deficiencies immediately. If such deficiencies can only be cured by
returning documents to Borrower, Collateral Custodian shall request that
Borrower deliver to Collateral Custodian a Request for Release of Documents and,
upon receipt thereof, Collateral Custodian shall return any document containing
any deficiency to Borrower for correction and deliver to Lender a Document
Exception Report. Upon correction of the deficiencies and return of the related
documents, Collateral Custodian shall promptly telecopy to Lender and Borrower a
Custodian's Certification and an updated Document Exception Report and destroy
the related Request for Release of Documents. By 3:30 p.m., Collateral Custodian
will reconcile the Collateral Documents with the list of approved collateral
delivered by Lender and, with respect to each Wet Borrowing, wire the
appropriate funds to the appropriate accounts pursuant to instructions from
Borrower.
(b) Notification Regarding Wet Borrowings. By 2:30 p.m. of each Business
Day, Collateral Custodian shall provide Lender with a copy of an Outstanding
Notes Report if Borrower fails to deliver to Collateral Custodian the Collateral
Documents relating to Wet Borrowings within the time limits set forth in SECTION
2. By 3:30 p.m. of each Business Day on which Lender has received an Outstanding
Notes Report from Collateral Custodian, Lender shall forward a copy of such
report to Borrower together with a current Document Exception Report. In
addition, on each Business Day on which a Wet Borrowing
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occurs, Lender shall forward to Custodian via modem a file containing the
information required pursuant to EXHIBIT I confirming the Wet Borrowings
occurring on such day.
(c) Roll-Up of Custodian's Certification. By 2:00 p.m. each Monday (or
Tuesday if Monday is not a Business Day), Collateral Custodian will deliver a
Custodian's Certification (EXHIBIT A-1 or A-2, as applicable) that is cumulative
for all loans funded under this Agreement. The receipts received each Monday
will replace all prior receipts.
(d) Notice of Security Interest. Collateral Custodian shall, promptly
upon receipt, send to Lender by facsimile copies of all notices given to
Collateral Custodian of a security interest in any of the Collateral Documents.
(e) Signatures, Authenticity and Signers' Authority or Capacity. Under
no circumstances shall Collateral Custodian be obligated to verify the
authenticity of any signature on any of the documents received or examined by
it, but each such signatory must be an Authorized Signatory.
SECTION 4. POSSESSION OF COLLATERAL DOCUMENTS.
(a) Possession of Collateral Documents on Behalf of Lender. Collateral
Custodian shall retain possession and custody of the Collateral Documents
delivered to it pursuant to SECTION 2, and any other documents delivered or
caused to be delivered to Collateral Custodian by Borrower pursuant to the Loan
Agreement, for the benefit of Lender, and as agent and bailee of and Collateral
Custodian for Lender for all purposes (including but not limited to the
perfection of the security interest of Lender in the related HELOCs) until such
documents are disposed of by Collateral Custodian in accordance with the
provisions of this Agreement. Collateral Custodian shall also make appropriate
notations in Collateral Custodian's books and records reflecting that such
documents are pledged to Lender. Collateral Custodian shall segregate and
maintain continuous custody of all such Collateral Documents in secure
facilities in accordance with customary standards for such custody.
(b) Delivery of Collateral Documents. Except as specified below or as
otherwise provided for in this Agreement, Collateral Custodian shall not deliver
any HELOC and its related Collateral Documents to any Person.
(i) Unless Lender directs otherwise or a Default or Potential
Default has occurred and is continuing, Collateral Custodian may, upon
delivery to Collateral Custodian of a Request for Release of Documents,
deliver to Borrower the Collateral Documents with respect to a HELOC,
provided that, the Collateral Documents be required to be returned to
Collateral Custodian within ten (10) calendar days after such delivery
unless (a) such HELOC is the subject of foreclosure proceedings (in
which case all Collateral Documents should be returned when no longer
necessary for the foreclosure proceedings) or (b) such HELOC has been
paid off in full and the HELOC line of credit has been closed (in which
case the Collateral Documents need not be returned), and provided
further that at any one time the aggregate principal amount of all
HELOCs which are outstanding on a Request for Release of Documents shall
not be more than $500,000.00 unless approved by Lender in writing.
(ii) Upon Lender's written notice to Collateral Custodian that a
Default or Potential Default has occurred and is continuing under the
Loan Agreement, Collateral Custodian shall, hold for the exclusive
benefit of Lender the Collateral Documents and other documents then held
or
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which may in the future be held by Collateral Custodian pursuant to this
Agreement. Upon such notification, Collateral Custodian shall take
direction regarding the Collateral Documents and other documents from
Lender.
(iii) In the absence of specific written instructions as to the
method of shipment of Collateral Documents, Collateral Custodian may
choose an overnight carrier of its choice in the delivery of documents.
(c) Delivery of Collateral Documents When No Custodian's Certification
is Delivered. In the event that any Collateral Documents are delivered to
Collateral Custodian pursuant to SECTION 2 but no Custodian's Certification with
respect to such Collateral Documents is delivered by Collateral Custodian to
Lender because of document deficiencies, Collateral Custodian shall, within 72
hours of the request of Borrower, release and deliver such Collateral Documents
to Borrower.
SECTION 5. WAIVER BY COLLATERAL CUSTODIAN. Notwithstanding any other
provision of this Agreement, Collateral Custodian shall not at any time exercise
or seek to enforce any claim, right or remedy, including any statutory or common
law rights of set off, that Collateral Custodian might otherwise have against
all or any part of a HELOC, the related Collateral Documents, or the proceeds
thereof.
SECTION 6. RIGHT OF INSPECTION. Upon reasonable prior written notice to
Collateral Custodian, Lender, Borrower, or any duly authorized representative of
either may at any time, during normal business hours, inspect and examine the
Collateral Documents in the possession and custody of Collateral Custodian at
such place or places where such Collateral Documents are deposited.
SECTION 7. COLLATERAL CUSTODIAN'S FEES AND EXPENSES. Borrower shall (a)
pay the fees of Collateral Custodian in the amounts and at the times set forth
in EXHIBIT C, and (b) promptly upon demand, reimburse the out-of-pocket expenses
of Collateral Custodian. Lender shall not have any liability or obligation to
pay any such fees or expenses, and the duties of Collateral Custodian hereunder
shall be independent of Borrower's performance of its obligations to Collateral
Custodian in respect of such fees and expenses.
SECTION 8. TERMINATION OF AGREEMENT. This Agreement shall become
effective on and as of the date hereof and shall terminate upon Collateral
Custodian's receipt of written notification from Lender of the payment and
performance by Borrower of all of its obligations under the Loan Agreement and
the termination of all commitments to lend thereunder. Upon termination,
Collateral Custodian shall deliver all Collateral Documents then held by it to
Borrower or such other Person as may be designated in writing by Borrower.
Notwithstanding anything to the contrary contained herein, if a Default or
Potential Default has occurred or is continuing, Lender may terminate this
Agreement in Lender's sole discretion.
SECTION 9. RESIGNATION AND REMOVAL OF COLLATERAL CUSTODIAN.
(a) Resignation. Collateral Custodian shall have the right, with or
without cause, to resign as Collateral Custodian under this Agreement upon 120
days' prior written notice to Lender, with a copy to Borrower. Collateral
Custodian shall continue to act as Collateral Custodian under this Agreement
until it delivers such Collateral Documents and other documents held by it
pursuant to this Agreement to a duly appointed successor Collateral Custodian as
provided in SECTION 9(c) below. Collateral Custodian shall be responsible for
the costs associated with the appointment of a successor Collateral Custodian
upon resignation and the delivery of such Collateral Documents.
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(b) Removal. Lender may remove and discharge Collateral Custodian from
the performance of Collateral Custodian's duties under this Agreement, with or
without cause, upon sixty (60) days' prior written notice to Collateral
Custodian, with a copy to Borrower. Borrower shall pay all amounts due to
Collateral Custodian under this Agreement on the effective date of such removal
and for the costs associated with the appointment of a successor Collateral
Custodian.
(c) Appointment of Successor Collateral Custodian: Transfer of
Collateral Documents. Upon resignation or removal of Collateral Custodian,
Lender shall appoint and designate a successor by written notice delivered to
Collateral Custodian, with a copy to Borrower. Collateral Custodian shall
deliver all Collateral Documents and other documents then held by it pursuant to
this Agreement to the Person so designated promptly following delivery to
Collateral Custodian of such written notice. Until a successor Collateral
Custodian has been appointed and assumed the duties of the Collateral Custodian
hereunder, Collateral Custodian shall keep possession and custody of such
Collateral Documents and any other documents delivered hereunder and continue to
exercise the standard of care and perform the duties required hereunder.
SECTION 10. OBLIGATIONS AND REPRESENTATIONS OF COLLATERAL CUSTODIAN.
(a) Reliance by Collateral Custodian. Collateral Custodian shall be
entitled to rely upon the advice of its legal counsel from time to time and
shall not be liable or any action or inaction by it in reliance upon such
advice. Collateral Custodian shall also be entitled to rely upon any notice,
document, correspondence, request or directive received by it from Lender or
Borrower that Collateral Custodian believes to be genuine and to have been
signed or presented by the proper and duly authorized officer or representative
thereof, as designated on EXHIBIT D hereto, and shall not be obligated to
inquire as to the authority or power of any Person so executing or presenting
such documents or as to the truthfulness of any statements set forth therein.
(b) Standard of Care. COLLATERAL CUSTODIAN AGREES TO USE REASONABLE
JUDGMENT AND GOOD FAITH IN THE PERFORMANCE OF ANY OBLIGATIONS AND DUTIES
REQUIRED UNDER THIS AGREEMENT AND SHALL INCUR NO LIABILITY TO LENDER OR BORROWER
FOR ITS ACTS OR OMISSIONS HEREUNDER, EXCEPT AS MAY RESULT FROM ITS NEGLIGENCE OR
WILLFUL MISCONDUCT. IN NO EVENT SHALL COLLATERAL CUSTODIAN BE LIABLE, DIRECTLY
OR INDIRECTLY FOR ANY (I) DAMAGES OR EXPENSES ARISING OUT OF THE SERVICES
PROVIDED BY IT HEREUNDER OTHER THAN DAMAGES WHICH RESULT FROM ITS NEGLIGENCE OR
WILLFUL MISCONDUCT, OR (II) SPECIAL, CONSEQUENTIAL, OR INDIRECT DAMAGES, EVEN IF
COLLATERAL CUSTODIAN HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. No
provision of this Agreement shall require Collateral 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.
(c) INDEMNIFICATION OF COLLATERAL CUSTODIAN. BORROWER AGREES TO
INDEMNIFY, DEFEND AND HOLD COLLATERAL CUSTODIAN HARMLESS FROM AND AGAINST ANY
CLAIM, LEGAL ACTION, LIABILITY OR LOSS THAT IS INITIATED AGAINST OR INCURRED BY
COLLATERAL CUSTODIAN, INCLUDING COURT COSTS AND REASONABLE ATTORNEY'S FEES AND
DISBURSEMENTS, IN CONNECTION WITH COLLATERAL CUSTODIAN'S PERFORMANCE OF ITS
DUTIES UNDER THIS AGREEMENT, EXCEPT AS MAY INVOLVE NEGLIGENCE OR WILLFUL
MISCONDUCT OF COLLATERAL CUSTODIAN.
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(d) Insurance. Collateral Custodian shall at its own expense maintain at
all times during the existence of this Agreement and keep in full force and
effect (i) fidelity insurance, (ii) theft and loss of documents insurance, and
(iii) forgery insurance. All such insurance shall be in amounts, with standard
coverage and subject to deductibles, as are customary for insurance typically
maintained by banks which act in a custodial capacity in similar transactions. A
certificate of the respective insurer as to each such policy shall be furnished
to Lender upon request, containing the insurer's statement or endorsement
thereon that such insurance shall not be materially altered or terminated except
upon ten (10) days' prior written notice to Lender delivered by registered mail.
(e) Merger, Conversion or Consolidation of Collateral Custodian. Any
Person into which Collateral Custodian may be merged or converted or with which
it may be consolidated, or any Person resulting from any merger, conversion or
consolidation to which Collateral Custodian shall be a party, or any Person
succeeding to the business of Collateral Custodian, shall be the successor of
Collateral Custodian under this Agreement, without the execution or filing of
any paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
(f) Representations of Collateral Custodian. Collateral Custodian hereby
represents that it is a depository institution subject to supervision or
examination by a federal or state authority, has a combined capital and surplus
of at least $100,000,000 and is qualified to do business in the jurisdictions in
which it will hold any Collateral Documents.
SECTION 11. NOTICES. All notices, demands, consents, requests and other
communications required or permitted to be given or made hereunder shall, except
as otherwise expressly provided hereunder, be in writing and shall be delivered
in person or telecopied or mailed, first class or delivered by overnight
courier, return receipt requested, postage prepaid, addressed to the respective
parties hereto at their respective addresses hereinafter set forth or, as to any
such party, at such other address as may be designated by it in a written notice
to the other:
Borrower: IMC MORTGAGE COMPANY
3450 Buschwood Park Drive, Suite 250
Tampa, FL 33618
Attention: Tom Middleton
Telecopier No.: 813/933-6023
INDUSTRY MORTGAGE COMPANY, L.P.
3450 Buschwood Park Drive, Suite 250
Tampa, FL 33618
Attention: Tom Middleton
Telecopier No.: 813/933-6023
IMC CORPORATION OF AMERICA
3450 Buschwood Park Drive, Suite 250
Tampa, FL 33618
Attention: Tom Middleton
Telecopier No.: 813/933-6023
Lender: Nomura Asset Capital Corporation
2 World Financial Center, Building B
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New York, New York 10281-1198
Attention: Helaine F. Hebble
Telecopier No.: 212/667-1391
Collateral Custodian: LaSalle National Bank
25 Northwest Point Boulevard, Suite 800
Elk Grove Village, IL 60007
Attention: Michael Ferrara
Telecopier No.: 847/427-1694
All notices, certificates or other communications hereunder shall be in
writing and shall be effective and deemed delivered only when received by the
party to which they are sent; provided, however, that a facsimile transmission
shall be deemed to have been received when transmitted so long as the
transmitting machine has provided an electronic confirmation of such
transmission and such facsimile is followed by delivery of a hard copy by hand,
by mail or by overnight courier.
SECTION 12. ASSIGNMENT. This Agreement may not be assigned by Borrower
or Collateral Custodian. This Agreement may, at any time, be assigned, in whole
or in part, by Lender, and any assignee thereof may enforce this Agreement.
SECTION 13. AMENDMENTS. This Agreement may not be amended, modified or
supplemented unless such amendment, modification or supplement is set forth in a
writing signed by all of the parties hereto.
SECTION 14. GOVERNING LAW. This Agreement shall be governed by the laws
of the State of New York, without reference to its principles of conflicts of
laws.
SECTION 15. SEVERABILITY. If any provision of this Agreement shall be
declared to be illegal or unenforceable in any respect, such illegal or
unenforceable provision shall be and become absolutely null and void and of no
force and effect as though such provision were not in fact set forth herein, but
all other covenants, terms, conditions and provisions hereof shall nevertheless
continue to be valid and enforceable.
SECTION 16. CONSENT TO JURISDICTION. Each of the parties to this
Agreement agree that any action or proceeding under this Agreement or any
document delivered pursuant hereto may be commenced against it in any court of
competent jurisdiction within the State of New York, by service of process upon
it, by first class registered or certified mail, return receipt requested,
addressed to it at its address as set forth in this Agreement. Each of the
parties to this Agreement agree that any such suit, action or proceeding arising
out of or relating to this Agreement or any other such document may be
instituted in New York County or in the United States District Court; and each
hereby waives any objection to the jurisdiction or venue of any such court with
respect to, or the convenience of any court as a forum for, any such suit,
action or proceeding.
SECTION 17. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute but one and the same instrument.
SECTION 18. ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES HERETO AND THERETO
WITH RESPECT TO THE SUBJECT MATTER HEREOF
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AND THEREOF, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR OR CONTEMPORANEOUS
ORAL AGREEMENTS AMONG SUCH PARTIES. THERE ARE NO ORAL AGREEMENTS AMONG THE
PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND THEREOF.
SECTION 19. WAIVER OF JURY TRIAL. BORROWER, COLLATERAL CUSTODIAN, AND
LENDER EACH HEREBY (a) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY
ISSUE TRIABLE OF RIGHT BY A JURY, AND (b) WAIVES ANY RIGHT TO TRIAL BY JURY
FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST. THIS
WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY,
BY BORROWER, COLLATERAL CUSTODIAN, AND LENDER, AND THIS WAIVER IS INTENDED TO
ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT OF A
JURY TRIAL WOULD OTHERWISE ACCRUE. LENDER, BORROWER, AND COLLATERAL CUSTODIAN
ARE EACH HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS AGREEMENT TO ANY COURT
HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO
SERVE AS CONCLUSIVE EVIDENCE OF THE FOREGOING WAIVER OF THE RIGHT TO JURY TRIAL.
FURTHER, BORROWER, COLLATERAL CUSTODIAN, AND LENDER EACH HEREBY CERTIFIES THAT
NO REPRESENTATIVE OR AGENT OF THE OTHER PARTY, INCLUDING THE OTHER PARTY'S
COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO ANY OF ITS REPRESENTATIVES
OR AGENTS THAT THE OTHER PARTY WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO
JURY TRIAL PROVISION.
[REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGE FOLLOWS.]
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EXECUTED as of the date first stated above.
INDUSTRY MORTGAGE COMPANY, L.P., as Borrower
By INDUSTRY MORTGAGE CORPORATION, its general
partner
By _______________________________________________
(Name) ___________________________________________
(Title) __________________________________________
IMC MORTGAGE COMPANY, as Borrower
By _______________________________________________
(Name) ___________________________________________
(Title) __________________________________________
IMC CORPORATION OF AMERICA, as Borrower
By _______________________________________________
(Name) ___________________________________________
(Title) __________________________________________
NOMURA ASSET CAPITAL CORPORATION, as Lender
By _______________________________________________
(Name) ___________________________________________
(Title) __________________________________________
LASALLE NATIONAL BANK, as Collateral Custodian
By _______________________________________________
(Name) ___________________________________________
(Title) __________________________________________
SIGNATURE PAGE TO CUSTODIAL AGREEMENT
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LIQUIDITY AGREEMENT
This Liquidity Agreement ("AGREEMENT") is entered into as of September
, 1996, by and between IMC Mortgage Company, Industry Mortgage Company, L.P.,
and IMC Corporation of America (collectively, "BORROWER"), LaSalle National Bank
("SUB-SERVICER"), and Nomura Asset Capital Corporation, a Delaware corporation
("LENDER").
R E C I T A L S:
WHEREAS, Borrower originates, acquires and services home equity lines of
credit and has requested Lender to provide financing from time to time in
connection therewith;
WHEREAS, Lender and Borrower have agreed to enter into a Loan Agreement,
dated as of the date hereof (the "LOAN AGREEMENT");
WHEREAS, Sub-Servicer may from time to time make Liquidity Contributions
to fund advances under the HELOCs; and
WHEREAS, the parties hereto desire to establish procedures regarding
such Liquidity Contributions.
NOW, THEREFORE, in consideration of the foregoing and the mutual
undertakings and covenants herein, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the undersigned
parties agree as follows:
ARTICLE I
GENERAL TERMS
1.1 DEFINITIONS. Unless otherwise defined, terms defined in the Loan
Agreement have the same meanings when used in this Agreement.
AGREEMENT is defined in the introductory paragraph.
BORROWING REQUEST means a request for funds from Borrower to Lender
substantially in the form of Exhibit D-1 attached to the Loan Agreement.
COLLECTION ACCOUNT means a trust account established by Borrower with
Sub-Servicer -- styled and numbered "IMC Collection Account, in trust for Nomura
Asset Capital Corporation," Account No. ___________ -- for deposit of payments
from Mortgagors and deposit of Liquidity Contributions by Sub- Servicer.
HELOC means a home equity line of credit pledged to Lender under the
Loan Agreement.
LIQUIDITY BORROWING shall mean a Borrowing for the purpose of
reimbursing Sub-Servicer and/or the Collection Account for all previously
unreimbursed Liquidity Contributions made pursuant to this Agreement.
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LIQUIDITY CONTRIBUTION means any funds advanced by Sub-Servicer to any
Mortgagor whether from the Collection Account or from Sub-Servicer's own funds.
LIQUIDITY CONTRIBUTION NOTICE means a notice from Sub-Servicer to
Borrower and Lender substantially in the form of EXHIBIT A attached.
MATURITY DATE means the earlier of either (a) the occurrence of a
Default under the Loan Agreement or (b) September ___, 1997, unless extended
pursuant to the terms of the Loan Agreement.
MORTGAGOR means each Person obligated to Borrower under a HELOC.
PERSON means any individual, entity, or tribunal.
SUB-SERVICER means LaSalle National Bank and its successors and assigns.
SUB-SERVICING AGREEMENT means the Sub-Servicing Agreement dated as of
the date hereof between Borrower and Sub-Servicer.
STOP REPORT means a report in the form of EXHIBIT B.
TERMINATION DATE means the earlier of (a) the occurrence of a default by
Borrower under the Loan Agreement, or (b) the date which is six months following
the Maturity Date.
1.2 CONSTRUCTION. Unless the context otherwise clearly indicates, words
used in the singular include the plural and words used in the plural include the
singular. All time references (e.g. 10:00 a.m.) refer to time in New York, New
York.
ARTICLE II
LIQUIDITY CONTRIBUTIONS AND PROCEDURES
2.1 LIQUIDITY CONTRIBUTIONS. In the event a Mortgagor writes a check
under a HELOC, Sub- Servicer shall use the funds in the Collection Account to
fund such checks, provided that Sub-Servicer has not received prior notification
from Borrower in the form of a Stop Report to cease all fundings on such HELOC
or that such check otherwise should not be funded because it (1) was not signed,
(2) had a signature grossly different than the signature on the signature card
on file, (3) was drawn for an amount greater than mortgagor's available credit
amount, or (4) a payment on the HELOC was 45 days or more delinquent from the
related due date. In the event that the funds in the Collection Account are
insufficient, then Sub-Servicer shall advance its own funds to cover the amount
of such check or request. On any amounts so advanced, Sub-Servicer shall be
entitled to reimburse itself from funds in the Collection Account.
2.2 LIQUIDITY REIMBURSEMENT. By 5:00 p.m. on each Friday (or Thursday,
if Friday is not a Business Day), Sub-Servicer will submit to Borrower and
Lender a Liquidity Contribution Notice setting forth in reasonable detail the
information required therein with respect to each Liquidity Contribution made
since the prior Liquidity Contribution Notice.
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2.3 LIQUIDITY BORROWING.
(a) On or before 12:00 noon on each Monday (or Tuesday, if Monday is not
a Business Day), Borrower will submit a Borrowing Request to Lender in the same
amount as the amount set forth in the related Liquidity Contribution Notice.
Lender will fund any such Liquidity Borrowing by 3:00 p.m. on each Monday (or
Tuesday, if Monday is not a Business Day) to the account designated by
Sub-Servicer.
(b) In the event that the amount to be distributed by Sub-Servicer to
Borrower on any Remittance Date pursuant to Section 2.6 of the Sub-Servicing
Agreement exceeds the amount available in the Collection Account on such
Remittance Date, Sub-Servicer shall submit to Borrower by 4:00 p.m. on the
Business Day preceding the Remittance Date, a Liquidity Contribution Notice
advising Borrower of such excess amount. Borrower will submit a Borrowing
Request to Lender for such amount by 10:00 a.m. on the Remittance Date and
Lender will fund such Liquidity Borrowing to the account designated by
Sub-Servicer by 3:00 p.m. on the Remittance Date.
(c) Each such Liquidity Borrowing will be considered a Borrowing under
the Loan Agreement and will be subject to the terms therein.
2.4 APPLICATION OF LIQUIDITY REIMBURSEMENTS. Upon receipt of funds by
Lender, Sub- Servicer shall divide the funds between itself and the Collection
Account as follows: (1) if funds were contributed by Sub-Servicer and not
subsequently withdrawn by Sub-Servicer out of the Collection Account in
accordance with SECTION 2.1, an amount equal to such contribution shall be
retained by Sub- Servicer, and (2) if funds were withdrawn from the Collection
Account in accordance with SECTION 2.1, an amount equal to such withdrawals
shall be deposited by Sub-Servicer in the Collection Account.
ARTICLE III
GENERAL PROVISIONS
3.1 TERM AND TERMINATION.
(a) Unless otherwise notified in writing by Lender, this Agreement shall
commence on the date hereof and continue through the Termination Date.
(b) Lender may terminate this Agreement, with Borrower's concurrence,
upon the occurrence of a Sub-Servicer Event of Default (as defined herein) by
giving no less than fifteen (15) days prior written notice to the Sub-Servicer
and Borrower of its intent to terminate this Agreement. Such written notice
shall describe in detail the Event of Default. For purposes of this Agreement,
an "EVENT OF DEFAULT" hereunder shall occur in the event Sub-Servicer defaults
in the performance of any of its duties or obligations under this Agreement or
any other document relating to the HELOCs to which it is a party. If the
Sub-Servicer corrects the condition which resulted in the Event of Default
within a fifteen (15) day period from the date of notice, this Agreement shall
not terminate but shall remain in full force and effect.
(c) Upon termination of this Agreement or upon Default by Borrower under
the Loan Agreement, Sub-Servicer shall deliver to the successor sub-servicer
designated by Lender or Borrower, as applicable, all documents, statements,
records, funds and accounts held by it under this Agreement and
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shall execute and deliver all such instruments and do all such other things as
may be reasonably required for fully transferring its rights, powers, duties and
obligations hereunder.
(d) Upon receipt of notice from Lender to Sub-Servicer of a Default by
Borrower under the Loan Agreement, Sub-Servicer will continue to provide its
services hereunder and take direction from Lender. If such default is not cured,
Lender is entitled, but not obligated to, assume all of the duties of Borrower
and receive all of the benefits of Borrower hereunder.
(e) In the event Lender fails to perform its obligations hereunder,
Sub-Servicer shall continue to make Liquidity Contributions for thirty (30) days
and shall receive a priority in the HELOCs to the extent of any Liquidity
Contributions not reimbursed in accordance with SECTION 2.3. If, on or before
the end of such thirty-day period, Borrower or Borrower's designee funds such
Liquidity Contributions, Sub- Servicer shall continue to make Liquidity
Contributions from its own funds in accordance with the terms of this Agreement.
Upon any failure by Borrower or Borrower's designee to reimburse a Liquidity
Contribution, Sub-Servicer's obligation to fund Liquidity Contributions out of
its own funds shall terminate.
(f) In the event Sub-Servicer's obligations under the Sub-Servicing
Agreement terminate, Sub- Servicer's rights and obligations under this Agreement
also terminate.
3.2 RELATIONSHIP OF THE PARTIES. The parties agree that in performing
their responsibilities pursuant to this Agreement, they are in the position of
independent contractors. This Agreement is not intended to create, nor does it
create and shall not be construed to create, a relationship of partner or joint
venturer or any association for profit between Sub-Servicer, Borrower, and
Lender.
3.3 NOTICES. All written notices and other communications by the parties
hereunder shall be deemed to have been duly given when delivered in person or to
an overnight courier service, receipt requested, or sent via telecopy
transmission verification received or when posted by registered or certified
mail, with postage prepaid, addressed as follows:
If to Sub-Servicer:
LaSalle National Bank
135 S. LaSalle Street, Suite 200
Chicago, IL 60603
Attn: Doug Hart
Tel: (312) 904-6578
Fax: (312) 904-2084
If to Lender:
Nomura Asset Capital Corporation
2 World Financial Center, Building B
New York, New York 10281-1198
Attn: Helaine F. Hebble, Vice President
Tel (212) 667-9087
Fax (212) 667-1391
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If to Borrower:
IMC Mortgage Company
3450 Buschwood Park Drive, Suite 250
Tampa, FL 33618
Attn: Tom Middleton
Tel (813) 915-2503
Fax (813) 933-6023
Industry Mortgage Company, L.P.
3450 Buschwood Park Drive, Suite 250
Tampa, FL 33618
Attn: Tom Middleton
Tel (813) 915-2503
Fax (813) 933-6023
IMC Corporation of America
3450 Buschwood Park Drive, Suite 250
Tampa, FL 33618
Attn: Tom Middleton
Tel (813) 915-2503
Fax (813) 933-6023
or to such other addresses as a party may from time to time designate by notice
as provided herein, except that notices of change of address shall be effective
only upon actual receipt.
3.4 MODIFICATIONS AND CHANGES. This Agreement, together with any
exhibits attached hereto, constitutes the entire agreement between the parties
relating to the subject matter herein. This Agreement may only be amended by a
written document signed by each of the parties.
3.5 ASSIGNMENT. This Agreement and the rights and obligations created
under it shall be binding upon and inure solely to the benefit of the parties
hereto and their respective successors and permitted assigns, and no other
person shall acquire or have any right under or by virtue of this Agreement.
Unless otherwise provided herein, neither Sub-Servicer nor Borrower can assign
or transfer its rights and obligations under this Agreement without the prior
written consent of Lender, which consent may be withheld at Lender's sole
discretion. Notwithstanding the foregoing, Sub-Servicer shall have the right to
delegate and assign any and all of its rights and obligations to an entity
affiliated with Sub- Servicer.
3.6 EFFECTIVENESS. This Agreement shall be effective when it has been
accepted and executed on behalf of each party by an authorized officer of that
party.
3.7 SEVERABILITY. If any provision or portion thereof of this Agreement
is held invalid, illegal, void or unenforceable by reason of any rule of law,
administrative or judicial provision or public policy, such provision shall be
ineffective only to the extent invalid, illegal, void or unenforceable, and the
remainder of such provision and all other provisions of this Agreement shall
nevertheless remain in full force and effect.
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3.8 HEADINGS. The headings contained herein are for convenience of
reference only and are not intended to define, limit, expand or describe the
scope or intent of any provision of this Agreement.
3.9 EXECUTION; COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be an original, but together shall
constitute one and the same instrument. Counterparts of this Agreement may be
executed and delivered by facsimile transmission.
3.10 WAIVERS. Except as otherwise provided for herein, neither any
failure nor any delay on the part of the parties hereto in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise or the
exercise of any other right, power or privilege.
3.11 FEES AND EXPENSES. Unless otherwise agreed to in writing,
Sub-Servicer's fees and expenses incurred hereunder shall be paid from the fees
paid to Sub-Servicer under the Sub-Servicing Agreement and the payment of such
fees and expenses are solely an obligation of Borrower.
[REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGE TO FOLLOW.]
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IN WITNESS WHEREOF, each party has caused this Agreement to be executed
by a duly authorized officer as of the date first written above.
LASALLE NATIONAL BANK, as Sub-Servicer
By: _____________________________________
Name: ___________________________________
Title: __________________________________
IMC MORTGAGE COMPANY, as Borrower
By: _____________________________________
Name: ___________________________________
Title: __________________________________
INDUSTRY MORTGAGE COMPANY, L.P., as
Borrower
by INDUSTRY MORTGAGE CORPORATION,
its general partner
By: _____________________________________
Name: ___________________________________
Title: __________________________________
IMC CORPORATION OF AMERICA, as Borrower
By: _____________________________________
Name: ___________________________________
Title: __________________________________
NOMURA ASSET CAPITAL CORPORATION, as
Lender
By: _____________________________________
Name: ___________________________________
Title: __________________________________
SIGNATURE PAGE TO LIQUIDITY AGREEMENT
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EXHIBIT A
LIQUIDITY CONTRIBUTION NOTICE
_____________________________________ (Borrower)
3450 Buschwood Park Drive, Suite 250
Tampa, FL 33618
Attn:
Nomura Asset Capital Corporation
2 World Financial Center, Building B
New York, New York 10281-1198
Attn: Helaine F. Hebble, Vice President
Re: Liquidity Contributions
Please be advised that we have advanced funds in the amounts and with respect to
the HELOCs listed on the attached schedule. Of such advanced funds, $___________
were advanced from the Collection Account and $________________ were advanced
from the Sub-Servicer's own funds.
Respectfully,
LaSalle National Bank
By ______________________________________
Name: ________________________________
Title: _______________________________
EXHIBIT A
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ANNEX 1
DEPOSITORY ACKNOWLEDGMENT
The undersigned depository, _____________________________ (the
"DEPOSITORY"), acknowledges that Debtor has assigned the Account as described in
the Security Agreement by and between Debtor and Secured Party. The records of
the Depository have been marked to show the foregoing assignment. The Depository
hereby acknowledges that the Account, as described in the foregoing assignment,
has been validly created by the Depository in favor or Debtor.
The Depository hereby subordinates any and all rights of set-off and all
other rights and liens of the Depository against the Account to the rights,
security interests, and liens under the foregoing assignment, and agrees that,
so long as the Obligation remains outstanding, Depository shall not, without the
prior written consent of the Secured Party, which consent may be withheld by the
Secured Party in its sole and absolute discretion, with or without cause,
exercise or enforce any creditor's rights or remedies it may have against Debtor
or exercise any rights or remedies with respect to the Account except as
required to preserve its rights in the case of bankruptcy, reorganization or
insolvency proceedings with respect to the Debtor.
Depository further agrees to provide Secured Party copies of all notices
and records sent to Debtor relating to the Account, and will deliver to Secured
Party all monthly (or other periodic) statements of the Account and respond to
inquiries by Secured Party about any deposits, withdrawals or any other matters
relating to the Account, to the same extent Depository makes such information
available to the Debtor, and Debtor hereby acknowledges and consents to such
agreement by Depository.
Upon receipt of notice that a Default has occurred, Depository will take
instructions from Secured Party and will not permit withdrawals by Debtor.
Dated as of the date first set forth above.
_________________________________________
By _____________________________________
Name: __________________________
Title: __________________________
EXHIBIT C-1
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THIS DOCUMENT Haynes and Boone, L.L.P.
PREPARED BY AND WHEN 901 Main Street, 32nd Floor
FILED RETURN TO: Dallas, Texas 75202-3789
Attention: Laurie S. Grant
EXHIBIT C-2
FINANCING STATEMENT
THIS FINANCING STATEMENT IS PRESENTED TO A FILING OFFICER
FOR FILING UNDER THE UNIFORM COMMERCIAL CODE.
DEBTOR'S NAME AND MAILING ADDRESS: ___________________________________
___________________________________
FED. TAX ID NO. ______________
SECURED PARTY'S NAME AND MAILING ADDRESS: Nomura Asset Capital Corporation
2 World Financial Center, Building B
New York, New York 10281-1198
FED. TAX ID NO. ______________
FOR FILING OFFICER:
THIS FINANCING STATEMENT COVERS THE FOLLOWING PRESENT AND FUTURE TYPES AND
ITEMS OF PROPERTY AND INTERESTS, WHETHER NOW OWNED OR ACQUIRED IN THE FUTURE
BY DEBTOR (THE "COLLATERAL"):
Each HELOC from time to time identified to Secured Party as
Collateral now owned or hereafter acquired by or entered into
by Debtor.
All Collateral Documents in any way related to any of the
above identified as Collateral -- including, without
limitation, all promissory notes evidencing, and all
mortgages, deeds of trust, or trust deeds securing, each such
HELOC -- whether deposited with or held by or for Secured
Party under this Agreement, or any Loan Document.
Private-mortgage insurance covering any HELOC.
Security of any kind pledged by an obligor for any HELOC.
Casualty insurance assigned to Debtor in connection with any
HELOC.
Guaranties related to the HELOCs.
Any Collateral otherwise described in this Agreement that may
from time to time be delivered (a) to an investor until
purchased and paid for by that investor or (b) for correction
under SECTION 4 of the Custodial Agreement.
The Dry Funding Account, Wet Funding Account, Lockbox
Account, the Collection Account, and all other demand deposit
accounts that Debtor maintains with Sub-servicer or another
depository institution related to this transaction and all
amounts, securities and the investment property deposited in
them or represented by them (collectively, the "ACCOUNTS").
Personal property, contract rights, accounts, and general
intangibles of any kind whatsoever relating to any
Collateral, including, but not limited to, all rights under
the Lockbox Agreement, the Sub-Servicing Agreement, and the
Custodial Agreement.
All books, records, files, surveys, certificates,
correspondence, appraisals, tapes, discs, cards, accounting
records, and other information and data of Debtor relating to
any Collateral -- including, without limitation, all
information, data, tapes, discs, and cards necessary to
administer and service any Collateral.
Cash and noncash proceeds and products of any Collateral or
any of the foregoing.
[REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGE FOLLOWS.]
EXHIBIT C-2
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DEBTOR: SECURED PARTY:
NOMURA ASSET CAPITAL
__________________________________ CORPORATION
By _______________________________ By __________________________
(Name) ___________________________ (Name) ______________________
(Title) __________________________ (Title) _____________________
SIGNATURE PAGE TO FINANCING STATEMENT EXHIBIT C-2
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EXHIBIT D
BORROWING REQUEST
LENDER: Nomura Asset Capital Corporation DATE: ___________, 199___
BORROWER: __________________________________
================================================================================
This request is delivered under the Loan Agreement (as renewed,
extended, amended, or restated, the "LOAN AGREEMENT") dated as of September __,
1996, between Borrowers and Lender. Terms defined in the Loan Agreement have the
same meaning when used -- unless otherwise defined -- in this request.
Borrowers request $_______________ in Borrowings (collectively, the
"REQUESTED BORROWING") to be funded on _______________, 199___(1) (the
"REQUESTED BORROWING DATE"). $ of the Requested Borrowing shall be a HELOC
Borrowing and $ of the Requested Borrowing shall be a Liquidity Borrowing.
Borrowers certify that as of the Requested Borrowing Date -- after
giving effect to the Requested Borrowing -- (a) the representations and
warranties of Borrowers in the Loan Documents are true and correct in all
material respects except to the extent that (i) a representation or warranty
speaks to a specific date or (ii) the facts on which a representation or
warranty is based have changed by transactions or conditions contemplated or
permitted by the Loan Documents, (b) no Default or Potential Default exists, (c)
the extension of the Requested Borrowing does not cause any Borrowing Excess to
exist, (d) all Collateral Documents required by the Loan Agreement to be
delivered to Collateral Custodian in connection with the Requested Borrowing
have been delivered to Collateral Custodian, and (e) Borrowers have otherwise
complied with all conditions of the Loan Documents to permit the Requested
Borrowing to be extended.
_________________________________________
as Borrower
By ______________________________________
(Name) ___________________________________
(2)(Title) _______________________________
- --------
(1) Must be no later than the Business Day prior to such date.
(2) Must be a Responsible Officer of each Borrower.
EXHIBIT D
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EXHIBIT C-1
SECURITY AGREEMENT
THIS AGREEMENT is entered into as of September __, 1996, between IMC
MORTGAGE COMPANY, a Florida corporation, IMC CORPORATION OF AMERICA, a Delaware
corporation, and INDUSTRY MORTGAGE COMPANY, L.P., a Delaware limited partnership
(whether one or more, "DEBTOR"), and NOMURA ASSET CAPITAL CORPORATION ("SECURED
PARTY").
Debtor and Secured Party have entered into a Loan Agreement (as
renewed, extended, amended, or restated, the "LOAN AGREEMENT") dated as of
September __, 1996. As a continuing inducement to Secured Party to extend credit
to Debtor under the Loan Agreement -- and as a condition precedent to that
credit -- Debtor is executing and delivering this Agreement for the benefit of
Secured Party.
ACCORDINGLY, for adequate and sufficient consideration, Debtor and
Secured Party agree as follows:
SECTION 1. DEFINITIONS AND REFERENCES. Unless stated otherwise, (a) terms
defined in the Loan Agreement or the UCC have the same meanings when used in
this Agreement, and (b) to the extent permitted by Law, if in conflict (i) the
definition of a term in the Loan Agreement controls over the definition of that
term in the UCC, and (ii) the definition of a term in Article 9 of the UCC
controls over the definition of that term elsewhere in the UCC.
COLLATERAL is defined in SECTION 2.2 of this Agreement.
DEBTOR is defined in the preamble to this Agreement and includes,
without limitation, Debtor, Debtor as a debtor-in-possession, and any receiver,
trustee, liquidator, conservator, custodian, or similar party appointed for
Debtor or for substantially all of Debtor's assets under any Debtor Law.
OBLIGOR means any Person obligated with respect to any Collateral
(whether as an account debtor, obligor on an instrument, or otherwise).
SECURED PARTY is defined in the preamble to this Agreement and includes
its successor and assigns.
SECURITY INTEREST means the security interest granted and the pledge and
assignment made under SECTION 2.1 of this Agreement, which is a Lender Lien
under the Loan Agreement.
SECTION 2. SECURITY INTEREST AND COLLATERAL.
2.1 Security Interest. To secure the full payment and performance of the
Obligation, Debtor grants to Secured Party a security interest in the Collateral
and pledges and assigns the Collateral to Secured Party, all upon and subject to
the terms and conditions of this Agreement. The grant of the Security Interest
does not subject Secured Party to the terms of any Collateral Document or in any
way transfer, modify, or otherwise affect (a) any of Debtor's obligations with
respect to any Collateral or (b) the Lender Liens under the Loan Agreement.
EXHIBIT C-1
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2.2 Collateral. As used in this Agreement, the term "COLLATERAL" means
the present and future items and types of property described below, whether now
owned or acquired in the future by Debtor. This description of Collateral does
not permit any action prohibited by any Loan Document.
Each HELOC from time to time identified to Secured Party as
Collateral now owned or hereafter acquired by or entered into
by Debtor.
All Collateral Documents in any way related to any of the
above identified as Collateral -- including, without
limitation, all promissory notes evidencing, and all
mortgages, deeds of trust, or trust deeds securing, each such
HELOC -- whether deposited with or held by or for Secured
Party under this Agreement, or any Loan Document.
Private-mortgage insurance covering any HELOC.
Security of any kind pledged by an obligor for any HELOC.
Casualty insurance assigned to Debtor in connection with any
HELOC.
Guaranties related to the HELOCs.
Any Collateral otherwise described in this Agreement that may
from time to time be delivered (a) to an investor until
purchased and paid for by that investor or (b) for correction
under SECTION 4 of the Custodial Agreement.
The Dry Funding Account, Wet Funding Account, Lockbox
Account, the Collection Account, and all other demand deposit
accounts that Debtor maintains with Sub- servicer or another
depository institution related to this transaction and all
amounts, securities and the investment property deposited in
them or represented by them (collectively, the "ACCOUNTS").
Personal property, contract rights, accounts, and general
intangibles of any kind whatsoever relating to any
Collateral, including, but not limited to, all rights under
the Lockbox Agreement, the Sub-Servicing Agreement, and the
Custodial Agreement.
All books, records, files, surveys, certificates,
correspondence, appraisals, tapes, discs, cards, accounting
records, and other information and data of Debtor relating to
any Collateral -- including, without limitation, all
information, data, tapes, discs, and cards necessary to
administer and service any Collateral.
Cash and noncash proceeds and products of any Collateral or
any of the foregoing.
EXHIBIT C-1
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SECTION 3. REPRESENTATIONS AND WARRANTIES. By entering into this Agreement, and
by each subsequent delivery of additional Collateral under this Agreement,
Debtor reaffirms the representations and warranties contained in the Loan
Agreement. Debtor further represents and warrants to Secured Party as follows:
3.1 Concerning the Collateral. All Collateral (a) is genuine and in all
respects what it purports to be, (b) is the legal, valid, and binding obligation
of each Obligor (except as enforceability may be limited by Debtor Laws), (c) is
free from any claim for credit, deduction, or allowance of any Obligor and free
from any defense, dispute, setoff, or counterclaim (other than for payments made
in respect of it), (d) is in compliance with all Laws (including, without
limitation, all usury Laws, the Real Estate Settlement Procedures Act of 1974,
the Equal Credit Opportunity Act, the Federal Truth in Lending Act, Regulation Z
promulgated by the Board of Governors of the Federal Reserve System, and all
applicable federal and state consumer protection Laws, and (e) conforms to the
applicable requirements of eligibility under the Underwriting Guidelines.
3.2 Ownership and Priority. Debtor has full legal and beneficial
ownership of all Collateral, free and clear of all Liens except Permitted Liens.
3.3 Creation and Perfection. The Security Interest is created and
perfected on (a) each promissory note that evidences a HELOC ever delivered to
Secured Party, (b) each promissory note that evidences a HELOC identified by
Debtor to Secured Party as supporting a Wet Borrowing for 21 days after the
Borrowing Date for that Borrowing, (c) all Collateral, if any, shipped to any
investor (and the Security Interest continues to be perfected until Secured
Party receives payment), (d) all Collateral shipped to Debtor for correction
under SECTION 4 of the Custodial Agreement (and the Security Interest continues
to be perfected for 21 days after that shipment), and (e) all other Collateral
upon possession or the filing of financing statements by Secured Party.
SECTION 4. COVENANTS. Until the commitment by Secured Party to extend credit
under the Loan Agreement has been cancelled or terminated and the Obligation is
fully paid and performed, Debtor covenants and agrees with Secured Party as
follows:
4.1 Concerning the Collateral. Debtor (a) shall fully perform all of its
duties under and in connection with each transaction to which any Collateral
relates, (b) shall promptly notify Secured Party about any change in any fact or
circumstances represented or warranted by Debtor about any Collateral, (c) shall
promptly notify Secured Party of any claim, action, or proceeding affecting
title to any Collateral or the Security Interest and, at Secured Party's request
and Debtor's expense, appear in and defend that action or proceeding, (d) shall
hold in trust for Secured Party all Collateral not delivered to Secured Party or
the Collateral Custodian (without excusing any failure to deliver Collateral
Documents to Secured Party or the Collateral Custodian as required by this
Agreement) and mark that Collateral on Debtor's records that it is subject to
the Security Interest (but the failure to do so does not impair the Security
Interest or its priority), (e) other than collections under SECTION 4.3 below,
Debtor shall pay and deliver to Secured Party all items and types of property
into which any Collateral may be converted (all of which is subject to the
Security Interest) and properly endorse, assign, or take such other action as
Secured Party may request in order to maintain and continue the Security
Interest in that property, and (f) may not compromise, extend, release, or
adjust payments on any Collateral, accept a conveyance of mortgaged property in
full or partial satisfaction of any Collateral, or release any mortgage, deed of
trust, or trust deed securing or underlying any Collateral.
EXHIBIT C-1
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4.2 Insurance. Debtor shall keep the Collateral fully insured in the
amounts, against the risks, and with insurers as may be approved by Secured
Party, with loss payable to Secured Party as its interest may appear.
4.3 Collections. Debtor shall, at its sole cost and expense, whether
requested to do so by Secured Party or in the absence of such a request, take
all actions reasonably necessary, to obtain payment, when due and payable, of
all amounts due or to become due from Obligors with respect to any Collateral.
Debtor may not agree to any rebate, refund, compromise, or extension with
respect to any Collateral or accept any prepayment on account of any Collateral
other than in a manner and to the extent consistent with or as may otherwise be
provided in various servicing agreements to which it is a party or subject.
(a) No Default. While no Default exists, Debtor shall make all of
those collections, shall maintain such escrow accounts and otherwise
comply with the servicing agreements to which it is a party or subject,
and may otherwise retain and use the proceeds of those collections in
the ordinary course of its business.
(b) Default. While a Default exists, and upon the request of
Secured Party, each depository institution in which an Account is held
shall cease honoring checks drawn by Debtor and shall take instructions
from Secured Party regarding disposition of funds in the Accounts.
Debtor shall (i) notify and direct each Obligor to make payments on the
Collateral to Secured Party for deposit into such accounts as it may
designate so as to be held as Collateral under this Agreement and (ii)
otherwise turn over to Secured Party, in the form received and with any
necessary endorsements, all payments it receives in respect of any
Collateral for deposit into such accounts as Secured Party may designate
to be held as Collateral under this Agreement. Secured Party may at any
time apply any amounts in those accounts as a payment of the Obligation,
other than mortgage escrow payments that are deposited into escrow
accounts in accordance with the applicable Guide or servicing contract.
4.4 Concerning Debtor. Without first giving Secured Party 30 days notice
(or fewer if agreed to in writing by Secured Party) of the intention to do any
of the following and performing such acts and executing and delivering to
Secured Party such additional documents as Secured Party requests in order to
continue or maintain the existence and priority of the Security Interest, Debtor
may not (a) use or transact business under any corporate, assumed, or trade
name, except as represented in the Loan Agreement, (b) relocate its chief
executive offices or principal place of business, or (c) move or surrender
possession of its books and records regarding the Collateral.
4.5 Concerning the Accounts.
(a) Subject to Secured Party's rights as the designated owner of
the Accounts on the records of the depository, Debtor is the sole owner
of the Account and has authority to execute and deliver this assignment;
(b) Debtor covenants and agrees that without the prior consent of
Secured Party, Debtor will not:
(i) create any other security interest in, mortgage, or
otherwise encumber, or assign the Accounts, or any part thereof,
or permit the same to be or become subject to any lien,
attachment, execution, sequestration, other legal or equitable
process, or any
EXHIBIT C-1
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encumbrance of any kind or character, except the lien herein
created and any offset rights inuring to the benefit of
depository, but only to the extent same are subordinated to
Lenders Liens; or
(ii) request, make or allow to be made any withdrawals from
the Accounts except as provided under the Loan Documents.
(c) During the existence of a Default, Secured Party, in addition
to any other remedies it may have, may do one or more of the following:
(i) declare the Obligation immediately due and payable;
(ii) demand payment and performance thereof from the
funds in or credited to the Accounts; and
(iii) withdraw funds from the Accounts and apply all or
any portion of the Accounts to the Obligation.
(d) Debtor hereby authorizes Secured Party during the existence
of Default and so long as any part of the Obligation remains
outstanding:
(i) to withdraw, collect, and receipt for any and all
funds on deposit in or payable on the Accounts.
(ii) on behalf of Debtor to endorse the name of Debtor
upon any checks, drafts, or other instruments payable to Debtor
evidencing payment on the Accounts;
(iii) to surrender or present for notation of withdrawal
the passbook, certificate, or other documents issued to Debtor in
connection with the Accounts; and
(iv) exercise any other rights or take any other actions
specified herein or in the Loan Documents.
(e) Secured Party shall not be liable for any loss of interest on
or any penalty or charge assessed against funds in, payable on, or
credited to the Accounts as a result of Secured Party exercising any of
its rights or remedies under this assignment.
(f) Debtor agrees to obtain from each depository a Depository
Acknowledgment in the form of ANNEX 1 attached for the benefit of
Secured Party within ten days of the opening of such deposit account.
SECTION 5. DEFAULT AND REMEDIES. If a Default exists, then Secured Party may, at
its election (but subject to the terms and conditions of the Loan Agreement),
exercise any and all Rights available to a secured party under the UCC, in
addition to any and all other Rights afforded by the Loan Documents, at law, in
equity, or otherwise, including, without limitation (a) requiring Debtor to
assemble all or part of the Collateral and make it available to Secured Party at
a place to be designated by Secured Party which is reasonably convenient to
Debtor and Secured Party, (b) surrendering any policies of insurance on all or
part of the Collateral and receiving and applying the unearned premiums as a
credit on the
EXHIBIT C-1
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Obligation, (c) applying by appropriate judicial proceedings for appointment of
a receiver for all or part of the Collateral (and Debtor hereby consents to any
such appointment), and (d) applying to the Obligation any cash held by Secured
Party under the Loan Documents or held in the Accounts.
5.1 Notice. Reasonable notification of the time and place of any public
sale of the Collateral, or reasonable notification of the time after which any
private sale or other intended disposition of the Collateral is to be made,
shall be sent to Debtor and to any other Person entitled to notice under the
UCC. If any Collateral threatens to decline speedily in value or is of the type
customarily sold on a recognized market, Secured Party may sell or otherwise
dispose of the Collateral without notification, advertisement, or other notice
of any kind. Notice sent or given not less than five calendar days before the
taking of the action to which the notice relates is reasonable notification and
notice for the purposes of this section.
5.2 Application of Proceeds. Secured Party shall apply the proceeds of
any sale or other disposition of the Collateral under this SECTION 5 in the
order and manner specified in SECTION 3.5 of the Loan Agreement. Any surplus
remaining shall be delivered to Debtor or as a court of competent jurisdiction
may direct. If the proceeds are insufficient to pay the Obligation in full,
Debtor remains liable for any deficiency.
SECTION 6. OTHER RIGHTS.
6.1 Performance. If Debtor fails to pay when due all Taxes on any of the
Collateral, or to preserve the priority of the Security Interest in any of the
Collateral, or to keep the Collateral insured as required by this Agreement, or
otherwise fail to perform any of its obligations under any Loan Documents or
Collateral Documents with respect to the Collateral, then Secured Party may, at
its option, but without being required to do so, pay such Taxes, prosecute or
defend any suits in relation to the Collateral, or insure and keep insured the
Collateral in any amount deemed appropriate by Secured Party, or take all other
action which Debtor is required, but has failed or refused, to take under the
Loan Documents or Collateral Documents. Any sum which may be expended or paid by
Secured Party under this section (including, without limitation, court costs and
attorneys' fees) shall bear interest from the dates of expenditure or payment at
the Default Rate until paid and, together with such interest, shall be payable
by Debtor to Secured Party upon demand and is part of the Obligation.
6.2 Collection.
(a) Actions. When Secured Party is entitled under SECTION 4.3
above to make collection on any Collateral, it may in its own name or in
the name of Debtor (i) compromise or extend the time of payment with
respect to any Collateral for such amounts and upon such terms as
Secured Party may determine, (ii) demand, collect, receive, receipt for,
sue for, compound, and give acquittance for any and all amounts due or
to become due with respect to Collateral, (iii) take control of cash and
other proceeds of any Collateral, (iv) endorse Debtor's name on any
notes, acceptances, checks, drafts, money orders, or other evidences of
payment on Collateral that may come into Secured Party's possession, (v)
sign Debtor's name on any invoice or bill of lading relating to any
Collateral, on any drafts against Obligors or other Persons making
payment with respect to Collateral, on assignments and verifications of
accounts or other Collateral and on notices to Obligors making payment
with respect to Collateral, (vi) send requests for verification of
obligations to any Obligor, (vii) do all other acts and things necessary
to carry out the intent of this Agreement, and (viii) authorize any
servicer in respect of any Collateral to perform any one or more of the
foregoing on Secured Party's behalf.
EXHIBIT C-1
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(b) Other Matters. If any Obligor fails or refuses to make
payment on any Collateral when due, Secured Party is authorized, in its
sole discretion, either in its name or in Debtor's name, to take such
action as Secured Party deems appropriate for the collection of any
amounts owed with respect to Collateral or upon which a delinquency
exists. Regardless of any other provision, however, Secured Party is
never liable for its failure to collect, or for its failure to exercise
diligence in the collection of, any amounts owed with respect to
Collateral and is not under any duty whatever to anyone except Debtor to
account for funds that it actually receives. Without limiting the
generality of the foregoing, Secured Party has no responsibility for
ascertaining any maturities, calls, conversions, exchanges, offers,
tenders, or similar matters relating to any Collateral, or for informing
Debtor with respect to any of such matters (irrespective of whether
Secured Party actually has, or may be deemed to have, knowledge
thereof). Secured Party's receipt to any Obligor is a full and complete
release, discharge, and acquittance to that Obligor, to the extent of
any amount so paid to Secured Party.
6.3 Power of Attorney. Debtor irrevocably appoints Secured Party as its
attorney-in-fact (with full power of substitution) for, on behalf, and in the
name of Debtor to (a) endorse and deliver to any Person any check, instrument,
or other document received by Secured Party that represents payment in respect
of any Collateral, (b) prepare, complete, execute, deliver, and record any
assignment of any mortgage, deed of trust, or trust deed securing any
Collateral, (c) endorse and deliver or otherwise transfer any promissory note
evidencing any Collateral and do every other thing necessary or desirable to
effect transfer of all or any Collateral, (d) take all necessary and appropriate
action with respect to any Obligation or any Collateral, (e) commence,
prosecute, settle, discontinue, defend, or otherwise dispose of any claim
relating to any Collateral, and (f) sign Debtor's name wherever appropriate to
effect the performance of this Agreement and the Loan Agreement. This section
shall be liberally, not restrictively, construed to give the greatest latitude
to Secured Party's power as the Debtor's attorney-in-fact to collect, sell, and
deliver any Collateral and all other documents relating to it. The powers and
authorities conferred on Secured Party in this section (w) are discretionary and
not obligatory on the part of Secured Party, (x) may be exercised by Secured
Party through any Person who, at the time of the execution of a particular
document, is an officer of Secured Party, (y) may not be exercised by Secured
Party unless a Default exists, and (z) is granted for a valuable consideration,
coupled with an interest, and irrevocable until -- and all Persons dealing with
Secured Party, any of its officers acting under this section, or any substitute
are fully protected in treating the powers and authorities conferred by this
section as existing and continuing in full force and effect until advised by
Secured Party that -- all commitments under the Loan Agreement to extend credit
under this Agreement have been terminated or cancelled and the Obligation is
fully paid and performed.
SECTION 7. MISCELLANEOUS.
7.1 Miscellaneous. Because this Agreement is one of the "Loan Documents"
referred to in the Loan Agreement, the provisions relating to Loan Documents in
the Loan Agreement are incorporated into this Agreement by reference the same as
if included in this Agreement verbatim.
7.2 Term. This agreement terminates upon full payment and performance of
the Obligation. No Obligor is ever obligated to make inquiry of the termination
of this Agreement but is fully protected in making any payments on the
Collateral directly to Secured Party.
7.3 Matters Not Relevant. The Security Interest, Debtor's obligations,
and Secured Party's Rights under this Agreement are not released, diminished,
impaired, or adversely affected by any one or
EXHIBIT C-1
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more of the following: (a) Secured Party's taking or accepting any additional --
or any release, surrender, exchange, subordination, or loss of any other --
guaranty, assurance, or security for any of the Obligation; (b) any full or
partial release of any other Person obligated on any of the Obligation; (c) the
modification or assignment of -- or waiver of compliance with -- any other Loan
Document; (d) any present or future insolvency, bankruptcy, or lack of
corporate, partnership, or trust power of any other Person obligated on any of
the Obligation; (e) any renewal, extension, or rearrangement of any of the
Obligation, or any adjustment, indulgence, forbearance, or compromise granted to
any Person obligated on any of the Obligation; (f) any Person's neglect, delay,
omission, failure, or refusal to take or prosecute any action in connection with
any of the Obligation; (g) any existing or future affect, claim, or defense
(other than the defense of full and final payment of the Obligation) of Debtor
or any other Person against Secured Party; (h) the unenforceability of any of
the Obligation against any Person obligated or any of the Obligation because it
exceeds the amount permitted by Law, the act of creating it is ultra vires, or
the officers, partners, or trustees creating it exceeded their authority or
violated their fiduciary duties, or otherwise; (i) any payment of the Obligation
is held to constitute a preference under any Debtor Law or for any other reason
Secured Party is required to refund any payment or make payment to another
Person; or (j) any Person's failure to notify Debtor or Secured Party of their
acceptance of this Agreement or any Person's failure to notify Debtor about the
foregoing events or occurrences, and Debtor waives any notice of any kind under
any circumstances whatsoever with respect to this Agreement or any of the
Obligation other than as specifically provided in this Agreement.
7.4 Waivers. Except to the extent expressly otherwise provided in the
Loan Documents, Debtor waives (a) any Right to require Secured Party to proceed
against any other Person, to exhaust its Rights in the Collateral, or to pursue
any other Right which Secured Party may have, and (b) all Rights of marshaling
in respect of the Collateral.
7.5 Financing Statement. Secured Party may, at any time, file this
Agreement or a carbon, photographic, or other reproduction of this Agreement as
a financing statement, but Secured Party's failure to do so does not impair the
validity or enforceability of this Agreement.
7.6 Parties Assignments. This Agreement binds and inures to Debtor and
Secured Party, and their respective successors and permitted assigns. Only those
Persons may rely or raise any defense about this Agreement. Debtor may not
assign any Rights or obligations under this Agreement without first obtaining
the written consent of Secured Party. Secured Party may assign, pledge, and
otherwise transfer all or any of its Rights under this Agreement to any
participant or transferee permitted by the Loan Agreement.
7.7 Amendments. This Agreement may be amended at any time by a writing
executed by all parties hereto.
7.8 Entire Agreement. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[REMAINDER OF THIS PAGE INTENTIONALLY BLANK.
SIGNATURE PAGE FOLLOWS.]
EXHIBIT C-1
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EXECUTED as of the date first stated above.
IMC MORTGAGE COMPANY, as Debtor NOMURA ASSET CAPITAL
CORPORATION,
as Secured Party
By _______________________________
Name: _________________________
Title: ________________________ By _______________________________
Helaine F. Hebble, Vice President
IMC CORPORATION OF AMERICA, as INDUSTRY MORTGAGE COMPANY,
Debtor L.P., as Debtor
By IMC MORTGAGE COMPANY, its
general partner
By _______________________________ By _______________________________
Name: _________________________ Name: _________________________
Title: ________________________ Title: ________________________
SIGNATURE PAGE TO SECURITY AGREEMENT EXHIBIT C-1
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LOAN AND SECURITY AGREEMENT
dated as of December 31, 1996
among
IMC MORTGAGE COMPANY
INDUSTRY MORTGAGE COMPANY, L.P.,
and
THE FIRST NATIONAL BANK OF BOSTON
------------------------------
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS..................................................1
Section 1.01. Definitions.....................................................1
Section 1.02. Accounting Terms...............................................19
Section 1.03. Computation of Time Periods....................................19
Section 1.04. Rules of Construction..........................................20
ARTICLE II THE LOANS ......................................................................20
Section 2.01. Residual Loans.................................................20
Section 2.02. Bridge Loans...................................................23
Section 2.03. Warehouse Loans................................................24
Section 2.04. Reduction of Commitment........................................26
Section 2.05. Interest.......................................................26
Section 2.06. Default Interest...............................................26
Section 2.07. Mandatory Prepayments..........................................26
Section 2.08. Optional ......................................................27
Section 2.09. Reliance Upon Instructions.....................................27
Section 2.10. Minimum Balance................................................27
ARTICLE III COLLATERAL.....................................................................27
Section 3.01. Grant of Security Interest - Residual
Loan Collateral................................................27
Section 3.02. Delivery of Instruments........................................28
Section 3.03. Grant of Security Interest - Warehouse
Collateral.....................................................29
Section 3.04. Security for Bridge Loans......................................29
Section 3.05. Uniform Commercial Code Financing
Statements.....................................................29
ARTICLE IV CONDITIONS PRECEDENT............................................................29
Section 4.01. Conditions Precedent to Initial Loan...........................29
Section 4.02. Conditions to All Loans........................................32
ARTICLE V REPRESENTATIONS AND WARRANTIES...................................................33
Section 5.01. Formation, Good Standing and Due
Qualification..................................................34
Section 5.02. Power and Authority: No Conflicts..............................34
Section 5.03. Legally Enforceable Agreements.................................34
Section 5.04. Litigation.....................................................34
Section 5.05. Material Liabilities, No Misstatements
or-Omission of Facts...........................................34
Section 5.06. Indebtedness, Ownership and Liens..............................35
Section 5.07. Taxes..........................................................35
Section 5.08. ERISA..........................................................35
Section 5.09. Subsidiaries: Stockholders.....................................35
(i)
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Section 5.10. Operation of Business: Prior or Existing
Restrictions, Etc..............................................35
Section 5.11. No Default on Outstanding Judgments or
Orders.........................................................36
Section 5.12. No Defaults on Other Agreements................................36
Section 5.13. Labor Disputes and Acts of God.................................36
Section 5.14. Partnerships...................................................36
Section 5.15. Environmental Protection.......................................36
Section 5.16. Management of Obligors.........................................37
Section 5.17. Representations and Warranties
Concerning The Collateral.....................................37
ARTICLE VI AFFIRMATIVE COVENANTS...........................................................38
Section 6.01. Maintenance of Existence.......................................38
Section 6.02. Conduct of Business............................................38
Section 6.03. Maintenance of Properties......................................38
Section 6.04. Maintenance of Records.........................................38
Section 6.05. Maintenance of Insurance.......................................38
Section 6.06. Compliance with Laws...........................................38
Section 6.07. Right of Inspection............................................38
Section 6.08. Reporting Requirements.........................................39
Section 6.09. Compliance With Environmental Laws.............................42
Section 6.10. Audits.........................................................42
Section 6.11. Custody of Warehouse Collateral
Documents......................................................42
Section 6.12. Use of Loan Proceeds...........................................42
Section 6.13. Further Assurances.............................................43
Section 6.14. Collection of Collateral.......................................43
Section 6.15. Attorney-in-Fact...............................................44
ARTICLE VII NEGATIVE COVENANTS.............................................................45
Section 7.01. Liens..........................................................45
Section 7.02. Debt...........................................................46
Section 7.03. Mergers, Etc...................................................46
Section 7.04. Leases.........................................................46
Section 7.05. Sale and Leaseback.............................................47
Section 7.06. Distributions..................................................47
Section 7.07. Sale of Assets.................................................47
Section 7.08. Investments....................................................47
Section 7.09. Financial Hedge Instruments....................................47
Section 7.10. Guaranties, Etc................................................47
Section 7.11. Transactions With Affiliates...................................48
Section 7.12. Modification; Etc..............................................48
ARTICLE VIII FINANCIAL COVENANTS...........................................................48
Section 8.01. Interest Coverage..............................................48
Section 8.02. Liabilities to Worth Ratio.....................................48
Section 8.03. Net Worth......................................................48
Section 8.04. Maximum Cumulative Net Loss....................................48
Section 8.05. Maximum Prepayment Rate........................................49
(ii)
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ARTICLE IX EVENTS OF DEFAULT...............................................................49
Section 9.01. Events of Default..............................................49
Section 9.02. Remedies.......................................................51
Section 9.03. Application of Proceeds........................................53
Section 9.04. The Bank May Perform...........................................54
ARTICLE X MISCELLANEOUS....................................................................54
Section 10.01. No Waiver: Cumulative Remedies.................................54
Section 10.02. Set-Off........................................................54
Section 10.03. Amendments.....................................................55
Section 10.04. Costs and Expenses.............................................55
Section 10.05. Indemnification................................................55
Section 10.06. The Borrowers Remain Liable....................................56
Section 10.07. No Waiver, Etc.................................................57
Section 10.08. The Bank's Duties..............................................57
Section 10.09. Continuing Security Interest: Transfer
of Notes.......................................................57
Section 10.10. Payments.......................................................57
Section 10.11. Binding Effect: Assignment:
Participation..................................................58
Section 10.12. Notices........................................................58
Section 10.13. Usury..........................................................58
Section 10.14. Table of Contents: Headings....................................58
Section 10.15. Severability...................................................59
Section 10.16. Counterparts...................................................59
Section 10.17. Integration....................................................59
Section 10.18. GOVERNING LAW..................................................59
Section 10.19. JURISDICTION: IMMUNITIES.......................................59
Section 10.20. WAIVER OF JURY TRIAL...........................................60
</TABLE>
(iii)
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EXHIBITS
Exhibit A Nonconforming Mortgage Loan Underwriting
Standards
Exhibit B Closing Protection Letter
Exhibit 1.01(a) Form of Residual Loan Borrowing Base
Certificate
Exhibit 1.01(b) Lenders Model Amount Certificate
Exhibit 1.01(d) Warehouse Loan Borrowing Base Certificate
Exhibit 1.01(e) Transmittal Letter
Exhibit 2.01(b) Form of Additional Residual Loan Proposal
Exhibit 2.01(c) Form of Residual Loan Request
Exhibit 2.01(d) Amortization Schedule
Exhibit 2.01(e) Residual Note
Exhibit 2.02(b) Bridge Loan Request
Exhibit 2.02(d) Bridge Loan Note
Exhibit 2.03(b) Warehouse Loan Request
Exhibit 2.03(d) Warehouse Loan Note
Exhibit 2.05 Interest Provisions
Exhibit 4.01(8) Form of Opinion of Counsel to Obligors
Exhibit 4.01(12) Form of Notification of Assignment and
Security Interest
Exhibit 5.17 Places of Business; Obligors' Names
Exhibit 6.08(2) Covenant Compliance Certificate
SCHEDULES
Schedule 5.05 Material Liabilities
Schedule 5.06 Liens and Indebtedness
Schedule 5.09 Shareholders and Subsidiaries
Schedule 5.14 Partnerships
Schedule 5.16 Management
(iv)
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LOAN AND SECURITY AGREEMENT
LOAN AND SECURITY AGREEMENT dated as of December 31, 1996 among IMC
MORTGAGE COMPANY (the "PARENT"), INDUSTRY MORTGAGE COMPANY, L.P. ( the
"BORROWER"), and THE FIRST NATIONAL BANK OF BOSTON (the "BANK").
BACKGROUND
The Obligors engage in the business of originating, purchasing, selling
and servicing Mortgage Loans. It is intended that the Borrower may merge with
and into the Parent. The Parent and the Borrower have requested that the Bank
provide to the Parent and the Borrower loans in an aggregate principal amount
not to exceed TWENTY-FIVE MILLION DOLLARS ($25,000,000). The Bank has agreed to
provide the Loans, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and undertakings
herein, the parties, intending to be legally bound, agree as follows:
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
Section 1.01. Definitions. As used in this Agreement, the following
terms have the following meanings (terms defined in the singular are to have a
correlative meaning when used in the plural and vice versa):
"Additional Residual Loan Borrowing Base Amount" means the Adjusted
Residual Borrowing Base Amount with respect to the New Residual Loan Collateral
as calculated by the Bank pursuant to Section 2.01(b).
"Additional Residual Loan Proposal" has the meaning specified in Section
2.01(b).
"Adjusted Residual Borrowing Base Amount" means, as of each date of
determination, the lesser of (i) 85% of the Lender's Model Amount of Eligible
Securitization Receivables or (ii) 65% of the Book Value of Eligible
Securitization Receivables. The Adjusted Residual Borrowing Base Amount shall be
determined monthly as part of the Residual Loan Borrowing Base Certificate
delivered to the Bank pursuant to ss.6.08(17). The Bank shall have the right to
determine the Adjusted Residual Borrowing Base Amount at any time. If the result
of the Bank's determination of the Adjusted Residual Borrowing Base Amount
differs from the Borrower's determination of the Adjusted Residual Borrowing
Base Amount, then the Bank's determination shall be the Adjusted Residual
Borrowing Base Amount.
"Affiliate" means, with respect to any Obligor, any other Person: (1)
which directly or indirectly controls, or is controlled by, or is under common
control with any Obligor; (2) which directly
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or indirectly beneficially owns or holds fifteen percent or more of any equity
or partnership interest of any Obligor; or (3) fifteen percent or more of the
equity or partnership interest of which is directly or indirectly beneficially
owned or held by any Obligor.
"Affiliated Guarantor" means IMC Corporation of America, a Delaware
corporation.
"Agreement" means this Loan and Security Agreement, as amended,
supplemented or modified and in effect from time to time.
"Amortization Schedule" means EXHIBIT 2.01(d) attached hereto, which
Exhibit shall be replaced by the Bank on each Drawdown Date for Residual Loans
occurring after the Closing Date by a revised amortization schedule prepared by
the Bank.
"Annualized Prepayment Rate" means with respect to any Securitization
Transaction, the total amount of Mortgage Loans that are prepaid over a period
of time as a percentage of the original fully-funded principal value of such
Securitization Transaction at the beginning of such period, annualized pursuant
to applicable industry standards.
"Annualized Net Loss Rate" means with respect to any Securitization
Transaction, the total losses over a period of time as a percentage of the
original fully-funded principal value of such Securitization Transaction at the
beginning of such period, annualized pursuant to applicable industry standards.
"Approved Title Company" means those title insurance companies approved
by the Bank in writing for handling Mortgage Loan closings and/or issuing
qualifying title insurance covering a Mortgage Loan and which have provided the
Bank with a Closing Protection Letter.
"Bank" shall have the meaning set forth in the Preamble to this
Agreement.
"Bank's Special Counsel" shall mean Riemer & Braunstein.
"Book Value" means, with respect to any assets included in the Adjusted
Residual Loan Borrowing Base or the Warehouse Loan Borrowing Base, the amount at
which such asset is carried on the balance sheet of the Parent or the Borrower,
as applicable, in
accordance with GAAP.
"Borrower" is defined in the Preamble hereto.
"Bridge Loan" is defined in Section 2.02(a).
"Bridge Loan Borrowing Base Amount" means, as of the date of
determination, an amount equal to twenty percent (20%) of the Parent's Net
Worth.
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"Bridge Loan Maturity Date" shall mean June 30, 1998.
"Bridge Loan Note" has the meaning set forth in Section 2.02(d).
"Bridge Loan Request" has the meaning set forth in Section 2.02(b).
"Bridge Loan Sublimit" means as of each date of determination, the
lesser of (a) Twenty Million Dollars ($20,000,000.00) or (b) (i) the Commitment
less (ii) the aggregate outstanding amount of Warehouse Loans and Residual
Loans.
"Bridge Note Record" shall mean the schedule attached to the Bridge Loan
Note, or the continuation of such schedule, or any other similar record,
including computer records, maintained by the Bank with respect to any Bridge
Loan referred to in the Bridge Loan Note.
"Business Day" means any day on which commercial banks are not
authorized or required to close in Massachusetts.
"Capital Lease" means any lease which has been or should be capitalized
on the books of the lessee in accordance with GAAP.
"Cash Flow from Residual Loan Collateral" means all payments received by
any Borrower in respect of Servicing Rights and Securitization Receivables.
"Certificate of No Default" shall have the meaning specified
in Section 6.08(4).
"Closing Date" means the first date on which the conditions set forth in
SS.4.01 and SS.4.02 have been satisfied and any Loans are to be made.
"Closing Protection Letter" means a letter substantially in the form of
EXHIBIT B hereto or such other form which is reasonably satisfactory to the Bank
from an Approved Title Company and which contains (a) an acknowledgment of the
interests of the Bank in, and (b) an agreement providing the Bank with the
benefits of, all Closing Protection Rights of the Parent or the Borrower, as
applicable, from such Person with respect to the subject Mortgage Loan(s).
"Closing Protection Rights" means (a) any and all rights of the Parent
or the Borrower to or under a letter (including any Closing Protection Letter)
issued by a title insurance company to the Parent or the Borrower assuming
liability for certain acts or failure to act on behalf of a named closing escrow
agent, approved attorney or similar Person in connection with the closing of a
Mortgage Loan transaction, (b) any and all rights of the Parent or the Borrower
to or under a bond, insurance or trust fund
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established to protect a mortgage lender against a loss or damage resulting from
certain acts or failure to act of a closing escrow agent, approved attorney,
title insurance company or similar Person, and (c) any other right or claim that
the Parent or the Borrower may have against any Person for any loss or damage
resulting from such Person's acts or failure to act in connection with the
closing of a Mortgage Loan and the delivery of the related Mortgage Documents to
the Bank, to the Parent or to the Borrower or the return to the Bank of the
proceeds of any Loan made to fund a Mortgage Loan which did not close.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" means, collectively, the Residual Loan Collateral, the
Warehouse Collateral, and any collateral granted for the Bridge Loans pursuant
to Section 3.03.
"Commitment" means the commitment of the Bank to make Loans hereunder up
to the maximum principal amount of Twenty Five Million Dollars ($25,000,000.00),
as the same may be reduced from time to time pursuant to the provisions of
Sections 2.04 or 9.02(B) hereof; or if such commitment is terminated pursuant to
the provisions hereof, zero.
"Compliance Certificate" is defined in Section 6.08(2).
"Consolidated", with reference to any term defined herein, shall mean
that term as applied to the accounts of the Parent and its Subsidiaries
(including, without limitation, the Borrower and Affiliated Guarantor),
consolidated in accordance with GAAP.
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract, or otherwise.
"Convert" or "Conversion" has the meaning set forth in EXHIBIT 2.05
hereto.
"Cumulative Net Loss Rate" means with respect to any Securitization
Transaction, the total losses over the life of the Securitization Transaction to
date as a percentage of the original fully funded principal value of such
Securitization Transaction.
"Debt" means (1) indebtedness or liability for borrowed money; (2)
obligations evidenced by bonds, debentures, notes, or other similar instruments;
(3) obligations for the deferred purchase price of property or services
(including trade obligations); (4) obligations as lessee under Capital Leases;
(5) current liabilities in respect of unfunded vested benefits under Plans
covered by ERISA; (6) obligations under letters of credit; (7) obligations under
acceptance facilities; and (8) all guaranties, endorsements
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(other than for collection or deposit in the ordinary course of business), and
other contingent obligations to purchase, to provide funds for payment, to
supply funds to invest in any Person or entity, or otherwise to assure a
creditor against loss; and (9) obligations secured by any Liens, whether or not
the obligations have been assumed.
"Default" means any event which with the giving of notice or lapse of
time, or both, would become an Event of Default.
"Default Rate" means a rate per annum equal to the rate which would
otherwise be applicable to such Loan hereunder plus two percent (2%).
"Delinquent Loan" shall mean a Mortgage Loan as to which payments are
current or the borrower thereunder has failed to make the required payments of
principal and/or interest as and when due (inclusive of any grace period
provided for in the Mortgage Note) for a period not in excess of ninety (90)
days, and which does not constitute, or has not become, a Foreclosure Loan.
"Dollars" and the sign "$" mean lawful money of the United States of
America.
"Distribution" means the declaration or payment of any dividend on or in
respect of any shares of any class of capital stock or partnership interests of
any Obligor; the purchase, redemption, or other retirement of any shares of any
class of capital stock or partnership interests of any Obligor, directly or
indirectly by such Obligor through a Subsidiary or Affiliate of the Obligor or
otherwise; the return of capital by any Obligor to its shareholders or partners
as such; any other distribution on or in respect of any shares of any class of
capital stock or partnership interests of any Obligor; or any other advance,
draw, or other transfers of cash or other assets (including, without limitation,
payment of management fees) to the shareholders or partners of any Obligor.
"Drawdown Date" means the date on which any Loan is made or is to be
made.
"EBIT" means, for any fiscal period, an amount equal to the sum of (a)
the Consolidated Net Income (or Loss) of the Parent and its Subsidiaries during
such period, plus (b)(i) all taxes included as an expense of the Parent and its
Subsidiaries in the determination of Consolidated Net Income (or Loss) and (ii)
Interest Expense included as an expense of the Parent and its Subsidiaries in
the determination of Consolidated Net Income (or Loss).
"Eligible Securitization Receivable" means a Securitization Receivable
which meets each of the following criteria:
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(1) All Mortgage Loans relating to the Securitization Transaction
shall have been delivered to the Trustee, and other actions required to
be undertaken by the Borrower shall have been performed, in accordance
with the terms of the agreements evidencing the Securitization
Transaction, and the related Securitization Transaction shall have been
fully funded; and
(2) It is effectively pledged to the Bank and in respect of which
the Bank has a first priority perfected Lien, not subject to any other
Liens or claims of any kind; and
(3) The related Securitization Transaction is
satisfactory to the Bank, in its discretion; and
(4) No default or event of default exists under the
terms of the related Securitization Contract; and
(5) No offset, contra, defense, or claim exists against the
amounts due to the Borrower thereunder or under the related
Securitization Transaction and the rights of the Borrower thereunder or
under the related Securitization Transaction are not otherwise disputed;
and
(6) It otherwise complies with all requirements of this Agreement
for the inclusion of such Securitization Receivable in the Adjusted
Residual Loan Borrowing Base.
"Environmental Discharge" means any discharge or release of any
Hazardous Materials in violation of any applicable Environmental Law.
"Environmental Law" means any Law relating to pollution or the
environment, including, without limitation, Laws relating to noise or to
emissions, discharges, releases or threatened releases of Hazardous Materials
into the workplace, the community or the environment, or otherwise relating to
the generation, manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials.
"Environmental Notice" means any written communication from any Person
(1) affecting or relating to any Obligor's noncompliance with any Environmental
Law in connection with any activity or operations at any time conducted by such
Obligor, (2) relating to the occurrence or presence of or exposure to or
possible or threatened or alleged occurrence or presence of or exposure to
Environmental Discharges or Hazardous Materials at any of the locations or
facilities of any of the Obligors, including, without limitation (a) the
existence of any contamination or possible or threatened contamination at any
such location or facility and (b) remediation of any Environmental Discharge or
Hazardous Materials at any such location or facility or any part thereof, and
(3) any violation or alleged violation of any relevant Environmental Law.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time. including any rules and regulation promulgated
thereunder.
"ERISA Affiliate" means any corporation or trade or business which is a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Obligors or is under common control (within
the meaning of Section 414(c) of the Code) with the Obligors.
"Event of Default" has the meaning specified in Section 9.01.
"FHA" means the Federal Housing Administration and its successors.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"FNMA" means the Federal National Mortgage Association and its
successors.
"Foreclosure Loan" means a Mortgage Loan as to which the Parent or the
Borrower has commenced, and is diligently prosecuting, foreclosure proceedings
or such other judicial or non-judicial process or action so as to liquidate the
property securing the subject Mortgage Loan.
"GAAP" means principles that are (i) consistent with the principles
promulgated or adopted by the Financial Accounting Standards Board and its
predecessors, as in effect from time to time and (ii) consistently applied with
past financial statements of the Parent and its Subsidiaries adopting the same
principles; provided that in each case referred to in this definition of "GAAP"
a certified public accountant would, insofar as the use of such accounting
principles is pertinent, be in a position to deliver an unqualified opinion
(other than a qualification regarding changes in GAAP) as to financial
statements in which such principles have been properly applied.
"Good Faith Contest" means the contest of an item if, in the Bank's sole
determination: (1) the item is diligently contested in good faith by appropriate
proceedings timely instituted; (2) adequate reserves are established on the
books of the appropriate Person with respect to the contested item; (3) during
the period of such contest, the enforcement of any contested item is effectively
stayed and no Lien has arisen, been filed, or otherwise exists against any
assets of such Person on account of such item; and (4) the failure to pay or
comply with the contested item could not result in a Material Adverse Change.
"Governmental Approvals" means any authorization, consent, approval,
license, permit, certification, or exemption of, registration or filing with or
report or notice to, any Governmental Authority.
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"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guarantors" means, (i) as to the Parent's Obligations, the Borrower and
the Affiliated Guarantor, and (ii) as to the Borrower's Obligations, the Parent
and the Affiliated Guarantor.
"Hazardous Materials" means any pollutant, effluents, emissions,
contaminants, toxic or hazardous wastes or substances, as any of those terms are
defined from time to time in or for the purposes of any relevant Environmental
Law, including, without limitation, asbestos fibers and friable asbestos,
polychlorinated biphenyls, and any petroleum or hydrocarbon-based products or
derivatives.
"Initial Loan" means the Loans made by the Bank to the Parent and/or the
Borrower on the Closing Date.
"Interest Expense" means, as to any Person, for any period, the
aggregate amount of interest, fees, charges and expenses, however characterized,
payable during such period on its Debt, including, without limitation, all such
interest, fees, charges and expenses paid or accrued with respect to Debt under
the Loan Documents, all as determined in accordance with GAAP.
"Interest Rate" is defined in EXHIBIT 2.05.
"Law" means any federal, state or local statute, law, rule, regulation,
ordinance, order, code, policy or rule of common law, now or hereafter in
effect, and in each case as amended, and any judicial or official administrative
interpretation thereof by a Governmental Authority issued pursuant to statutory
authority, including any judicial or administrative order, consent decree or
judgment.
"Lender's Model Amount" means the amount calculated at the end of each
calendar quarter using the method of calculation of such amount reflected on the
Lender's Model Amount Certificate attached hereto as EXHIBIT 1.01(b). The Bank
shall have the right to calculate the Lender's Model Amount at any time. If the
result of the Bank's calculation of the Lender's Model Amount differs from the
result of the Borrower's calculation of the Lender's Model Amount, then the
Bank's result shall be the Lender's Model Amount. The Bank shall have the right,
in its discretion, but in the exercise of reasonable business judgment, at any
time and from time to time, to revise the method of calculation (including
prepayment, loss, and other assumptions) of the Lender's Model Amount.
"Lien" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority, or
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other security agreement or preferential arrangement, charge, or encumbrance of
any kind or nature whatsoever (including, without limitation, any conditional
sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction to evidence any of the foregoing).
"Loans" means, individually and collectively, the Residual Loans, the
Bridge Loans and the Warehouse Loans made or to be made by the Bank pursuant to
Sections 2.01, 2.02 and 2.03, respectively.
"Loan Documents" means this Agreement, the Notes, the UCC-1 financing
statements delivered in connection with this Agreement, and all other documents,
instruments and materials issued, executed and/or delivered by any of the
Obligors in connection with any of the foregoing, each as modified, amended,
supplemented or restated from time to time.
"Material Adverse Change" means (1) a material adverse change in the
status of the business, results of operations, condition (financial or
otherwise), property or prospects of any of the Obligors, (2) any event or
occurrence of whatever nature which could have a material adverse effect on any
of the Obligors' ability to perform their obligations under the Loan Documents
or (3) any material adverse change in the Collateral or any event or occurrence
of whatever nature which could have a material adverse effect or result in an
adverse change in the value, enforceability, collectability or the nature of the
Collateral.
"Mortgage" means a mortgage, deed of trust, security deed or similar
lien encumbering residential real property securing a Mortgage Loan.
"Mortgage Interest Rate" means the annual rate of interest accruing on a
Mortgage Note.
"Mortgage Loan" means a loan which is secured by a Mortgage.
"Mortgage Note" means the note or other evidence of indebtedness
evidencing the indebtedness of a mortgagor on a Mortgage Loan.
"Multiemployer Plan" means a Plan defined as such in Section 3(37) of
ERISA to which contributions have been made by the Obligors or any ERISA
Affiliate and which is covered by Title IV of ERISA.
"Net Income (or Loss)" means, as to any Person, for any period, the
Consolidated net income (or deficit) of such Person, after deduction of all
expenses, taxes, and other proper charges, and eliminating therefrom all
extraordinary nonrecurring items of income, all as determined in accordance with
GAAP.
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"Net Worth" means, as to any Person, the excess of (a) Total Assets over
(b) Total Liabilities, all as determined in accordance with GAAP.
"New Residual Loan Collateral" has the meaning specified in Section
2.01(b).
"Nonconforming Mortgage Loan" means a Mortgage Loan which does not meet
FHA, VA, FNMA or FHLMC underwriting standards but has been underwritten by the
Parent or the Borrower in accordance with the underwriting standards set forth
in EXHIBIT A annexed hereto.
"Notes" means collectively, the Residual Note, the Bridge Loan Note and
the Warehouse Note.
"Obligations" means each and every obligation, covenant and agreement of
any of the Obligors now or hereafter existing contained in this Agreement and
any of the other Loan Documents, whether for principal, interest, fees,
expenses, indemnities or otherwise, and any amendments or supplements thereto,
extensions or renewals thereof or replacements therefor, in each case whether
direct or indirect, joint or several, absolute or contingent, liquidated or
unliquidated, now or hereafter existing, renewed or restructured, whether or not
from time to time decreased or extinguished and later increased, created or
incurred, and including all indebtedness of the Obligors under any instrument
now or hereafter evidencing or securing any of the foregoing.
Obligors. means collectively, the Parent, the Borrower, and the
Affiliated Guarantor.
"Operating Account" means the account (Account No. __________)
maintained in the Borrower's name at the offices of the Bank, 100 Federal
Street, Boston, Massachusetts 02110.
"Outstanding Loans" means, as of the date of determination, the
aggregate principal amount of all outstanding Loans.
"Parent" is defined in the Preamble hereto.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Permitted Liens" has the meaning specified in Section 7.01.
"Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Plan" means any employee benefit or other plan established or
maintained, or to which contributions have been made, by any
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Obligor or any ERISA Affiliate and which is covered by Title IV of ERISA or to
which Section 412 of the Code applies.
"Prohibited Transaction" means any transaction set forth in Section 406
of ERISA or Section 4975 of the Code.
"Qualified Mortgage Collateral" means a Nonconforming Mortgage Loan
satisfying the following requirements:
A. The following documents have been delivered to the
Bank (or a custodian designated by the Bank):
(i) A data-processing print-out reflecting the Mortgage
Loan's loan number, mortgagor, date originated, original amount,
outstanding principal balance, interest rate, grade of loan, and
type of loan (according to loan codes provided by the Parent or
the Borrower to the Bank).
(ii) A Transmittal Letter that, among other things,
identifies the documents being delivered to the Bank.
(iii) The original Mortgage Note, properly payable (or
endorsed without restriction) to the order of the Parent or the
Borrower and endorsed in blank by the Parent or the Borrower, as
applicable.
(iv) A true and certified copy of the Mortgage
recorded in the jurisdiction in which the property is located.
(v) An executed assignment from the Parent or the
Borrower, as applicable, in recordable form of the Mortgage
securing the Mortgage Note. All prior and interim assignments of
the Mortgage shall have been duly recorded if, in the opinion of
the Bank, local requirements require recordation. If a recorded
assignment is required but not yet available, the Parent or the
Borrower, as applicable, shall instead deliver a copy of each
such assignment and either a certificate of an officer of the
Parent or the Borrower certifying that such copy is a true copy
and that such assignment has been duly recorded or delivered for
recordation or evidence of a recorder's receipt.
(vi) A mortgagee title insurance policy insuring that the
Mortgage is a valid first or second lien on the real estate and
being otherwise acceptable to the Bank in its discretion as to
insurer, form and content.
(vii) Any and all other files, documents,
instruments, certificates, correspondence, records or
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other Related Assets that are requested by or on behalf
of the Bank.
B. Such Mortgage Loan is a binding and valid obligation
of the obligor thereon, in full force and effect and
enforceable in accordance with its terms.
C. Such Mortgage Loan is free of any counterclaims,
offsets and defenses and from any rescission, cancellation or
avoidance, and all right thereof, whether by operation of law
or otherwise.
D. Such Mortgage Loan is in all respects as required by and in
accordance with all applicable state, federal and local laws and
regulations governing the same, 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 by the Parent or the
Borrower, as applicable, prior to the closing of the Mortgage Loan.
E. All advance payments and other deposits on such Mortgage Loan
have been paid in cash, and no part of such sums has been loaned,
directly or indirectly, by the Parent or the Borrower to the obligor
thereon.
F. At all times such Mortgage Loan will be owned by the Parent or
the Borrower free and clear of all liens, encumbrances, charges, rights
and interests of any kind, except pursuant to this Agreement, and the
Bank shall have a first priority perfected security interest in such
Mortgage Loan.
G. Such Mortgage Loan is genuine, in all respects as appearing on
its face or as represented in the books and records of the Parent or the
Borrower, and all information set forth therein is true and correct, and
the proceeds of such Mortgage Loan have been fully disbursed.
H. The property covered by such Mortgage Loan is insured against
loss or damage by fire and all other hazards normally included within
standard extended coverage in accordance with the provisions of such
Mortgage Loan with the Parent or the Borrower named as loss payee
thereon, and the Parent or the Borrower has furnished a letter of
certification to the Bank (to be renewed annually) indicating that fire
and hazard insurance will be held on behalf of the Bank for each
Mortgage Loan.
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I. The property covered by such Mortgage Loan is free and clear
of all liens except in favor of the Parent or the Borrower (which has
assigned any and all such liens to the Bank), and (A) the lien of
current real property taxes and assessments not yet due and payable; (B)
covenants, conditions and restrictions, rights of way, easements and
other matters of the public record, as of the date of recording,
acceptable to mortgage lending institutions generally and specifically
referred to in a lender's title insurance policy delivered to the Parent
or the Borrower and (x) referred to or otherwise considered in the
appraisal made for the Parent or the Borrower or (y) which do not
materially adversely affect the appraised value of such property as set
forth in such appraisal; (C) other matters to which like properties are
commonly subject which do not materially interfere with the benefits of
the security intended to be provided by such Mortgage Loan or the use,
enjoyment, value or marketability of the related property; and (D) a
first mortgage on the property on terms and conditions acceptable to the
Bank.
J. Such Mortgage Loan was originated or purchased by
the Parent, the Guarantor or the Borrower and is currently
held by the Borrower or the Parent.
K. There is no agreement with the mortgagor regarding any
variation of the interest rate and schedules of payment (except as
described in the Mortgage Note and Mortgage or as otherwise approved by
the Bank in its discretion) or other terms and conditions of the
Mortgage Loan, no mortgagor has been released from liability on the
Mortgage Note, and no property has been released from the Mortgage. If
the Mortgage Loan is a variable rate loan, the Parent or the Borrower,
as applicable, represents and warrants as of each Drawdown Date that all
applicable notices required by law or regulation have been provided to
the mortgagor and that the right to future changes in the interest rate
and payment schedules has not been waived by the Parent or the Borrower
or any previous holder of the Mortgage Loan.
L. The subject 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 subject property, and the
subject property is free and clear of all Hazardous Materials.
M. The Parent and the Borrower have no knowledge of any fact as
to any Mortgage Loan which they have failed to disclose which would
materially and adversely affect the value or marketability of such
Mortgage Loan.
N. The Parent and the Borrower have no knowledge of any
impediments to title that adversely affect the value,
enjoyment or marketability of the subject property.
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O. All taxes, filing fees and similar fees assessed by
any state or local authority in connection with the execution,
delivery or recording of the Mortgage have been paid.
P. For each Foreclosure Loan, an appraisal has been obtained by
the Parent or the Borrower as of a date which is no later than ninety
(90) days prior to the date of the Transmittal Letter and such appraisal
satisfies all appraisal requirements specified in 12 CFR 34.1 through
34.47 and requirements of other bank regulatory agencies.
Q. Each Mortgage Loan is either a Delinquent Loan or a
Foreclosure Loan.
R. Such Mortgage Loan is otherwise satisfactory to the
Bank.
"Related Assets" means any and all documents, instruments, collateral
agreements and assignments and endorsements for all documents, instruments and
collateral agreements, referred to in the Mortgage Notes and/or Mortgages or
related thereto, including, without limitation, current insurance policies
(flood insurance, if applicable; hazard insurance; title insurance and other
applicable insurance policies) covering the subject property or relating to the
Mortgage Notes and all files, books, papers, ledger cards, reports and records,
including, without limitation, loan applications, mortgagor financial
statements, credit reports and appraisals, relating to the Mortgage Loans. In
all cases, the Related Assets shall be the original documents.
"Reportable Event" has the meaning given to such term in SS.4043(b) of
ERISA and any regulations issued thereunder.
"Required Securitization Information" means with respect to any
Securitization Transaction the private placement memorandum or prospectus (which
shall include, without limitation, the pooling and servicing agreement and the
insurance and indemnity agreement and related documents), the Servicer Reports
to date, the original Book Value, the current Book Value and information
regarding loans funded through any pre-funding account.
"Residual Loans" means Loans made by the Bank to the Borrower pursuant
to Section 2.01(a) hereof.
"Residual Loan Borrowing Base Certificate" means a certificate in the
form of EXHIBIT 1.01(A) hereto, properly completed, executed and delivered to
the Bank pursuant to Section 6.08(17).
"Residual Loan Collateral" has the meaning specified in Section 3.01.
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"Residual Loan Collateral Account" means demand deposit account number
_______________ established by the Borrower with the Bank for collection of the
Cash Flow from the Residual Loan Collateral (other than cash flow from Servicing
Rights) and into which the Borrower has instructed all relevant parties to
deposit all Cash Flow from Residual Loan Collateral (other than cash flow from
Servicing Rights) and for the payment to Bank, by automatic debit, of interest,
fees and any other amounts payable from time to time hereunder.
"Residual Loan Maturity Date" means December 31, 2000.
"Residual Loan Request" has the meaning set forth in Section 2.01(c).
"Residual Loan Sublimit" means, as of each date of determination, (a)
the Commitment less (b) the aggregate outstanding amount of Bridge Loans and
Warehouse Loans.
"Residual Note" has the meaning set forth in Section 2.01(e).
"Residual Note Record" shall mean the schedule attached to the Residual
Note, or the continuation of such schedule, or any other similar record,
including computer records, maintained by the Bank with respect to any Residual
Loan referred to in the Residual Note.
"Securitization Transaction" means any transaction, however named,
between the Borrower and any one or more purchasers and/or investors which
provides for the monetization of a discrete pool of Mortgage Loans and/or
Mortgage Notes through debt securities or ownership interests issued by a
special purpose vehicle supported or backed by Mortgage Loans and/or Mortgage
Notes that have been transferred to the special purpose vehicle by the Borrower.
"Securitization Receivable" means all rights of the Borrower to receive
payments (including, without limitation, assets classified as residual strips,
certificates, or interest only strips on the Borrower's financial statements)
under a Securitization Transaction but excluding rights to receive payments in
respect of Servicing Fees.
"Servicer Report" means the monthly report prepared, executed and
delivered to the Borrower by the Trustee pursuant to the terms of a
Securitization Transaction.
"Servicer" means a Person who monitors the underlying Mortgage Loans
and/or Mortgage Notes of a Securitization Transaction, collects the cash flow of
such Mortgage Loans and Mortgage Notes and remits the cash flow to the Trustee
pursuant to the terms of the applicable Securitization Transaction.
"Servicing Fees" means all payments arising out of, related to, or
created in connection with a Person's duties and obligations
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as a Servicer pursuant to the terms of a Securitization Transaction.
"Servicing Rights" means all of any Borrower's rights to payment arising
out of, related to, or created in connection with its role as Servicer under any
of the Securitization Transactions or in connection with its performance of a
similar role with respect to any other transaction or arrangement.
"Subsidiary" means, as to any Person, a corporation of which shares of
stock having ordinary voting power (other than stock having such power only by
reason of the happening of a contingency) to elect a majority of the board of
directors or other managers of such corporation are at the time owned, or the
management of which is otherwise controlled, directly, or indirectly through one
or more intermediaries, or both, by such Person.
"Total Assets" means, as to any Person, all assets of such Person and
its Subsidiaries on a Consolidated basis that should in accordance with GAAP, be
classified as assets on the balance sheet of such Person and its Subsidiaries.
"Total Liabilities" means, as to any Person, all liabilities of such
Person on a Consolidated basis that should in accordance with GAAP, be
classified as liabilities on the balance sheet of such Person and its
Subsidiaries.
"Transmittal Letter" means a letter from the Borrower to the Bank
substantially in the form of EXHIBIT 1.01(e) hereto.
"Trigger" has the meaning set forth in Section 2.01(d)(iv).
"Trustee" means the trustee under the trust established for the benefit
of the purchasers under a Securitization Transaction.
"Type" has the meaning set forth in EXHIBIT 2.05 hereto.
"UCC" or "Uniform Commercial Code" means the Uniform Commercial Code as
in effect in Massachusetts.
"VA" means the Veterans Administration and its successors.
"Warehouse Facility" means those certain credit and financing facilities
obtained by the Parent, the Guarantor and the Borrower from time to time to fund
the acquisition and origination of Mortgage Loans, as same are amended,
modified, supplemented and in effect from time to time.
"Warehouse Collateral" means all property, and all proceeds thereof,
from time to time subject to the security interests created hereby securing the
Warehouse Loans made to the Parent and the Borrower hereunder, including,
without limitation, the following:
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(a) All Mortgage Loans, Mortgage Notes, Mortgages and other
Warehouse Collateral Documents, including Qualified Mortgage Collateral,
deposited with or possessed by or for the account of the Bank hereunder,
or held for delivery by a third party to the Bank hereunder, or
delivered by the Bank to the Parent, the Borrower or a purchaser for
purposes of correction or sale, and all proceeds thereof;
(b) All payments and prepayments of principal, interest and other
income due or to become due on all Mortgage Loans, and all proceeds
therefrom, and the benefits and proceeds and all the right, title and
interest of every nature whatsoever of the Parent or the Borrower in and
to such property including, without limitation, the following:
(i) All rights, liens and security interests
existing with respect to, or as security for, all
Mortgage Loans;
(ii) All hazard insurance policies, title insurance
policies and condemnation proceeds with respect to any Mortgage
Notes and with respect to property securing any Mortgage Loans;
(iii) All private mortgage insurance and all commitments
issued by the FHA or VA to insure or guarantee any Mortgage Loans
included in the pledged Mortgage Loans; and
(iv) All prepayment premiums and late payment
charges;
(c) All right, title and interest of the Parent or the
Borrower in and to all documents, instruments, files, surveys,
certificates, correspondence, appraisals, computer programs, tapes,
discs, cards, accounting records (including all information, records,
tapes, data, programs, discs and cards necessary or helpful in the
administration or servicing of the foregoing Warehouse Collateral) and
other information and data of the Parent or the Borrower relating to the
foregoing Warehouse Collateral;
(d) The Operating Account;
(e) All Closing Protection Rights;
(f) All other Related Assets;
(g) All now existing or hereafter acquired cash delivered to or
otherwise in the possession of the Parent, the Borrower or their agents,
bailees or custodians or designated on the books and records of the
Parent or the Borrower as assigned and pledged to the Parent or the
Borrower;
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(h) Any and all instruments, documents and other property of
every kind or description, of or in the name of the Parent or the
Borrower, now or hereafter for any reason or purpose whatsoever, in the
possession or control of, or in transit to, the Bank;
(i) Any and all general intangibles of every description
(including, without limitation, any and all hedge contracts) which in
any way related to any Warehouse Collateral;
(j) All cash and non-cash proceeds of the foregoing Warehouse
Collateral, including all dividends, distributions and other rights in
connection with, and all additions to, modifications of and replacements
for, the foregoing Warehouse Collateral, and all products and proceeds
of the foregoing Warehouse Collateral, together with whatever is
receivable or received when the foregoing Warehouse Collateral or
proceeds thereof are sold, collected, exchanged or otherwise disposed
of, whether such disposition is voluntary or involuntary, including,
without limitation, all rights to payment with respect to any cause of
action affecting or relating to the foregoing Warehouse Collateral or
proceeds thereof.
"Warehouse Collateral Documents" means those documents required to be
delivered to the Bank in order for Mortgage Loans to be deemed Qualified
Mortgage Collateral.
"Warehouse Collateral Value" means, with respect to Qualified Mortgage
Collateral, an amount equal to the aggregate of the following:
(1) eighty five percent (85%) of the aggregate unpaid principal balance
of all Delinquent Loans which are Qualified Mortgage Collateral,
Plus
(2) eighty five percent (85%) of the lesser of (A) or (B) below for each
Foreclosure Loan which is Qualified Mortgage Collateral:
(A) seventy percent (70%) of the appraised value of the
collateral for the Foreclosure Loan being foreclosed or otherwise
liquidated, or
(B) the unpaid principal balance of such Foreclosure Loan.
"Warehouse Loan" is defined is Section 2.03(a).
"Warehouse Loan Borrowing Base" means the aggregate Warehouse Collateral
Value of such Qualified Mortgage Collateral as shall have been accepted for
inclusion in the Warehouse Loan Borrowing
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Base; provided, however, that, for purposes of determining the Warehouse Loan
Borrowing Base, (a) any Mortgage Loan which ceases to be Qualified Mortgage
Collateral shall have a Warehouse Collateral Value of zero, and (b) no Mortgage
Loan shall constitute Qualified Mortgage Collateral for a period in excess of
one hundred and eighty (180) days. The Parent and/or the Borrower may, from time
to time, transmit to the Bank Warehouse Collateral Documents together with a
Transmittal Letter, in duplicate, in the form of EXHIBIT 1.01(e) hereto. If the
Bank, in its discretion, determines that such Warehouse Collateral Documents and
the related Mortgage Loans meet the requirements of this Agreement and that such
Mortgage Loans are Qualified Mortgage Collateral, the Warehouse Collateral Value
of such Qualified Mortgage Collateral shall be included in the Warehouse Loan
Borrowing Base, until such time as such Qualified Mortgage Collateral ceases to
be such. In addition, the Bank reserves the right, in its sole discretion, at
any time, to exclude Mortgage Loans from the Warehouse Borrowing Base, whether
or not the Warehouse Collateral Documents have been delivered and whether or not
such Mortgage Loans otherwise constitute Qualified Mortgage Collateral.
"Warehouse Loan Borrowing Base Certificate" means a certificate in the
form of EXHIBIT 1.01(d) hereto, properly completed, executed and delivered to
the Bank.
"Warehouse Loan Maturity Date" means June 30, 1998.
"Warehouse Loan Request" has the meaning set forth in Section 2.03(b).
"Warehouse Loan Sublimit" means, as of each date of determination, the
lesser of (a) Five Million Dollars ($5,000,000.00) or (b) (i) the Commitment
less (ii) the aggregate outstanding amount of Bridge Loans and Residual Loans.
"Warehouse Note Record" shall mean the schedule attached to the
Warehouse Note, or the continuation of such schedule, or any other similar
record, including computer records, maintained by the Bank with respect to any
Warehouse Loan referred to in the Warehouse Note.
Section 1.02. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, and all financial
data required to be delivered hereunder shall be prepared in accordance with
GAAP, consistently applied.
Section 1.03. Computation of Time Periods. Except as otherwise provided
in this Agreement, in the computation of periods of time from a specified date
to a later specified date, the word "from" means "from and including" and words
"to" and "until" each means "to but excluding".
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Section 1.04. Rules of Construction. When used in this Agreement: (1) a
reference to time shall be the time in Boston, Massachusetts; (2) a reference to
an agreement, instrument or document shall include such agreement, instrument or
document as the same may be amended, modified or supplemented from time to time
in accordance with its terms and as permitted by the Loan Documents; (3) a
reference to a day shall be a calendar day unless Business Day is specified.
ARTICLE II THE LOANS
SUBPART A - THE LOANS.
Section 2.01. Residual Loans.
(a) Residual Loans. Subject to the terms and conditions of this
Agreement, the Bank agrees to lend to the Borrower, and the Borrower may borrow,
on or prior to December 31, 1997, upon notice given in accordance with Section
2.01(c), such sums as are requested by the Borrower (each, a "RESIDUAL LOAN"),
provided that (i) the outstanding amount of the Residual Loans (after giving
effect to all amounts requested pursuant hereto) shall not at any time exceed
the lesser of (x) the Adjusted Residual Borrowing Base Amount and (y) the
Residual Loan Sublimit and (ii) each Residual Loan requested shall not exceed
the Additional Residual Loan Borrowing Base Amount. Each request for a Residual
Loan hereunder shall constitute a representation and warranty by the Borrowers
that the conditions set forth in Sections 4.01 and 4.02, in the case of the
Initial Loan, and Section 4.02 in the case of all other Loans, have been
satisfied on the date of such request.
(b) Proposal for Residual Loans. From time to time, but not more often
then once each calendar quarter, the Borrowers may deliver to the Bank a written
proposal in the form of EXHIBIT 2.01(b) hereto (each, an "ADDITIONAL RESIDUAL
LOAN PROPOSAL") specifying the additional collateral proposed to be furnished
the Bank for Residual Loans (the "NEW RESIDUAL LOAN COLLATERAL"). No Additional
Residual Loan Proposal may be submitted by the Borrower to the Bank unless the
Additional Residual Loan Borrowing Base Amount resulting from the inclusion of
the New Residual Loan Collateral is at least $2,500,000. Each such Additional
Residual Loan Proposal shall be accompanied by the Required Securitization
Information. Within fourteen (14) Business Days after receipt of an Additional
Residual Loan Proposal, the Bank shall determine the Additional Residual Loan
Borrowing Base Amount and prepare a proposed revised Amortization Schedule (in
accordance with the methodology used by the Bank in preparing the existing
Amortization Schedule) and forward the same to the Borrower.
(c) Residual Loan Request. Within five (5) Business Days after the
receipt by the Borrower of the Additional Residual Loan Borrowing Base Amount
and the revised Amortization Schedule with respect to any Additional Residual
Loan Proposal, and subject to
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the provisions of EXHIBIT 2.05, the Borrower may give to the Bank written notice
in the form of EXHIBIT 2.01(c) hereto (or telephonic notice confirmed in a
writing in the form of EXHIBIT 2.01(c) hereto) of a request for a Residual Loan
hereunder (a "RESIDUAL LOAN REQUEST") which request shall be received not later
than 11:00 a.m. (Boston time) on the Business Day prior to the proposed Drawdown
Date of any Residual Loan. Each such request shall specify (A) the principal
amount of the Residual Loan requested (each of which Residual Loan Request shall
be in a minimum amount of $2,500,000), (B) the proposed Drawdown Date of such
Residual Loan. The Bank shall not be obligated to make Residual Loans more often
than once in each calendar quarter. Each Residual Loan Request shall be
irrevocable and binding on the Borrower and shall obligate the Borrower to
accept the Residual Loan requested from the Bank on the Drawdown Date. On the
Drawdown Date of each such Residual Loan, the revised Amortization Schedule
prepared by the Bank shall be substituted for the existing Amortization
Schedule. In the event that the Borrower does not request the Bank to make a
Residual Loan during the aforesaid five (5) Business Day period, the Borrower
shall be deemed to have waived any right, and shall not be entitled, to request
a Residual Loan based upon the subject Additional Residual Loan Proposal
submitted to the Bank.
(d) Repayment of Residual Loans. (i) The Borrower shall pay to the Bank
the principal balance of the Residual Loans in thirty-six (36) consecutive
monthly installments, such installments to be due and payable on the last day of
each calendar month commencing as of the last day of the next proceeding month
from the Drawdown Date thereof. The monthly installments prior to the Residual
Loan Maturity Date shall each be in the amounts set forth on EXHIBIT 2.01(d)
attached hereto (as the same may be replaced from time to time pursuant to
Section 2.01(b), the "AMORTIZATION SCHEDULE") to be agreed to between the
Borrower and the Bank based on the anticipated cash flow to the Borrower under
each Securitization Transaction. In any event, on the Residual Loan Maturity
Date, the Borrower shall pay in full the outstanding Residual Loans, plus all
accrued, unpaid interest thereon and any other amounts due hereunder or the
other Loan Documents with respect thereto.
(ii) In addition to the amounts otherwise required to be paid
under this Section 2.01(d), in the event that the outstanding principal balance
of all Residual Loans at any time exceeds the lesser of (x) the Adjusted
Residual Borrowing Base Amount and (y) the Residual Loan Sublimit, or in the
event that any Residual Loan exceeds the Additional Residual Loan Borrowing Base
Amount for such Loan, the Borrower shall immediately make a prepayment on the
outstanding Residual Loans in an amount necessary to eliminate such excess.
(iii) In addition to the amounts otherwise required to be paid
under this Section 2.01(d), if any regularly scheduled payments to the Borrower
under or with respect to any of the Residual Loan Collateral, including, without
limitation, under any
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Securitization Transaction, are accelerated or otherwise paid in advance, for
any reason, the Borrower shall notify the Bank immediately of such receipt and
shall remit to the Bank as a prepayment of the Residual Loans, not later than
two (2) Business Days after the receipt thereof, the full amount of such
accelerated payments.
(iv) In addition to the amounts otherwise required to be paid
under this Section 2.01(d), if with respect to any Securitization Transaction,
(i) the Annualized Prepayment Rate exceeds thirty-five percent (35%) for a
period of three (3) consecutive months or (ii) the Annualized Net Loss Rate
exceeds one-half of one percent (1/2%) for any six (6) consecutive month period
with respect to any Securitization Transaction (each such event, a "TRIGGER"),
then from such time and at all times thereafter whether or not such Trigger is
continuing, (a) the Bank's Commitment to make Residual Loans hereunder shall be
terminated, and (b) all Cash Flow from Residual Loan Collateral shall be
applied, first, to pay interest which is due with respect to the Residual Loans,
second, to pay principal on the Residual Loans which is due or becomes due, and
third, to prepay the scheduled installments due on the Residual Loans in the
inverse order of maturity. The calculations required by clauses (i) and (ii)
above shall be made by the Borrower within forty-five (45) days of the end of
each quarter and shall be included in the next Residual Loan Borrowing Base
Certificate delivered to Bank but the Bank reserves the right to calculate the
Triggers more frequently in its discretion.
(v) All amounts prepaid pursuant to clauses (ii) through and
including (iv) hereof shall be applied to the Residual Loans in inverse order of
maturity and shall not postpone the due date, or reduce the amount, of any
subsequent installments due hereunder. No amounts so prepaid may be reborrowed.
(e) Residual Loan Note. The Residual Loans shall be evidenced by a
promissory note of the Borrower in substantially the form of EXHIBIT 2.01(e)
attached hereto (the "RESIDUAL NOTE"), dated as of the Closing Date and
completed with appropriate insertions. The Residual Note shall be payable to the
order of the Bank in a principal amount equal to the Commitment. The Borrower
irrevocably authorizes the Bank to make or cause to be made, at or about the
time of the Drawdown Date of any Residual Loan or at the time of receipt of any
payment of principal on the Residual Note, an appropriate notation on the
Residual Note Record reflecting the making of such Residual Loan or (as the case
may be) the receipt of such payment. The outstanding amount of the Residual
Loans set forth on the Residual Note Record shall be prima facie evidence of the
principal amount thereof owing and unpaid to the Bank, but the failure to
record, or any error in so recording, any such amount on the Residual Note
Record shall not limit or otherwise affect the obligations of the Borrower
hereunder or under
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the Residual Note to make payments of principal of or interest on the Residual
Note when due.
Section 2.02. Bridge Loans.
(a) Bridge Loans. Subject to the terms and conditions of this Agreement,
the Bank agrees to lend to the Parent, and the Parent may borrow, on or prior to
December 31, 1997, upon notice given in accordance with Section 2.02(b), such
sums as are requested by the Parent (each, a "BRIDGE LOAN") provided that (i)
the outstanding amount of the Bridge Loans (after giving effect to all amounts
requested pursuant hereto) shall not at any time exceed the lesser of (x) the
Bridge Loan Borrowing Base Amount and (y) the Bridge Loan Sublimit. Each request
for a Bridge Loan hereunder shall constitute a representation and warranty by
the Parent that the conditions set forth in Sections 4.01 and 4.02, in the case
of the Initial Loans, and Section 4.02 in the case of all other Bridge Loans,
have been satisfied on the date of such request.
(b) Requests for Bridge Loans. The Parent shall give to the Bank written
notice in the form of EXHIBIT 2.02(b) hereto (or telephonic notice confirmed in
writing in the form of EXHIBIT 2.02(b) hereto) of a request for a Bridge Loan (a
"BRIDGE LOAN REQUEST") by 11:00 a.m. (Boston time) on the Business Day prior to
the proposed Drawdown Date of any Bridge Loan. Each such request shall specify
(A) the principal amount of the Bridge Loan requested, (B) the proposed Drawdown
Date of such Bridge Loan, and (C) if an acquisition is intended, a description
of the acquisition to be undertaken by the Parent with the proceeds of the
subject Bridge Loan. The Bridge Loan Request shall also include copies of the
purchase and sale agreement and any other documentation relevant to the
acquisition being funded with the proceeds of the Bridge Loan. Each Bridge Loan
Request shall be irrevocable and binding on the Parent and shall obligate the
Parent to accept the Bridge Loan requested from the Bank on the Drawdown Date.
No Bridge Loan may be utilized to cure a default or an event of default or to
prevent the occurrence of any imminent or anticipated default or event of
default under any other financing arrangement of the Obligors.
(c) Repayment of Bridge Loans. (i) Subject to the following sentence,
the Parent shall pay to the Bank the full principal balance of each Bridge Loan
within 180 days of the date on which the subject Bridge Loan is made. In any
event, unless sooner paid, on the Bridge Loan Maturity Date, the Parent shall
pay the entire outstanding balance of all Bridge Loans, together with all
accrued and unpaid interest thereon and any other amounts due hereunder or the
other Loan Documents with respect thereto.
(ii) In addition to the amounts otherwise required to be paid
under this Section 2.02(c), in the event that the outstanding principal balance
of all Bridge Loans at any time exceeds the lesser of (x) the Bridge Loan
Borrowing Base Amount and (y) the
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Bridge Loan Sublimit, the Parent shall immediately make a prepayment on the
outstanding Bridge Loans in an amount necessary to eliminate such excess.
(d) Bridge Loan Note. The Bridge Loans shall be evidenced by a
promissory note of the Parent in substantially the form of EXHIBIT 2.02(d)
attached hereto (the "BRIDGE LOAN NOTE"), dated as of the Closing Date and
completed with appropriate insertions. The Parent irrevocably authorizes the
Bank to make or cause to be made, at or about the time of the Drawdown Date of
any Bridge Loan or at the time of receipt of any payment of principal on the
Bridge Loan Note, an appropriate notation on the Bridge Note Record reflecting
the making of such Bridge Loan or (as the case may be) the receipt of such
payment. The outstanding amount of the Bridge Loans set forth on the Bridge Note
Record shall be prima facie evidence of the principal amount thereof owing and
unpaid to the Bank, but the failure to record, or any error in so recording, any
such amount on the Bridge Note Record shall not limit or otherwise affect the
obligations of the Parent hereunder or under the Bridge Loan Note to make
payments of principal of or interest on the Bridge Loan Note when due.
Section 2.03. Warehouse Loans.
(a) Warehouse Loans. Subject to the terms and conditions of this
Agreement, the Bank agrees to lend to the Parent and/or the Borrower and the
Parent and/or the Borrower may borrow, on or prior to December 31, 1997, upon
notice given in accordance with Section 2.03(b), such sums as are requested by
the Parent or the Borrower (each, a "WAREHOUSE LOAN") provided that (i) the
outstanding amount of the Warehouse Loans (after giving effect to all amounts
requested pursuant hereto) shall not at any time exceed the lesser of (x) the
Warehouse Loan Borrowing Base and (y) the Warehouse Loan Sublimit. Each request
for a Warehouse Loan hereunder shall constitute a representation and warranty by
the Parent and the Borrower that the conditions set forth in Sections 4.01 and
4.02, in the case of the Initial Loan, and Section 4.02 in the case of all other
Warehouse Loans, have been satisfied on the date of such request.
(b) Requests for Warehouse Loans. The Parent and the Borrower shall give
to the Bank written notice in the form of EXHIBIT 2.03(b) hereto (or telephonic
notice confirmed in writing in the form of EXHIBIT 2.03(b) hereto) of a request
for a Warehouse Loan (a "WAREHOUSE LOAN REQUEST") by 11:00 a.m. (Boston time) on
the Business Day prior to the proposed Drawdown Date of any Warehouse Loan (or
such other notice as may be otherwise required pursuant to the provisions of
EXHIBIT 2.05). Each such request shall (A) specify (i) the principal amount of
the Warehouse Loan requested, and (ii) the proposed Drawdown Date of such
Warehouse Loan, (B) be accompanied by the delivery to the Bank or its custodian
of a related Transmittal Letter to the extent additional Qualified Mortgage
Collateral is to be added to the Warehouse Loan
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Borrowing Base and an updated Warehouse Loan Borrowing Base Certificate (in the
form of EXHIBIT 1.01(d), and (C) be accompanied by the simultaneous delivery to
the Bank or its custodian all of the Warehouse Collateral Documents required to
be delivered in order for the related Mortgage Loans to be Qualified Mortgage
Collateral. Each Warehouse Loan Request shall be irrevocable and binding on the
Parent and the Borrower and shall obligate the Parent or the Borrower to accept
the Warehouse Loan requested from the Bank on the Drawdown Date.
(c) Repayment of Warehouse Loans. (i) Unless sooner paid, the Parent and
the Borrower, jointly and severally, shall pay to the Bank the outstanding
balance of Warehouse Loans on the Warehouse Loan Maturity Date, together with
all accrued and unpaid interest thereon and any other amounts due hereunder or
the other Loan Documents with respect thereto.
(ii) In addition to the amounts otherwise required to be paid
under this Section 2.03(c), in the event that the outstanding principal balance
of all Warehouse Loans at any time exceeds the lesser of (x) the Warehouse Loan
Borrowing Base and (y) the Warehouse Loan Sublimit, the Parent and the Borrower,
jointly and severally, shall immediately make a prepayment on the outstanding
Warehouse Loans in an amount necessary to eliminate such excess.
(iii) In addition to the amounts otherwise required to be paid
under this Section 2.03(c) and in accordance with the provisions of Section
6.14, if any payments are received by the Parent or the Borrower under or with
respect to any of the Warehouse Collateral, for any reason, the Parent and the
Borrower shall notify the Bank immediately of such receipt and shall remit to
the Bank as a prepayment of the Warehouse Loans, not later than two Business
Days after the receipt thereof, the full amount of such payments.
(d) Warehouse Loan Note. The Warehouse Loans shall be evidenced by a
promissory note of the Parent and the Borrower in substantially the form of
EXHIBIT 2.03(d) attached hereto (the "WAREHOUSE LOAN NOTE"), dated as of the
Closing Date and completed with appropriate insertions. The Parent and the
Borrower each irrevocably authorizes the Bank to make or cause to be made, at or
about the time of the Drawdown Date of any Warehouse Loan or at the time of
receipt of any payment of principal on the Warehouse Loan Note, an appropriate
notation on the Warehouse Note Record reflecting the making of such Warehouse
Loan or (as the case may be) the receipt of such payment. The outstanding amount
of the Warehouse Loans set forth on the Warehouse Note Record shall be prima
facie evidence of the principal amount thereof owing and unpaid to the Bank, but
the failure to record, or any error in so recording, any such amount on the
Warehouse Note Record shall not limit or otherwise affect the obligations of the
Parent or the Borrower hereunder or under the Warehouse Loan Note to make
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payments of principal of or interest on the Warehouse Loan Note when
due.
SUBPART B - GENERAL PROVISIONS APPLICABLE TO ALL LOANS
Section 2.04. Reduction of Commitment. The Parent shall have the right
at any time and from time to time upon five (5) Business Days prior written
notice to the Bank to reduce by $1,000,000 or an integral multiple thereof or
terminate entirely the unborrowed portion of the Commitment, whereupon the
Commitment of the Bank shall be reduced to the amount specified in such notice
or, as the case may be, terminated. No reduction or termination of the
Commitment may be reinstated.
Section 2.05. Interest. (a) The Loans shall bear interest at the
interest rates, and such interest shall be payable, as set forth in EXHIBIT
2.05. The Parent and the Borrower shall have such rights as are set forth in
EXHIBIT 2.05 to select and, as applicable, Convert Loans from one Type of Loan
to another Type of Loan.
(b) Without limiting the foregoing, the Borrower shall make
payment of interest and other amounts under this Agreement in connection with
Residual Loans by means of the Bank's direct charge to the Residual Loan
Collateral Account. The Borrower hereby authorizes the Bank to make such charges
from the Residual Loan Collateral Account and in the event there are
insufficient funds in the Residual Loan Collateral Account at the time the Bank
attempts to make the charge, the Bank may charge from time to time against any
account the Borrower maintain with the Bank the amount so due. Nothing contained
in this Section shall relieve the Borrower of its obligation to pay all amounts
owing hereunder when due.
(c) The Parent and the Borrower each hereby authorizes the Bank
to charge from time to time any account the Parent or the Borrower maintains
with the Bank for any amount due under this Agreement and the other Loan
Documents. Nothing contained in this Section shall relieve the Parent or the
Borrower of their respective obligations to pay all amounts owing hereunder when
due.
Section 2.06. Default Interest. Upon the occurrence of an Event of
Default, at the Lender's option, the Loans and all other amounts payable
hereunder or under any of the other Loan Documents shall bear interest,
compounded daily, payable on demand at the Default Rate until such amount shall
be paid in full (after as well as before judgment).
Section 2.07. Mandatory Prepayments. To the extent that the outstanding
Loans at any time exceeds the then effective Commitment, the Parent and the
Borrower, jointly and severally, shall immediately make a prepayment on the
outstanding Loans in an amount equal to the excess of such outstanding Loans
over the then effective Commitment. Such prepayment shall be applied by the Bank
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to such of the Loans as the Bank, in its discretion, shall determine. All
amounts so prepaid shall be applied to the Loans in inverse order of maturity
and shall not postpone the due date, or reduce the amount, of any subsequent
installments due hereunder. No amounts so prepaid may be reborrowed.
Section 2.08. Optional Prepayment. Subject to the terms and conditions
set forth in EXHIBIT 2.05, the Parent and the Borrower may prepay Loans in whole
or in part at any time and from time to time without premium or penalty, upon
giving one Business Day's notice to the Bank, provided that each partial payment
shall be in the principal amount of $1,000,000 or an integral multiple thereof.
Any prepayment of principal of the Loans shall include all interest fees accrued
to the date of prepayment and shall be applied against the scheduled
installments of principal due on the Loans in the inverse order of maturity. No
Residual Loans prepaid may be reborrowed; Bridge Loans and/or Warehouse Loans
repaid or prepaid may be reborrowed subject to the requirements set forth in
this Agreement.
Section 2.09. Reliance Upon Instructions. Without limiting the coverage
of any other indemnities provided in this Agreement, the Obligors hereby jointly
and severally indemnify and agree to hold harmless the Bank, and its respective
officers, employees and agents from and against any and all liabilities,
damages, losses, costs and expenses, including counsel fees, howsoever arising
out of any actions taken in reliance upon telephonic, telecopier or other
instructions believed in good faith to have been given under this Agreement on
any of the Obligors' behalf by a Person designated by any of the Obligors.
Section 2.10. Minimum Balance. The Obligors shall, on an annual basis,
use their best efforts to maintain outstanding Loans with an average principal
balance of at least $10,000,000.00. In the event the Obligors do not maintain
the balances required hereunder, the Obligors shall pay the Bank a fee equal to
the product of (a) $150,000.00 multiplied by (b) (i)the difference between
$10,000,000.00 less the average outstanding balance of the Loans during such
year, divided by (ii) $10,000,000.00, which fee shall be due and payable within
five days of presentation by the Bank to the Obligors of a statement detailing
the amount due.
ARTICLE III COLLATERAL.
Section 3.01. Grant of Security Interest - Residual Loan Collateral. (a)
In order to secure the payment and performance in full of the Residual Loans,
the Borrower hereby grants to the Bank a security interest in and pledges and
assigns to the Bank the following properties, assets and rights of the Borrower,
wherever located, whether now owned or hereafter acquired or arising, and all
proceeds and products thereof (all of the same being hereafter called the
"RESIDUAL LOAN COLLATERAL"):
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(1) All of the Borrower's rights to payment of money
arising out of, related to, or created in connection with (whether such
rights are classified under the applicable Uniform Commercial Code as
general intangibles, accounts, certificated securities, uncertificated
securities or otherwise): (a) all Securitization Receivables and any
other interest of the Borrower in the Securitization Transactions (other
than cash paid to or for the account of the Borrower in respect of the
transfer by the Borrower of Mortgage Loans to the Trustee in respect of
a Securitization Transaction) and similar rights or interests of the
Borrower (b) all payments to be paid to the Borrower pursuant to such
Securitization Transactions (other than cash paid to or for the account
of the Borrower in respect of the transfer by the Borrower of Mortgage
Loans to the Trustee in respect of a Securitization Transaction) and (c)
all Servicing Rights and any similar rights or interests of the Borrower
in respect of any of the foregoing (a) through (c).
(2) All business records, computer tapes, software,
microfiche, or recorded data of any kind or nature, regardless of the
medium, necessary to identify, locate and collect the Residual Loan
Collateral;
(3) All cash from time to time deposited in any deposit
account of any of the Borrower with the Bank in connection with this
Agreement, including, without limitation, the Residual Loan Collateral
Account.
(b) The Borrower acknowledges and agrees that, in applying the
law of any jurisdiction that has now enacted or hereafter enacts all or
substantially all of the uniform revision of Article 8 of the Uniform Commercial
Code, with new provisions added to Article 9 contemplated by such revision, all
as approved in 1994 by the American Law Institute and the National Conference of
Commissioners on Uniform State Laws, the foregoing description of Residual Loan
Collateral shall be deemed to include "investment property", as applicable, as
defined in such new provisions of Article 9, it being the intention of the
Borrower that such property be included in the foregoing description of Residual
Loan Collateral, whether prior to or after the effectiveness of such revision in
such jurisdiction.
Section 3.02. Delivery of Instruments. Pursuant to the terms hereof, the
Borrower has endorsed, assigned and delivered to the Bank all negotiable or
non-negotiable instruments (including certificated securities but excluding
checks and drafts received in the ordinary course of business consistent with
past practices) and chattel paper pledged by it hereunder, together with
instruments of transfer or assignment duly executed in blank as the Bank may
have specified. Upon the request of the Bank, the Borrower shall immediately
deliver such securities and notes not already delivered to the Bank. In the
event that the Borrower shall, after the date
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of this Agreement, acquire any other negotiable or non-negotiable instruments
(including certificated securities but excluding checks and drafts received in
the ordinary course of business consistent with past practices) or chattel paper
to be pledged by it hereunder, the Borrower shall forthwith endorse, assign and
deliver the same to the Bank, accompanied by such instruments of transfer or
assignment duly executed in blank as the Bank may from time to time specify. To
the extent that any securities are uncertificated, appropriate book-entry
transfers reflecting the pledge of such securities created hereby have been or,
in the case of uncertificated securities hereafter acquired by the Borrower,
will at the time of such acquisition be, duly made for the account of the Bank
or one or more nominees of the Bank with the issuer of such securities or other
appropriate book-entry facility or financial intermediary, with the Bank having
at all times the right to obtain definitive certificates (in the Bank's name or
in the name of one or more nominees of the Bank) where the issuer customarily or
otherwise issues certificates, all to be held as Residual Loan Collateral
hereunder. The Borrower hereby acknowledges that the Bank may, in its
discretion, appoint one or more financial institutions to act as the Bank's
agent in holding in custodial account instruments or other financial assets in
which the Bank is granted a security interest hereunder, including, without
limitation, certificates of deposit and other instruments evidencing short term
obligations.
Section 3.03. Grant of Security Interest - Warehouse Collateral. To
secure the repayment of the Warehouse Loans, the Parent and the Borrower each
hereby grant to the Bank a security interest in the Warehouse Collateral.
Section 3.04. Security for Bridge Loans. To secure the repayment of the
Bridge Loans, upon the making of any Bridge Loan, the Parent and the Borrower
shall pledge to the Bank and grant the Bank a security interest in all
securitization receivables other than those which constitute Residual Loan
Collateral pursuant to the provisions of Section 3.01 hereof, but only to the
extent that such pledge does not violate any Law or contractual obligation of
the Parent or the Borrower. The Parent and/or the Borrower shall take all
reasonable action requested by the Bank to accomplish such pledge and grant of a
security interest.
Section 3.05. Uniform Commercial Code Financing Statements. The Bank is
hereby authorized to file in the name of each Obligor, without the need for such
Obligor's signature thereto, such Uniform Commercial Code financing statements,
amendments thereto and continuations thereof which the Bank at any time
determines is necessary to perfect or better assure the Lien and other benefits
intended to be afforded hereby. A carbon, photographic or other reproduction of
this Agreement or any financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement where permitted by law.
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ARTICLE IV CONDITIONS PRECEDENT
Section 4.01. Conditions Precedent to Initial Loan. The obligation of
the Bank to make the Initial Loan is subject to the condition precedent that the
Bank shall have received on or before the Closing Date each of the following
documents, in form and substance satisfactory to the Bank and its counsel, and
each of the following requirements shall have been fulfilled:
(1) Evidence of Due Organization of and all Corporate Actions by
each Obligor. A certificate of the Secretary or Assistant Secretary of
each Obligor, dated the Closing Date, attesting to the certificate of
incorporation and by-laws of each Obligor and all amendments thereto,
and to all corporate actions taken by each Obligor, including, without
limitation, resolutions of its board of directors, authorizing the
execution, delivery and performance of the Loan Documents, and each
other document to be delivered by such Obligor pursuant to the Loan
Documents;
(2) Incumbency and Signature Certificate of each Obligor. A
certificate of the Secretary or Assistant Secretary of each Obligor,
dated the Closing Date, certifying the names and true signatures of the
officers of such Obligor authorized to sign the Loan Documents, and the
other documents to be delivered by such Obligor under the Loan
Documents;
(3) Good Standing Certificates for each Obligor. A certificate,
dated reasonably near the Closing Date, from the Secretary of State (or
other appropriate official) of the jurisdiction of incorporation of each
Obligor certifying as to the due incorporation and good standing of such
Obligor and certificates, dated within one month of the Closing Date,
from the Secretary of State (or other appropriate official) of each
other jurisdiction where each Obligor is required to be qualified to
conduct business or where such qualification is necessary to enforce any
rights with respect to any Securitization Transaction, certifying that
such Obligor is duly qualified to do such business and is in good
standing in such state;
(4) Notes. The Notes duly executed by the Parent and
the Borrower, as applicable;
(5) Financing Statements, Etc. (a) Duly executed financing
statements (UCC-1) to be filed under the Uniform Commercial Code for all
jurisdictions (and such other instruments and documents) necessary or,
in the opinion of the Bank, desirable to perfect the Lien created by
this Agreement; (b) duly executed copies of the termination statements
(UCC-3) to be filed under the Uniform Commercial Code of all
jurisdictions necessary, or in the opinion of the Bank, desirable to
terminate any Liens in favor of any party with
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respect to the Collateral other than the Bank; and (c) Uniform
Commercial Code searches identifying all of the financing statements on
file with respect to each Obligor in all jurisdictions referred to under
(a);
(6) Material Adverse Change. As of the Closing Date, no Material
Adverse Change shall have occurred with respect to any of the Obligors
from the date of the financial statements of the Obligors most recently
submitted to the Bank.
(7) Fees. All fees, costs and expenses payable to the Bank's
legal counsel required to be paid at or prior to the closing of the
transactions contemplated thereby, shall have been paid in full on the
Closing Date.
(8) Opinion of Counsel for the Obligors. A favorable opinion of
outside counsel acceptable to the Bank for the Obligors, dated the
Closing Date, in substantially the form of EXHIBIT 4.01(8) and as to
such other matters as the Bank may reasonably request.
(9) Certificate. The following statements shall be true and the
Bank shall have received a certificate signed by the chief executive
officer of the Parent and of the general partner of the Borrower dated
the Closing Date stating that:
(a) The representations and warranties contained in this
Agreement and in each of the other Loan Documents are correct on
and as of the Closing Date as though made on and as of such date;
and
(b) No Default or Event of Default has occurred and
is continuing.
(10) Residual Loan Borrowing Base Certificate. The Bank shall
have received a certificate in the form of EXHIBIT 1.01(a) signed by the
chief financial officer, the controller or the chief executive officer
of the Borrower dated the Closing Date setting forth the Adjusted
Residual Borrowing Base Amount as of such date.
(11) Warehouse Loan Borrowing Base Certificate. The Bank shall
have received a certificate in the form of EXHIBIT 1.01(d) signed by the
chief financial officer, the controller or the chief executive officer
of the Parent and the Borrower dated the Closing Date setting forth the
Warehouse Loan Borrowing Base as of such date.
(12) Acknowledgment of Security Interest. A written
Notification of Assignment and Security Interest, in
substantially the form of EXHIBIT 4.01(12) attached hereto,
from, and duly executed by the Trustee under all Securitization
Transactions.
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(13) Delivery of Securitization Certificates. The certificated
securities in respect of the Securitization Receivables shall have been
delivered to the Bank together with appropriate instruments of transfer
properly executed in blank.
(14) Review. A favorable review by the Bank and the Bank
of the Securitization Transactions.
(15) Qualified Mortgage Collateral. Delivery of all
documents and instruments required in connection for any
Mortgage Loans to be considered Qualified Mortgage Collateral.
(16) Guaranties. Each Guarantor shall have executed and delivered
to the Bank a guaranty of the Obligations satisfactory in form and
substance to the Bank.
(17) Additional Documentation. Such other approvals,
opinions or documents as the Bank may reasonably request.
Section 4.02. Conditions to All Loans. The obligations of the Bank to
make any Loans, including the Initial Loan, in each case whether on or after the
Closing Date, shall also be subject to the satisfaction of the following
conditions precedent.
(1) Representations True: No Event of Default: No Material
Adverse Change. Each of the representations and warranties of any of the
Obligors contained in this Agreement, the other Loan Documents or in any
document or instrument delivered pursuant to or in connection with this
Agreement shall be true as of the date as of which they were made and
shall also be true at and as of the time of the making of such Loan,
with the same effect as if made at and as of that time (except to the
extent of changes resulting from transactions contemplated or permitted
by this Agreement and the other Loan Documents and changes occurring in
the ordinary course of business that singly or in the aggregate do no
constitute a Material Adverse Change, and to the extent that such
representations and warranties relate expressly to an earlier date) and
no Default or Event of Default shall have occurred and be continuing.
The Bank shall have received a certificate from each of the Parent and
the Borrower signed by an authorized officer to such effect.
(2) No Legal Impediment. No change shall have occurred in any law
or regulations thereunder or interpretations thereof that in the
reasonable opinion of the Bank would make it illegal for the Bank to
make such Loan.
(3) Governmental Regulation. The Bank shall have
received such statements in substance and form reasonably
satisfactory to the Bank as the Bank shall require for the
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purpose of compliance with any applicable regulations of the Comptroller
of the Currency or the Board of Governors of the Federal Reserve System.
(4) Proceedings and Documents. All proceedings in connection with
the transactions contemplated by this Agreement, the other Loan
Documents and all other documents incident thereto shall be satisfactory
in substance and in form to the Bank and the Bank's Special Counsel, and
the Bank and such counsel shall have received all information and such
counterpart originals or certified or other copies of such documents as
the Bank may reasonably request.
(5) Residual Loan Borrowing Base Certificate. As to any Residual
Loan Request, the Bank shall have received the most recent Residual Loan
Borrowing Base Certificate required to be delivered to the Bank in
accordance with ss.6.08(17) and, if requested by the Bank, a Residual
Loan Borrowing Base Certificate dated within five (5) days of the
Drawdown Date of such Loan.
(6) Warehouse Loan Borrowing Base Certificate. As to any
Warehouse Loan Request, the Bank shall have received the most recent
Warehouse Loan Borrowing Base Certificate required to be delivered to
the Bank in accordance with ss.6.08(17) and, if requested by the Bank, a
Warehouse Loan Borrowing Base Certificate dated within five (5) days of
the Drawdown Date of such Loan.
(7) Perfection and Legal Opinion. The Bank shall have received
all instruments or other documents, including without limitation, all
Qualified Mortgage Collateral, certificated securities, acknowledgments
and consents of purchasers, Uniform Commercial Code financing
statements, each in form and in substance satisfactory to the Bank as
are necessary in the opinion of the Bank to evidence or ensure the
attachment and perfection of the Bank's first priority security interest
in the Collateral. If the Bank requests, the Bank shall have received a
favorable opinion of counsel to the Obligors regarding the validity and
perfection of the Bank's perfected security interest in the Collateral.
(8) Capitalization. As to any Bridge Loans, the Bank shall have
received evidence satisfactory to the Bank that the market
capitalization (as determined by the Bank) of the Parent, after the
making of the requested Bridge Loan and consummation of the acquisition
contemplated thereby, shall be equal to or greater than the two (2)
times the Parent's Consolidated Net Worth.
(9) Source of Repayment for Bridge Loans. As to any
Bridge Loans, the Bank shall have received evidence satisfactory to the
Bank that all Bridge Loans previously made
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by the Bank have been repaid either by the incurrence of long-term Debt
or by an equity infusion.
ARTICLE V REPRESENTATIONS AND WARRANTIES
The Parent and the Borrower hereby represent and warrant to the Bank
that:
Section 5.01. Formation, Good Standing and Due Qualification. Each
Obligor is duly formed, validly existing and in good standing under the laws of
the jurisdiction of its formation, has the power and authority to own its assets
and to transact the business in which it is now engaged or proposed to be
engaged, and is duly qualified and in good standing under the laws of each other
jurisdiction in which such qualification is required or where such qualification
is necessary.
Section 5.02. Power and Authority: No Conflicts. The execution, delivery
and performance by each of the Obligors of the Loan Documents to which each such
Obligor is a party have been duly authorized and do not and will not: (1)
contravene such Obligor's articles of incorporation, by-laws or other formation
documents; (2) violate any provision of, or require any filing (other than the
filing of the financing statements contemplated by this Agreement),
registration, consent or approval under any Law, order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to such Obligor; (3) result in a breach of or constitute a default
under or require any consent which has not been obtained under any indenture or
loan or credit agreement or any other agreement, lease or instrument to which
such Obligor is a party or by which it or its properties may be bound or
affected; (4) result in, or require, the creation or imposition of any Lien
(other than as created under this Agreement) upon or with respect to any of the
properties now owned or hereafter acquired by such Obligor; or (5) cause such
Obligor to be in default under any such Law, order, writ, judgment, injunction,
decree, determination or award or any such indenture, agreement, lease or
instrument.
Section 5.03. Legally Enforceable Agreements. Each Loan Document to
which each Obligor is a party is a legal, valid and binding obligation of such
Obligor, enforceable against such Obligor in accordance with its terms, except
to the extent that such enforcement may be limited by applicable bankruptcy,
insolvency and other similar laws affecting creditors' rights generally.
Section 5.04. Litigation. There are no actions, suits or proceedings
pending or threatened, against or affecting any of the Obligors before any
court, governmental agency or arbitrator, which could, in any one case or in the
aggregate, result in (1) a Material Adverse Change or (2) liability to any
Obligor in excess of Two Hundred Fifty Thousand Dollars ($250,000).
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Section 5.05. Material Liabilities, No Misstatements or- Omission of
Facts. There are no liabilities of any of the Obligors, fixed or contingent,
which are material but are not reflected on SCHEDULE 5.05 hereto. No
information, exhibit, or report furnished by any of the Obligors to the Bank in
connection with this Agreement contain any material misstatement of fact or omit
to state a material fact or any fact necessary to make the statements contained
therein not materially misleading.
Section 5.06. Indebtedness, Ownership and Liens. SCHEDULE 5.06 attached
hereto correctly describes, as of the date or dates indicated therein, (a) all
outstanding Debt of the Obligors in respect of borrowed money, Capital Leases
and the deferred purchase price of property; (b) all existing mortgages, Liens
and security interests in respect of any property or assets of the Obligors; (c)
all outstanding investments (other than investments made under any pooling or
servicing agreement or insurance agreement with respect to any Securitization
Transaction), loans and advances of the Obligors; and (d) all existing
guarantees from the Obligors. Each Obligor has title to, or valid leasehold
interests in, all of such Obligor's properties and assets, real and personal,
subject only to the Liens and encumbrances set forth on SCHEDULE 5.06.
Section 5.07. Taxes. Each Obligor has filed all tax returns (federal,
state and local) required to be filed and has paid all taxes, assessments and
governmental charges and levies thereon that are due, including interest and
penalties, except to the extent they are the subject of a Good Faith Contest.
Section 5.08. ERISA. Each Obligor is in compliance in all material
respects with all applicable provisions of ERISA. Neither a Reportable Event nor
a Prohibited Transaction has occurred with respect to any Plan; no notice of
intent to terminate a Plan has been filed nor has any Plan been terminated; no
circumstance exists which constitutes grounds under Section 4042 of ERISA
entitling the PBGC to institute proceedings to terminate, or appoint a trustee
to administer, a Plan, nor has the PBGC instituted any such proceedings; no
Obligor nor any ERISA Affiliate of any Obligor has completely or partially
withdrawn under Sections 4201 or 4204 of ERISA from a Multiemployer Plan; each
Obligor has met its minimum funding requirements under ERISA with respect to all
of its Plans and there are no unfunded vested liabilities; and no Obligor nor
any ERISA Affiliate of any Obligor has incurred any liability to the PBGC under
ERISA.
Section 5.09. Subsidiaries: Stockholders. The Subsidiaries of the
Obligors are listed on SCHEDULE 5.09 annexed hereto. The ownership of all of the
issued and outstanding shares of stock in the Borrower, the Affiliated Guarantor
and the other Subsidiaries is held by the Persons listed on SCHEDULE 5.09
attached hereto, and in the amounts and percentages listed therein.
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Section 5.10. Operation of Business: Prior or Existing Restrictions,
Etc. Each Obligor possesses all licenses, qualifications, permits, franchises,
patents, copyrights, trademarks and trade names, or rights thereto, to conduct
such Obligor's business substantially as now conducted and as presently proposed
to be conducted and such Obligor is not in violation of any valid rights of
others with respect to any of the foregoing. Each Obligor has disclosed all
written reports, actions and/or sanctions of any nature threatened, and all
reviews, investigations, examinations, audits, actions and/or sanctions that
have been undertaken and/or imposed as of the date of this Agreement and of
which they have knowledge, by any federal or state agency or instrumentality
with respect to either the lending or related financial operations of each such
Obligor. No Obligor is operating under any type of agreement or order
(including, without limitation, a supervisory agreement, memorandum of
understanding, cease and desist order, capital directive, supervisory directive,
or consent decree) with any state or federal banking department or government
banking or other agency or instrumentality, and each of the Obligors is in
compliance with any and all capital, leverage or other financial standards and
requirements imposed by any applicable regulatory authority, agency or
instrumentality.
Section 5.11. No Default on Outstanding Judgments or Orders. Each
Obligor has satisfied all judgments and no Obligor is in default with respect to
any judgment, writ, injunction, decree, rule or regulation of any court,
arbitrator or federal, state, municipal or other Governmental Authority,
commission, board, bureau, agency or instrumentality, domestic or foreign.
Section 5.12. No Defaults on Other Agreements. No Obligor is a party to
any indenture, loan or credit agreement or any lease or other agreement or
instrument or subject to any certificate of incorporation or corporate
restriction which could result in a Material Adverse Change. No Obligor is in
default in any respect in the performance, observance or fulfillment of any of
the obligations, covenants or conditions contained in any agreement or
instrument which could result in a Material Adverse Change.
Section 5.13. Labor Disputes and Acts of God. Neither the business nor
the properties of any Obligor has been and continues to be affected by any fire,
explosion, accident, strike, lockout or other labor dispute, drought, storm,
hurricane, hail, earthquake, embargo, act of God or of the public enemy or other
casualty (whether or not covered by insurance), which could result in a Material
Adverse Change.
Section 5.14. Partnerships. Except as set forth in SCHEDULE 5.14, no
Obligor is a partner in any partnership or any joint venture.
Section 5.15. Environmental Protection. The Obligors have obtained all
permits, licenses and other authorizations which are
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required under all Environmental Laws, except to the extent failure to have any
such permit, license or authorization could not result in a Material Adverse
Change. The Obligors are in compliance with all Environmental Laws and the terms
and conditions of the required permits, licenses and authorizations, and are
also in compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in those Laws or contained in any plan, order, decree, judgment,
injunction, notice or demand letter issued, entered, promulgated or approved
thereunder, except to the extent failure to comply could not result in a
Material Adverse Change.
Section 5.16. Management of Obligors. As of the Closing Date, EXHIBIT
5.16 sets forth the key members of the management of each Obligor.
Section 5.17. Representations and Warranties Concerning The Collateral.
(a) The Borrower is the legal and equitable owner of the Residual Loan
Collateral, free and clear of all Liens, except for the Lien granted under this
Agreement and other Liens permitted by this Agreement. The Borrower or the
Parent is the legal and equitable owner of the Warehouse Loan Collateral, free
and clear of all Liens, except for the Lien granted under this Agreement and
other Liens permitted by this Agreement. All items of Residual Loan Collateral
and Warehouse Loan Collateral comply, as applicable, with all of the
requirements of this Agreement, including those required for inclusion in the
Adjusted Residual Borrowing Base Amount and the Warehouse Loan Borrowing Base.
The Borrower has the full right and authority to pledge the Residual Loan
Collateral pledged by it hereunder and has not pledged the Residual Loan
Collateral, or any part thereof, to any other Person. The Borrower and the
Parent each has the full right and authority to pledge the Warehouse Loan
Collateral pledged by it hereunder and has not pledged the Warehouse Loan
Collateral, or any part thereof, to any other Person.
(b) The Securitization Transactions are valid, legally binding
contracts, enforceable in accordance with their terms; have not been amended or
otherwise modified except as disclosed to the Bank prior to the date hereof; and
the Borrower has no knowledge of any condition, defect, or other circumstance
which would impair the quality of the contracts or securities as Residual Loan
Collateral under this Agreement.
(c) No default, nor any event which would become a default with
notice or lapse of time or both, has occurred and is continuing under any
Securitization Transaction included in the Residual Loan Collateral.
(d) The Borrower represents that the properties listed on Part A
of EXHIBIT 5.17 hereof are (and have been for the five year period ending on the
date hereof) the Borrower's chief places of business and chief executive office
where the Borrower keeps its
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books and records, that the properties listed on Part B of EXHIBIT 5,17 hereto
are (and have been since the Borrower's inception) all other places of business
of the Borrower, and that Parts A and B of EXHIBIT 5.17 hereto constitutes all
of the locations where any of the Collateral is located. The Borrower further
represents and warrants that it has used no other names during the five year
period ending on the date hereof other than those listed on EXHIBIT 5.17.
ARTICLE VI AFFIRMATIVE COVENANTS
So long as the Notes shall remain unpaid or any other amount is owing by
any Obligor hereunder or under any other Loan Document, the Obligors shall:
Section 6.01. Maintenance of Existence. Preserve and maintain their
existence and good standing in the jurisdiction of their formation and qualify
and remain qualified in each jurisdiction in which such qualification is
required.
Section 6.02. Conduct of Business. Continue to engage in an efficient
and economical manner in a business of the same general type as conducted by
them on the Closing Date; and use their best efforts to adhere to customary
practices and standards in effect from time to time in the mortgage banking
industry.
Section 6.03. Maintenance of Properties. Maintain, keep and preserve all
of their properties (tangible and intangible) necessary or useful in the proper
conduct of their business in good working order and condition, ordinary wear and
tear excepted.
Section 6.04. Maintenance of Records. Keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP,
reflecting all of their financial transactions.
Section 6.05. Maintenance of Insurance. Maintain insurance with
financially sound and reputable insurance companies or associations in such
amounts and covering such risks as are usually carried by companies engaged in
the same or a similar business and similarly situated or required by any
agreement to which any Obligor is a party, including, without limitation, a
standard policy of mortgage bankers' blanket bond insurance. Such insurance may
provide for reasonable deductibility from coverage thereof.
Section 6.06. Compliance with Laws. Comply in all respects with all
applicable Laws and orders, such compliance to include, without limitation,
paying before the same become delinquent all taxes, assessments and governmental
charges imposed upon it or upon its property, except to the extent they are the
subject of a Good Faith Contest.
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Section 6.07. Right of Inspection. At any reasonable time and from time
to time upon reasonable notice to any Obligor, and at the Obligors' expense,
permit the Bank or any Bank or representative thereof, to examine and make
copies and abstracts from the records, computer disks and books of account of,
and visit the properties of, such Obligor and the Collateral and to discuss the
affairs, finances and accounts of such Obligor with any of such Obligor's
partners, officers and directors and independent certified public accountants.
Section 6.08. Reporting Requirements. Furnish directly to the Bank:
(1) Annual Statements of Obligors. As soon as available and, in
any event within the time periods required by the Securities and
Exchange Commission, after the end of each Fiscal Year of the Parent (a)
a Consolidated balance sheet showing as of the end of such Fiscal Year,
the Consolidated statement of income and retained earnings, and the
Consolidated statement of cash flows of the Parent, its Subsidiaries and
Affiliates accompanied by a report thereon by the independent certified
public accountants performing the audits on the Parent, (b) and with
respect to the foregoing, a report of the independent certified public
accountants stating in comparative form the respective figures for the
corresponding date and period in the prior Fiscal Year, and (c) a
Certificate of No Default.
(2) Quarterly Financial Statements. Each quarter, as soon as
available and in any event not later than sixty days after the end of
the reporting quarter, a consolidated balance sheet for the Parent as of
the end of such quarter, statements of income and retained earnings of
the Parent, its Affiliates and Subsidiaries for the period commencing at
the end of the previous fiscal year and ending with the end of such
quarter, and statements of changes in financial position of the Parent,
its Affiliates and Subsidiaries for the portion of the fiscal year ended
with the last day of such quarter, all on a Consolidated and
consolidating basis and all in reasonable detail and stating in
comparative form the respective figures of the corresponding date and
period in the previous fiscal year and all prepared in accordance with
GAAP consistently applied and certified by the chief financial officer
of each Obligor, and a Covenant Compliance Certificate in the form of
EXHIBIT 6.08(2) detailing the compliance with the covenants set forth in
Article VIII hereof;
(3) Management Letters. As soon as available after the end of
each Fiscal Year, copies of any reports submitted to the Obligors by
independent certified public accountants in connection with the
examination of the financial statements of the Obligors made by such
accountants.
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(4) Certificate of No Default. Not later than thirty days after
the last day of each month, a certificate (the "Certificate of No
Default") of the chief financial officer, controller or chief executive
officer of each Obligor certifying that to the best of his or her
knowledge no Default or Event of Default has occurred and is continuing
or, if a Default or Event of Default has occurred and is continuing, a
statement as to the nature thereof and the action which is proposed to
be taken with respect thereto.
(5) Notice of Litigation. Promptly after the commencement
thereof, notice of all actions, suits, and proceedings before any court
or Governmental Authority, affecting the Obligors which, if determined
adversely to any Obligor, could result in a Material Adverse Change.
(6) Notices of Defaults and Events of Default. As soon as
possible and in any event within thirty days after the occurrence of
each Default or Event of Default a written notice setting forth the
details of such Default or Event of Default and the action which is
proposed to be taken with respect thereto.
(7) ERISA Reports. As soon as possible and in any event within
thirty days after the Obligors know or have reason to know that any
Reportable Event or Prohibited Transaction has occurred with respect to
any Plan or that the PBGC or any Obligor has instituted or will
institute proceedings under Title IV of ERISA to terminate any Plan, a
certificate of the chief financial officer of the Parent setting forth
details as to such Reportable Event, Prohibited Transaction or Plan
termination and the action the Obligors propose to take with respect
thereto.
(8) Reports to Other Creditors. Promptly after the furnishing
thereof, unless prohibited by law, copies of any material adverse
statement or material adverse report, including, without limitation,
relating to the occurrence of any default, event of default or trigger,
furnished to any other creditor pursuant to the terms of any indenture,
loan or credit or similar agreement and not otherwise required to be
furnished to the Bank pursuant to any other clause of this Agreement.
(9) Reports, Etc. Promptly after the sending or filing
thereof, copies of all financial statements and reports which
the Obligors send to, or receive from, any Governmental
Authority or agency.
(10) Insurance. Upon the occurrence of any casualty,
damage or loss, whether or not giving rise to a claim under
any insurance policy, notice thereof, together with copies of
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any document relating thereto (including copies of any such claim) in
possession or control of any Obligor.
(11) Material Adverse Change. As soon as possible and in any
event within five Business Days after any Obligor has knowledge of the
occurrence of any event or circumstance which could result in or has
resulted in a Material Adverse Change, written notice thereof.
(12) Offices, Change in Identity. (A) Thirty days prior written
notice of (i) any change in the chief executive office or principal
place of business of any Obligor, (ii) any change in the place where the
Obligors keep their respective books and records, (iii) the
establishment of any new or the discontinuance of any existing place of
business, (iv) any change in the location of any Collateral to a place
other than those listed on EXHIBIT 5.17 hereof; and (B) as promptly as
possible, any change of name or adoption of a trade name by any Obligor.
(13) Management. Thirty days prior written notice of any change
in the management of any Obligor from that set forth in SCHEDULE 5.16.
(14) Liens. As soon as possible and in any event within five
Business Days after any Obligor has knowledge of the assertion of any
Lien against the Collateral or the occurrence of any event that could
have a Material Adverse Effect on the value or marketability of the
Collateral or the validity, enforceability or priority of the Liens
created under this Agreement, written notice thereof.
(15) Environmental Notices. As soon as possible and in any event
within five Business Days after receipt, copies of all Environmental
Notices received by any Obligor which are not received in the ordinary
course of such Obligor's business.
(16) Correspondence Relating to Collateral. (a) As soon as
possible and in any event within five days after receipt, or
transmission, by any Obligor, as the case may be, copies of all notices
or other communications received or sent regarding any of the
Securitization Transactions.
(b) From time to time, with reasonable promptness, such
further information regarding the Collateral as the Bank or any Bank may
request.
(17) Residual Loan Borrowing Base Certificate. Monthly, not
later than 45 days after the end of the reporting month or at such
earlier time as the Bank may reasonably request, a Residual Loan
Borrowing Base Certificate, current as of the
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last Business Day of such month, signed by the chief financial
officer.
(18) Servicer Reports. Monthly, not later than 45 days after the
end of the reporting month, or at such earlier time as such Servicer
Report becomes available, a Servicer Report on each Securitization
Transaction, current as of the last Business Day of such month signed by
the applicable Trustee.
(19) Warehouse Loan Borrowing Base Certificate. Monthly, not
later than 45 days after the end of the reporting month or at such
earlier time as the Bank may reasonably request, a Warehouse Loan
Borrowing Base Certificate, current as of the last Business Day of such
month, signed by the chief financial officer.
(20) Auditors' Report. If the Bank or any Bank shall so request,
then in connection with the annual financial statement audit, the
Obligors will engage the accountants referred to in Section 6.08(l) to
perform certain procedures, satisfactory to the Bank, relative to the
Securitization Receivables and the Servicing Rights. Such auditors will
issue a special report to the Borrower which describes the procedures
performed and the results, in accordance with the auditor's professional
standards. As soon as such report become available, the Borrower shall
immediately forward copies of such special report to the Bank.
(21) General Information. From time to time with reasonable
promptness, such other information respecting the condition or
operations, financial or otherwise, as the Bank or any Bank may from
time to time request including, without limitation, information in
respect of the valuation or accounting of Securitization Receivables and
Servicing Rights.
Section 6.09. Compliance With Environmental Laws. Comply in
all material respects with all applicable Environmental Laws and
immediately pay or cause to be paid all costs and expenses incurred
in connection with such compliance.
Section 6.10. Audits. Permit the Bank, at the Obligors' cost and
expense, to conduct audits of the books and records of each of the Obligors
(which shall be limited to two per fiscal year prior to the occurrence of a
Default) and take all action and otherwise cooperate as may be necessary to
complete said audits.
Section 6.11. Custody of Warehouse Collateral Documents. (a) Deliver to
the Bank or its custodian, as directed by the Bank, the Mortgage Notes and other
Warehouse Collateral Documents with respect to all Qualified Mortgage Collateral
from time to time included in the Warehouse Borrowing Base.
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(b) Pay the Bank the following fees for basic custodial,
processing and related services for each Mortgage Loan submitted for inclusion
in the Warehouse Loan Borrowing Base (whether or not accepted as such by the
Bank):
(i) $4.00 for each Mortgage Loan file delivered to the
Bank, which fee will be due and payable upon delivery of the Warehouse
Collateral Documents to the Bank;
(ii) $2.00 for each Mortgage Loan file released from the
custody of the Bank, which fee will be due and payable upon release of
the Warehouse Collateral Documents by the Bank;
(iii) a fee of $.25 per month (or any portion thereof) for
each Mortgage Loan file in the custody of the Bank.
Section 6.12. Use of Loan Proceeds. Use the proceeds of Residual Loans
and the Warehouse Loans for working capital and other general corporate
purposes; and use the proceeds of the Bridge Loans for the purpose of acquiring
the assets, stock or other ownership interests of Persons engaged in similar
businesses to the Obligors or other working capital needs. No Obligor will,
directly or indirectly, use any part of such proceeds: (x) for the purpose of
purchasing or carrying any margin stock within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System, (y) to extend credit to
any Person for the purpose of purchasing or carrying any such margin stock.
Section 6.13. Further Assurances. From time to time, at the joint and
several expense of the Obligors (including the payment of all filing fees)
promptly execute and deliver all further instruments and documents, and take all
further actions, that may be necessary or desirable, or that the Bank may
request, in order to preserve, perfect and protect the rights of the Bank under
the Loan Documents, any security interest granted or purported to be granted
hereby or to enable the Bank to exercise and enforce its rights and remedies
under the Loan Documents, including, without limitation, with respect to any
Collateral. Without limiting the generality of the foregoing, execute and file
such financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as the Bank or any
Bank may request, in order to perfect and preserve the security interest granted
or purported to be granted to the Bank hereby.
Section 6.14. Collection of Collateral. (A) Whether or not a Default or
Event of Default exists, the Bank shall be entitled to receive and collect all
sums payable to any of the Obligors in respect of the Collateral, and (i) the
Bank may, in the Bank's name or in the name of such Obligors or otherwise,
demand, sue for, collect or receive any money at any time payable or receivable
on account of or in exchange for any of the Collateral, but shall be under no
obligation to do so, and (ii) all Obligors shall pay to the Bank at its
principal office all amounts or proceeds received
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by the Obligors upon or in respect of any of the Collateral, advising the Bank
as to the source of such funds.
(B) The Borrower shall notify all Trustees of the Securitization
Transactions of the security interest and Liens granted hereunder and shall
cause each such purchaser and Trustee to remit all sums payable to the Borrower
in respect of the Residual Loan Collateral (other than Servicing Fees) directly
to the Residual Loan Collateral Account. Such instructions to such purchasers
and the Trustees shall not be revoked or modified without the Bank's prior
written consent. After the occurrence and during the continuance of a Trigger or
an Event of Default, the Borrower shall cause the Trustees of the Securitization
Transactions to remit all sums payable to the Borrower in respect of Servicing
Fees directly to the Residual Loan Collateral Account.
(C) Prior to the occurrence of a Trigger or an Event of Default,
the Borrower shall have the right to access sums in the Residual Loan Collateral
Account. After the occurrence and during the continuance of a Trigger or an
Event of Default, all amounts received and collected in the Residual Loan
Collateral Account shall be held by the Bank as part of the Residual Loan
Collateral, the Borrower shall have no right to withdraw or direct transfer of
any or all credit balances after such time in the Residual Loan Collateral
Account and the Bank shall have sole dominion and control over all amounts in
the Residual Loan Collateral Account. After the occurrence and during the
continuance of a Trigger or an Event of Default, the Borrower shall hold any
proceeds of the Residual Loan Collateral received by the Borrower as trustee for
the Bank, for the benefit of the Bank, without commingling the same with other
funds of the Borrower and shall turn the same over to the Bank in the identical
form received, together with any necessary endorsements or assignments. The Bank
shall apply the proceeds of Residual Loan Collateral received by the Bank to the
Residual Loan Obligations , such proceeds to be immediately entered after final
payment in cash or solvent credits of the items giving rise to them.
Section 6.15. Attorney-in-Fact. The Bank is hereby appointed the agent
and attorney-in-fact of each of the Obligors for the purpose of carrying out the
provisions of this Agreement, taking any action and executing any instruments
which the Bank may deem necessary or advisable to accomplish the purposes hereof
and to obtain for the Bank, the benefits of this Agreement, the other Loan
Documents, the Collateral and the security intended to be provided to the Bank
hereby and thereby, which agency and appointment as attorney-in-fact is
irrevocable and coupled with an interest. Without limiting the generality of the
foregoing, the Bank shall have the right and power in the place and stead of
each of the Obligors, and in the name of each of the Obligors or otherwise (from
time to time and without prior notice to or consent from the Obligors, and
without releasing or in any manner affecting any Obligations hereunder): (a) to
receive, endorse and collect all
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checks, drafts or chattel paper made payable to the order of any of the Obligors
(provided that all such endorsements recite that they are made without recourse)
representing any payment on account of the Collateral and to give full discharge
for the same, (b) to ask, demand, collect, sue for, recover, compound, receive
and give, acquittances and receipts for moneys due and to become due under or in
respect of any of the Collateral, (c) to file any claims or take any action or
institute any proceedings which the Bank may deem necessary or desirable for the
collection or completion of, or perfection of the Bank's interest in any of the
Collateral or otherwise to enforce the rights of each and every Obligor or the
Bank with respect to any of the Collateral, this Agreement or the other Loan
Documents, (d) if any of the Obligors fail to perform any obligation under this
Agreement or the other Loan Documents, to perform or cause performance of such
obligation. To the extent permitted by law, each of the Obligors hereby ratifies
that all said attorneys shall lawfully do or cause to be done by virtue hereof.
This power of attorney is a power coupled with an interest and shall be
irrevocable.
ARTICLE VII NEGATIVE COVENANTS
So long as the Notes or any Obligation shall remain unpaid or any other
amount is owing by the Obligors hereunder or under any other Loan Document, no
Obligor shall:
Section 7.01. Liens. Create, incur, assume, or suffer to exist, any Lien
upon or with respect to any of its properties, now owned or hereafter acquired,
except the following kinds of liens ("PERMITTED LIENS"):
(1) Liens in favor of the Bank;
(2) Liens for taxes or assessments or other government charges or
levies if not yet due and payable or, if due and payable, if they are
the subject of a Good Faith Contest;
(3) Liens imposed by law, such as mechanics', materialmen's,
landlords', warehousemen's, and carriers' Liens, and other similar
Liens, securing obligations incurred in the ordinary course of business
which are not past due for more than thirty days or which are the
subject of a Good Faith Contest;
(4) Liens under workers' compensation, unemployment
insurance, Social Security, or similar legislation;
(5) Liens, deposits, or pledges to secure the performance of
bids, tenders, contracts (other than contracts for the payment of
money), leases (permitted under the terms of this Agreement), public or
statutory obligations, surety, indemnity, performance, or other similar
bonds, or other similar obligations arising in the ordinary course of
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business, and the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding,
provided that the aggregate amount of liabilities of the Borrowers
secured by a pledge of assets permitted under this clause, including
interest and penalties thereon, if any, shall not be in excess of
$250,000 at any one time outstanding;
(6) Judgment and other similar Liens arising in connection with
court proceedings, provided the execution or other enforcement of such
Liens is effectively stayed and the claims secured thereby are the
subject of a Good Faith Contest;
(7) Easements, rights-of-way, restrictions, and other similar
encumbrances which, in the aggregate, do not materially interfere with
the occupation, use, and enjoyment by the Obligor or the property or
assets encumbered thereby in the normal course of such Obligor's
business or materially impair the value of the property subject thereto;
and
(8) Liens existing as of the date hereof under the Warehouse
Facility.
(9) Liens created on Securitization Receivables not pledged to
the Bank hereunder to secure Residual Loans or Bridge Loans.
(10) Liens listed on SCHEDULE 5.06.
Section 7.02. Debt. Create, incur, assume, or suffer to exist, any Debt,
except:
(1) Debt of the Obligors under this Agreement, the Notes
or the other Loan Documents;
(2) Debt of the Parent or the Borrower under the
Warehouse Facility;
(3) Accounts payable to trade creditors for goods or services and
current operating liabilities (other than for borrowed money), in each
case incurred in the ordinary course of business, as presently
conducted; and
(4) Debt of the Obligors to each other.
(5) Debt pursuant to the agreements listed on SCHEDULE 5.06.
(6) Long-term Debt of the Parent utilized to repay the Bridge
Loans, which Debt shall be on terms and conditions satisfactory to the
Bank.
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Section 7.03. Mergers, Etc. Wind up, liquidate or dissolve itself,
reorganize, merge or consolidate with or into, or convey, sell, assign,
transfer, lease, or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired) to any Person. The Obligors may engage in mergers
among themselves.
Section 7.04. Leases. Create, incur, assume, or suffer to exist any
obligation as lessee for the rental or hire of any real or personal property,
except: (1) Capital Leases; (2) leases existing on the date of this Agreement
and any extensions, renewals or replacements thereof and (3) new leases for
equipment and similar items used in the ordinary course of the Borrowers'
business.
Section 7.05. Sale and Leaseback. Sell, transfer, or otherwise dispose
of any real or personal property to any Person and thereafter directly or
indirectly lease back the same or similar property.
Section 7.06. Distributions. Directly or indirectly make any
Distributions, except (a) Distributions in connection with tax free exchanges
related to acquisitions, and (b) Distributions amongst the various Obligors or
their Affiliates.
Section 7.07. Sale of Assets. Sell, lease, assign, transfer, or
otherwise dispose of any of Obligor's now-owned or hereafter acquired assets
(including, without limitation, receivables, and leasehold interests) except the
sale or other disposition of assets (i) in the ordinary course of such Obligor's
business or (ii) no longer used or useful in the conduct of its business, or
(iii) pursuant to a Securitization Transaction.
Section 7.08. Investments. Other than in connection with the acquisition
of any Person, make any loan or advance to any Person (other than Mortgage Loans
in the ordinary course of business), or purchase or otherwise acquire any
capital stock, assets, obligations, or other securities of, make any capital
contribution to, or otherwise invest in or acquire any interest in any Person,
or participate as a partner or joint venturer with any other Person, except: (1)
direct obligations of the United States or any agency thereof with maturities of
one year or less from the date of acquisition; (2) commercial paper of a
domestic issuer rated at least "A-1" by Standard & Poor's Corporation or "P-1"
by Moody's Investors Service, Inc.; (3) certificates of deposit with maturities
of one year or less from the date of acquisition issued by any commercial bank
having capital and surplus in excess of One Billion Dollars ($1,000,000,000);
(4) stock, obligations, or securities received in settlement of debts (created
in the ordinary course of business) owing to such Obligor; (5) investments
required to be made or purchased by any housing finance agency of the U.S.
Government or any applicable provisions of law; and (6) Investments
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not to exceed $2,500,000.00 in the aggregate unless the Bank consents to such
increased Investment, which consent shall not be unreasonably withheld.
Section 7.09. Financial Hedge Instruments. Engage in financial hedge
transactions of any kind other than financial hedge transactions such as
mandatory commitments with FNMA, FHLMC or others or interest rate caps provided
such transactions are in the Obligors' ordinary course of business consistent
with past practices and are not for speculative purposes.
Section 7.10. Guaranties, Etc. Assume, guaranty, endorse, or otherwise
be or become directly or contingently responsible or liable (including, but not
limited to, an agreement to purchase any obligation, stock, assets, goods, or
services, or to supply or advance any funds, assets, goods, or services, or an
agreement to maintain or cause such Person to maintain a minimum working capital
or net worth, or otherwise to assure the creditors of any Person against loss)
for obligations of any Person, except guaranties by endorsement of negotiable
instruments for deposits or collection or similar transactions in the ordinary
course of business.
Section 7.11. Transactions With Affiliates. Enter into any transaction,
including, without limitation, the purchase, sale, or exchange of property or
the rendering of any service, with any Affiliate, except in the ordinary course
of and pursuant to the reasonable requirements of such Obligor's business and
upon fair and reasonable terms no less favorable to such Obligor than would
obtain in a comparable arm's length transaction with a Person not an Affiliate.
Section 7.12. Modification; Etc. It shall not amend, modify, or waive
any of the terms and conditions of, or settle or compromise any claim in respect
of, any Securitization Transaction or Servicing Rights or other Residual Loan
Collateral, or any rights related to any of the foregoing.
ARTICLE VIII FINANCIAL COVENANTS
So long as the Notes and the Obligations shall remain unpaid or any
other amount is owing by any of the Obligors hereunder or under any other Loan
Document:
Section 8.01. Interest Coverage. The Parent will not permit the ratio of
its Consolidated EBIT to Consolidated Interest Expense, tested on a rolling two
quarter basis, to be less than 1.2 to 1.0 as of the end of any of its fiscal
quarters.
Section 8.02. Liabilities to Worth Ratio. Except as provided in the
following sentence, the Parent will not permit the ratio of its Consolidated
Total Liabilities (excluding, for purposes of this calculation, liabilities
arising under the Warehouse Facility, hedging transactions and with respect to
Warehouse Loans) to
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Consolidated Net Worth to exceed 3.5 to 1.0 at any time. Notwithstanding the
foregoing, during any period when any Bridge Loans are outstanding, the ratio of
such Consolidated Total Liabilities to Consolidated Net Worth shall not exceed
2.0 to 1.0.
Section 8.03. Net Worth. The Parent will not permit its Consolidated Net
Worth at any time to be less than the aggregate of (a) $82,700,000.00, plus (b)
fifty (50%) percent of the Parent's Consolidated Net Income for each fiscal
quarter, beginning with the fiscal quarter ending December 31, 1996. The
Consolidated Net Worth required hereunder shall not be decreased by any
Consolidated net loss or deficit incurred by the Parent and its Subsidiaries
during any fiscal quarter.
Section 8.04. Maximum Cumulative Net Loss. The Cumulative Net Loss Rate
for any Securitization Transaction pursuant to which the Bank has made Residual
Loans shall not exceed two percent (2%) during the first three years of any such
Securitization Transaction or four percent (4%) during any year thereafter.
Section 8.05. Maximum Prepayment Rate. The Annualized Prepayment Rate
for any six month period on any Securitization Transaction pursuant to which the
Bank has made Residual Loans shall not exceed thirty five percent (35%).
ARTICLE IX EVENTS OF DEFAULT
Section 9.01. Events of Default. Any of the following events
shall be an "Event of Default":
(1) any Obligor shall fail to pay the principal of, or interest
on, the Loans as and when same shall become due and payable, whether at
the stated date of maturity or any accelerated date of maturity or at
any other date fixed for payment;
(2) any representation or warranty made by the Obligors or any of
them in this Agreement or in any other Loan Document or which is
contained in any certificate, document, opinion, financial or other
statement furnished at any time under or in connection with any Loan
Document shall prove to have been incorrect in any material respect on
or as of the date made or deemed made;
(3) any Obligor shall fail to perform or observe any term,
covenant or agreement contained in this Agreement or any other Loan
Document as and when required, provided that a failure to observe either
ss.ss.8.04 or 8.05 above shall, notwithstanding any other provision
contained herein, only constitute an Event of Default with respect to
the Residual Loans, and not the Bridge Loans and the Warehouse Loans, if
the Borrower repays the Residual Loans (which source of repayment may be
a Bridge Loan made hereunder) within twenty
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(20) business days of notice from the Bank of the occurrence of a breach
of SS.SS.8.04 and/or 8.05, or the Bank otherwise waives such Event of
Default in its sole discretion;
(4) any Obligor shall: (a) fail to pay any Debt in excess of
$500,000.00, (other than the payment obligations described in (1)
above), of such Obligor when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise); or (b) fails to
perform or observe any term, covenant or condition on its part to be
performed or observed under any agreement or instrument relating to any
such Debt, when required to be performed or observed, if the effect of
such failure to perform or observe is to accelerate, or to permit the
acceleration of, after the giving of notice or the lapse of time, or
both, of the maturity of such Debt, whether or not the failure to
perform or observe shall be waived by the holder of such Debt; or any
such Debt shall be declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled required prepayment), prior
to the stated maturity thereof;
(5) any Obligor: (a) shall generally not, or be unable to, or
shall admit in writing its inability to, pay its debts as such debts
become due; or (b) shall make an assignment for the benefit of
creditors, petition or apply to any tribunal for the appointment of a
custodian, receiver or trustee for it or a substantial part of its
assets; or (c) shall commence any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereafter
in effect; or (d) shall have had any such petition or application filed
or any such proceeding shall have been commenced, against it, in which
an adjudication or appointment is made or order for relief is entered,
or which petition, application or proceeding remains undismissed or
unstayed for a period of thirty days or more; or shall be the subject of
any proceeding under which its assets may be subject to seizure,
forfeiture or divestiture; or (e) by any act or omission shall indicate
its consent to, approval of or acquiescence in any such petition,
application or proceeding or order for relief or the appointment of a
custodian, receiver or trustee for all or any substantial part of its
property; or (f) shall suffer any such custodianship, receivership or
trusteeship to continue undischarged for a period of thirty days or
more;
(6) one or more judgments, decrees or orders for the payment of
money in excess of Two Hundred Fifty Thousand Dollars ($250,000) in the
aggregate shall be rendered against the Obligors, individually or
collectively, and such judgments, decrees or orders shall continue
unsatisfied and in effect for a period of thirty (30) consecutive days
without being vacated, discharged, satisfied or stayed or bonded pending
appeal;
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(7) any of the following events shall occur or exist with respect
to the Obligors or any ERISA Affiliate: (a) any Prohibited Transaction
involving any Plan; (b) any Reportable Event shall occur with respect to
any Plan; (c) the filing under Section 4041 of ERISA of a notice of
intent to terminate any Plan or the termination of any Plan; (d) any
event or circumstance exists which might constitute grounds entitling
the PBGC to institute proceedings under Section 4042 of ERISA for the
termination of, or for the appointment of a trustee to administer, any
Plan, or the institution by the PBGC of any such proceedings; (e)
complete or partial withdrawal under Section 4201 or 4204 of ERISA from
a Multiemployer Plan or the reorganization, insolvency, or termination
of any Multiemployer Plan; and in each case above, such event or
condition, together with all other events or conditions, if any, could
in the opinion of the Bank subject the Obligors or any ERISA Affiliate
to any tax, penalty, or other liability to a Plan, Multiemployer Plan,
the PBGC, or otherwise (or any combination thereof);
(8) this Agreement shall at any time and for any reason cease to
create a valid and perfected first priority Lien in the Collateral or
the validity or enforceability of this Agreement shall be contested by
any of the Obligors, or any of the Obligors shall deny they have any
further liability or obligation under this Agreement;
(9) if there shall occur a Material Adverse Change, or if the
Bank in good faith believes that the prospects of payment, performance
or realization upon the Collateral is impaired, or if the Bank shall
deem itself insecure and the Obligors do not address the Bank's concerns
in the sole discretion of the Bank;
(10) a change in the ownership of the Borrower's or any
Subsidiary's capital stock such that the Parent does not directly or
indirectly own one hundred percent (100%) of such capital stock;
(11) a change in Control of the Parent;
(12) there shall occur a default or event of default or any
similar termination or other event under the Warehouse Facility or any
Securitization Transaction(including, without limitation under any
Pooling and Servicing Agreement or Insurance and Indemnity Agreement
relating thereto);
(13) the Borrower shall for any reason no longer be the Servicer
with respect to any Securitization Transaction pursuant to which the
Bank has made Residual Loans.
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(14) Moody's Investors Service, Inc. or Standard & Poor's Ratings
Group, a division of McGraw-Hill, Inc. shall downgrade the rating
assigned to any securities or ownership interests issued pursuant to any
Securitization Transaction.
(15) To the extent not delivered on the Closing Date in
accordance with the provisions of Section 4.01(12) and waived by the
Bank as a condition to the Initial Loan, the Borrower shall for any
reason fail to deliver to the Bank within thirty (30) Business Days of
the Closing Date direction letters in form and substance satisfactory to
the Bank directing each of the Trustees under the Securitization
Transactions, as applicable, to make all payments due to the Borrower in
respect of the Residual Loan Collateral (other than Servicing Fees)
directly to the Residual Loan Collateral Account.
Section 9.02. Remedies. (A) If any Event of Default shall occur and be
continuing, the Bank may, by notice to any Obligor, (1) declare the Notes, all
interest thereon, and all other amounts payable under this Agreement, and any
other Loan Documents to be forthwith due and payable, whereupon the Notes, all
such interest, and all such amounts due under this Agreement, and under any
other Loan Document shall become and be forthwith due and payable, without
presentment, demand, protest, or further notice of any kind, all of which are
hereby expressly waived by the Obligors; and/or (2) exercise any remedies
provided in any of the Loan Documents at Law or otherwise, with respect to the
Collateral and the Loans; provided, however, that upon the occurrence of an
Event of Default referred to in Section 9.01(5), the Notes and any other amounts
payable under this Agreement or any of the other Loan Documents, and all
interest on any of the foregoing shall be forthwith due and payable without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Obligors.
(B) Termination of Commitments. If any one or more of the Events
of Default specified in Section 9.01(5) shall occur, any unused portion of the
Commitment shall forthwith terminate and the Bank shall be relieved of all
further obligations to make Loans to the Parent or the Borrower. If any other
Event of Default shall have occurred and be continuing, or if on any Drawdown
Date the conditions precedent to the making of the Loans to be made on such
Drawdown Date or on such other date are not satisfied, the Bank may, by notice
to the Parent or the Borrower, terminate the unused portion of the Commitment,
and upon such notice being given such unused portion of the Commitment shall
terminate immediately and the Bank shall be relieved of all further obligations
to make Loans. No termination of the Commitment shall relieve any of the
Obligors of any of the Obligations.
(C) Collateral. Upon the occurrence of an Event of Default, the
Bank may exercise in respect of the Collateral, in addition to other rights and
remedies provided for herein, at Law
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or otherwise available to it, all the rights and remedies of a secured party on
default under the Uniform Commercial Code and also may without notice except as
specified below, (1) collect the Collateral with or without the taking
possession of the Collateral, (2) take possession of all or any portion of the
Collateral, (3) apply the Collateral or the proceeds of the Collateral towards
(but not necessarily in complete satisfaction of) the Obligations, and (4) to
sell, lease or otherwise dispose of the Collateral or any portion thereof in one
or more parcels at public or private sale, at any of the Bank's offices or
elsewhere, for cash, on credit or for future delivery, and upon such other
commercially reasonable terms. Each Obligor agrees that, to the extent notice of
sale shall be required by law, five days prior notice to any one of the Obligors
of the time and place of any public sale or the time after which any private
sale is to be made shall constitute reasonable notification. The Bank shall not
be obligated to make any sale of Collateral regardless of notice of sale having
been given. The Bank may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned. The
Bank may purchase the Collateral, or any portion thereof, at any sale held
hereunder. All cash proceeds received by the Bank in respect of any sale of,
collection from, or other realization upon all or any part of the Collateral
may, in the discretion of the Bank, be held by the Bank as Collateral for,
and/or then or at any time thereafter applied (after payment of any amounts
payable to the Bank pursuant to Section 9.03) in whole or in part by the Bank
against, all or any part of the Obligations in such order as the Bank shall
elect.
(D) Occupation of Business Location. In connection with the
Bank's exercise of the Bank's rights hereunder, the Bank may enter upon, occupy,
and use any premises owned or occupied by any Obligor. The Bank shall not be
required to remove any of the Collateral from any such premises upon the Bank's
taking possession thereof. In no event shall the Bank be liable to any Obligor
for use or occupancy by the Bank or any premises pursuant hereto or for any
charge (such as utilities) incurred in connection with the exercise of the
Bank's rights and remedies.
(E) Assembly of Collateral. The Bank may require any Obligor to
assemble the Collateral and make it available to the Bank at the Obligors' sole
risk and expense at a place or places which are reasonably convenient to the
Bank and such Obligor.
(F) Remedies Cumulative. In case any one or more of the Events of
Default shall have occurred and be continuing, and whether or not the Bank shall
have accelerated the maturity of the Loans pursuant to ss.9.02(A), the Bank may
also proceed to protect and enforce its rights by suit in equity, action at law
or other appropriate proceeding, whether for the specific performance of any
covenant or agreement contained in this Agreement and the other Loan Documents
or any instrument pursuant to which the Obligations
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are evidenced, including as permitted by applicable law the obtaining of the ex
parte appointment of a receiver, and, if such amount shall have become due, by
declaration or otherwise, proceed to enforce the payment thereof or any other
legal or equitable right of the Bank. No remedy herein conferred upon the Bank
is intended to be exclusive of any other remedy and each and every remedy shall
be cumulative and shall be in addition to every other remedy given hereunder or
now or hereafter existing at law or in equity or by statute or any other
provision of law.
Section 9.03. Application of Proceeds. The proceeds of any sale or
enforcement of all or any part of the Collateral shall be applied by the Bank:
First, to the payment of the costs and expenses incurred by the
Bank in connection with the sale, the enforcement of any rights and
benefits afforded hereby, by any other Loan Documents or at Law, or in
collecting, maintaining and preserving the Collateral, including payment
to the Bank's agents and counsel in accordance with Section 10.04, and
all expenses, liabilities and advances made or incurred by such parties
in connection therewith;
Second, the proceeds from Warehouse Collateral shall be applied
toward the payment of the outstanding principal, interest, and other
charges with respect to the Warehouse Loans; the proceeds from Residual
Loan Collateral shall be applied toward the payment of the outstanding
principal, interest, and other charges with respect to the Residual
Loans; and the proceeds from Collateral for the Bridge Loans shall be
applied toward the payment of the outstanding principal, interest, and
other charges with respect to the Bridge Loans;
Third, any remaining proceeds shall be applied to the outstanding
Obligations in such order and manner as the Bank may determine, in its
discretion; and
Fourth, to the payment to the Obligors, or to their successors or
assigns, or as a court of competent jurisdiction may direct, of any
surplus then remaining from such proceeds.
If the proceeds of any such sale are insufficient to cover the amounts described
in clauses First through Third, inclusive, above, the Obligors shall remain
liable for any deficiency.
Section 9.04. The Bank May Perform. If any Obligor fails to perform any
agreement contained in this Agreement, the Bank may itself perform, or cause
performance of, such agreement, and the expenses of the Bank incurred in
connection therewith shall be payable by the Obligors under Section 10.04.
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ARTICLE X MISCELLANEOUS
Section 10.01. No Waiver: Cumulative Remedies. No failure or delay on
the part of the Bank in exercising any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. No waiver of any
provision hereof shall be effective unless the same shall be in writing and
signed by the Bank. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law. In the event of a dispute between the
Parent, the Borrower or any of them and the Bank concerning the principal amount
outstanding hereunder, the interest rates applicable thereto, the payment of
principal, interest and other amounts hereunder, or concerning similar factual
matters, absent manifest error, the books and records of the Bank shall be
irrebuttably presumed to be correct.
Section 10.02. Set-Off. Regardless of the adequacy of any Collateral,
during the continuance of any Default, any deposits (general or specific, time
or demand, provisional or final, regardless of currency, maturity, or the branch
of where such deposits are held) or other sums credited by or due from the Bank
to any Obligor and any securities or other property of any Obligor in the
possession of the Bank may be applied to or set off against the payment of
Obligations and any and all other liabilities, direct, or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, of any
Obligor to the Bank.
Section 10.03. Amendments. Any of the provisions of this Agreement may
be waived, modified or amended in writing by any agreement or agreements entered
into by each of the Parent, the Borrower and the Bank.
Section 10.04. Costs and Expenses. The Obligors, jointly and severally,
agree to pay (a) the reasonable costs of producing and reproducing this
Agreement, the other Loan Documents and the other agreements and instruments
mentioned herein, (b) any taxes (including any interest and penalties in respect
thereto) payable by the Bank (other than taxes based upon the Bank's net
income), including any recording, mortgage, documentary or intangibles taxes in
connection with the Loan Documents, or other taxes payable on or with respect to
the transactions contemplated by this Agreement, including any taxes payable by
the Bank after the Closing Date (the Obligors, jointly and severally, hereby
agreeing to indemnify the Bank with respect thereto), (c) all appraisal fees,
engineer's fees, and the reasonable fees, expenses and disbursements of the
Bank's Special Counsel or any local counsel to the Bank incurred in connection
with the preparation, administration or interpretation of the Loan Documents and
other instruments mentioned herein, each closing hereunder, and amendments,
modifications, approvals, consents or waivers hereto or hereunder, (d) the fees,
expenses and disbursements of the Bank incurred by the Bank in connection with
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the preparation, administration or interpretation of the Loan Documents and
other instruments mentioned herein, (e) all rea sonable out-of-pocket expenses
(including reasonable attorneys' fees and costs and the fees and costs of
appraisers, engineers, investment bankers or other experts retained by the Bank
in connection with any such enforcement proceedings) incurred by the Bank in
connection with (i) the enforcement of or preservation of rights under any of
the Loan Documents against the Obligors or the administration thereof and (ii)
any litigation, proceeding or dispute whether arising hereunder or otherwise, in
any way related to the Bank's relationship with any of the Obligors and (f) all
reasonable fees, expenses and disbursements of the Bank incurred in connection
with UCC searches, UCC filings or mortgage recordings. The covenants of this
ss.10.04 shall survive payment or satisfaction of payment of amounts owing with
respect to the Notes.
Section 10.05. Indemnification. The Obligors, jointly and severally,
agree to indemnify and hold harmless the Bank from and against any and all
claims, actions and suits whether groundless or otherwise, and from and against
any and all liabilities, losses, damages and expenses of every nature and
character arising out of this Agreement or any of the other Loan Documents or
the transactions contemplated hereby including, without limitation, (a) any
actual or proposed use by the Obligors or any of their Subsidiaries of the
proceeds of any of the Loans, (b) any actual or alleged infringement of any
patent, copyright, trademark, service mark or similar right of any Obligor or
any of its Subsidiaries comprised in the Collateral, (c) the Obligors or any of
their respective Subsidiaries entering into or performing this Agreement or any
of the other Loan Documents or (d) with respect to the Obligors and their
respective Subsidiaries and their respective properties and assets, the
violation of any Environmental Law, the release or threatened release of any
Hazardous Materials or any action, suit, proceeding or investigation brought or
threatened with respect to any Hazardous Materials (including, but not limited
to claims with respect to wrongful death, personal injury or damage to
property), in each case including, without limitation, the reasonable fees and
disbursements of counsel and allocated costs of internal counsel incurred in
connection with any such inves tigation, litigation or other proceeding. In
litigation, or the preparation therefor, the Bank shall be entitled to select
its own counsel and, in addition to the foregoing indemnity, the Obligors
jointly and severally agree to pay promptly the reasonable fees and expenses of
such counsel. If, and to the extent that the obligations of the Obligors under
this ss.10.05 are unenforceable for any reason, the Obligors each hereby agree
to make the maximum contribution to the payment in satisfaction of such
obligations which is permissible under applicable law. The provisions of this
ss.10.05 shall survive the repayment of the Loans and the termination of the
obligations of the Bank hereunder. The foregoing indemnification shall not apply
in the event the Bank is found liable for gross negligence or willful misconduct
by a court of
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competent jurisdiction, all appeals having been exhausted and/or waived.
Section 10.06. The Borrowers Remain Liable. Anything herein to the
contrary notwithstanding: (1) each Obligor shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of their duties and obligations thereunder to the same
extent as if this Agreement had not been executed; (2) the exercise by the Bank
of any of the rights hereunder shall not release any of the Obligors from any of
their duties or obligations under the contracts and agreements included in the
Collateral; (3) the Bank shall not have any obligation or liability under the
contracts and agreements included in the Collateral by reason of this Agreement,
nor shall the Bank be obligated to perform any of the obligations or duties of
any of the Obligors thereunder or to take any action to collect or enforce any
claim for payment assigned hereunder; and the Bank shall not have any obligation
to make inquiry as to the nature or sufficiency of any payment received by the
Bank in respect of the Collateral or as to the sufficiency of any performance by
any party under any such contract or agreement, to present or file any claim, to
take any action to enforce any performance or to collect the payment of any
amounts which may have been assigned to the Bank or to which the Bank may be
entitled at any time or times. The Bank's sole duty with respect to the custody,
safe keeping and physical preservation of the Collateral in its possession,
under ss.9-207 of the Uniform Commercial Code of the Commonwealth of
Massachusetts or otherwise, shall be to deal with such Collateral in the same
manner as the Bank deals with similar property for its own account.
Section 10.07. No Waiver, Etc. Each Obligor waives demand, notice,
protest, notice of acceptance of this Agreement, notice of Loans made, credit
extended, Collateral received or delivered or other action taken in reliance
hereon and all other demands and notices of any description. With respect to
both the Obligations and the Collateral, each Obligor assents to any extension
or postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of or failure to perfect any security interest
in any Collateral, to the addition or release of any party or person primarily
or secondarily liable, to the acceptance of partial payment thereon and the
settlement, compromising or adjusting of any thereof, all in such manner and at
such time or times as the Bank may deem advisable. The Bank shall have no duty
as to the collection or protection of the Collateral or any income thereon, nor
as to the preservation of rights against prior parties, nor as to the
preservation of any rights pertaining thereto beyond the safe custody thereof as
set forth in Section 10.06.
Section 10.08. The Bank's Duties. The powers conferred on the Bank under
this Agreement are solely to protect its interests in the Collateral and shall
not impose any duty upon the Bank to exercise any such powers. Except for the
accounting for monies
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actually received by it hereunder, the Bank shall not have any duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral.
Section 10.09. Continuing Security Interest: Transfer of Notes. This
Agreement creates a continuing security interest in the Collateral and shall
remain in full force and effect until payment in full of all the Obligations to
the Bank. Upon the payment in full of the Obligations and termination of the
Commitment, the Lien granted hereby shall terminate and all rights to the
Collateral shall revert to the Parent or the Borrower, as applicable. Upon any
such termination, the Bank will, at the Obligors' expense, execute and deliver
such documents as may be reasonable to evidence such termination.
Section 10.10. Payments. All payments made by the Obligors shall be made
to the Bank at its head office, 100 Federal Street, Boston, Massachusetts or to
such other place as the Bank may from time to time designate. All payments by
the Obligors hereunder and under any of the other Loan Documents shall be made
without setoff or counterclaim and free and clear of and without deduction for
any taxes, levies, imposts, duties, charges, fees, deductions, withholdings,
compulsory loans, restrictions or conditions of any nature now or hereafter
imposed or levied by any jurisdiction or any political subdivision thereof or
taxing or other authority therein unless the Obligor is compelled by law to make
such deduction or withholding. If any such obligation is imposed upon any
Obligor with respect to any amount payable by it hereunder or under any of the
other Loan Documents, the Obligors will pay to the Bank on the date on which
such amount is due and payable hereunder or under such other Loan Document, such
additional amount in Dollars as shall be necessary to enable the Bank to receive
the same net amount which the Bank would have received on such due date had no
such obligation been imposed upon the Obligors. The Obligors will deliver
promptly to the Bank certificates or other valid vouchers for all taxes or other
charges deducted from or paid with respect to payments made by the Obligors
hereunder or under such other Loan Document.
Section 10.11. Binding Effect: Assignment: Participation. This Agreement
shall become effective when it shall have been executed by the Parent, the
Borrower and the Bank, and it shall thereafter be binding upon and inure to the
benefit of the Parent, the Borrower and the Bank and their respective successors
and assigns, except that the Parent and the Borrower shall not have any right to
assign its rights or obligations hereunder or any interest herein. The Parent
and the Borrower agrees to provide all assistance requested by the Bank to
enable the Bank either to sell participations in or to make assignments of all
or any portion of the Loans.
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Section 10.12. Notices. Except as specifically provided otherwise in
this Agreement or in any of the other Loan Documents, all notices and the
communications hereunder and thereunder shall be in writing to the addresses set
forth below the signature lines hereto, or by telephone, subsequently confirmed
in writing. Notices in writing shall be delivered personally or sent by
certified or registered mail postage prepaid or by telex or telecopy and shall
be deemed received in the case of personal delivery, when delivered against a
receipt therefor, in the case of mailing, on the third Business Day after
mailing, in the case of telex, upon transmittal, and in the case of telecopies,
when transmitted, provided, that the sender of a telex or telecopy must
immediately confirm such transmittal in writing or by telephone. Notice to
either of the Parent or the Borrower shall be deemed notice to all of the
Obligors.
Section 10.13. Usury. Anything herein to the contrary notwithstanding,
the obligations of the Obligors under this Agreement and the other Loan
Documents shall be subject to the limitation that payments of interest shall not
be required to the extent that receipt thereof would be contrary to provisions
of applicable law limiting rates of interest which may be charged or collected
by the Bank.
Section 10.14. Table of Contents: Headings. The table of contents and
the headings and captions hereunder are for convenience only and shall not
affect the interpretation or construction of this Agreement.
Section 10.15. Severability. The provisions of this Agreement are
intended to be severable. If for any reason any provision of this Agreement
shall be held invalid or unenforceable in whole or in part in any jurisdiction,
such provision shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without in any manner affecting the validity
or enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
Section 10.16. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and any party hereto may execute this Agreement by signing any
such counterpart.
Section 10.17. Integration. The Loan Documents set forth the entire
agreement among the parties hereto relating to the transactions contemplated
thereby and supersede any prior oral or written statements or agreements with
respect to such transactions.
Section 10.18. GOVERNING LAW. THIS AGREEMENT IS INTENDED TO TAKE EFFECT
AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND INTERPRETED AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
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Section 10.19. JURISDICTION: IMMUNITIES. THE PARENT AND THE BORROWER
HEREBY ABSOLUTELY AND IRREVOCABLY CONSENT AND SUBMIT TO THE JURISDICTION OF THE
COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR THE UNITED STATES FEDERAL COURT
SITTING IN BOSTON IN CONNECTION WITH ANY ACTIONS OR PROCEEDINGS ARISING OUT OF
OR RELATING TO THIS AGREEMENT, THE NOTES, ANY OTHER LOAN DOCUMENT, OR THE
BANKING RELATIONSHIP GIVING RISE TO THIS AGREEMENT; AND THE PARENT AND THE
BORROWER HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH MASSACHUSETTS OR FEDERAL COURT.
IN ANY SUCH ACTION OR PROCEEDING, THE PARENT AND THE BORROWER HEREBY ABSOLUTELY
AND IRREVOCABLY AGREE THAT SERVICE OF PROCESS MAY BE MADE BY CERTIFIED OR
REGISTERED MAIL, POSTAGE PREPAID, TO THEM AT THEIR ADDRESSES SPECIFIED BELOW (OR
AT SUCH OTHER ADDRESSES AS THE PARENT OR THE BORROWER SHALL LAST SPECIFY TO THE
BANK IN WRITING). THE PARENT AND THE BORROWER AGREE THAT A FINAL JUDGMENT IN ANY
SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
THE PARENT AND THE BORROWER FURTHER WAIVE ANY OBJECTION TO VENUE IN BOSTON AND
ANY OBJECTION TO AN ACTION OR PROCEEDING IN BOSTON ON THE BASIS OF FORUM NON
CONVENIENS. THE PARENT AND THE BORROWER FURTHER AGREE THAT ANY ACTION OR
PROCEEDING BROUGHT AGAINST THE BANK WITH REGARD TO THIS AGREEMENT SHALL BE
BROUGHT ONLY IN MASSACHUSETTS OR UNITED STATES FEDERAL COURT SITTING IN BOSTON.
NOTHING IN THIS SECTION 10.19 SHALL AFFECT THE RIGHT OF THE BANK TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF
THE BANK TO BRING ANY ACTION OR PROCEEDING AGAINST THE PARENT OR THE BORROWER OR
THEIR PROPERTY IN THE COURTS OF ANY OTHER JURISDICTIONS.
TO THE EXTENT THAT THE PARENT OR THE BORROWER HAVE OR HEREAFTER MAY
ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS
(WHETHER FROM SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID
OF EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO THEMSELVES OR THEIR
PROPERTY, THE PARENT AND THE BORROWER HEREBY IRREVOCABLY WAIVE SUCH IMMUNITY IN
RESPECT OF THEIR OBLIGATIONS UNDER THIS AGREEMENT, THE NOTE, AND ANY OTHER LOAN
DOCUMENT.
Section 10.20. WAIVER OF JURY TRIAL. THE PARENT AND THE BORROWER WAIVE
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND
ANY RIGHTS (i) UNDER THIS AGREEMENT OR UNDER THE NOTES, THE OTHER LOAN DOCUMENTS
OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN
THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (ii) ARISING FROM ANY BANKING
RELATIONSHIP GIVING RISE TO THIS AGREEMENT, AND AGREE THAT ANY SUCH ACTION OR
PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. Except as
prohibited by law, the Parent and the Borrower waives any right which it may
have to claim or recover in any litigation referred to in the preceding sentence
any special, exemplary, punitive or consequential damages or any damages other
than, or in addition to, actual damages. The Parent and the
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Borrower (i) certifies that neither the Bank nor any representative, agent or
attorney of the Bank has represented, expressly or otherwise, that the Bank
would not, in the event of litigation, seek to enforce the foregoing waivers and
(ii) acknowledges that, in entering into this Agreement and the other Loan
Documents to which the Bank is a party, the Bank is relying upon, among other
things, the waivers and certifications contained in this Section 10.20.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as a sealed instrument as of the day and year first above written.
Attest: IMC MORTGAGE COMPANY
______________________________ By____________________________
Name: __________________________
Title:________________________
Address for Notices:
______________________________
______________________________
______________________________
Attn: ________________________
Telecopy No.: ________________
Attest: INDUSTRY MORTGAGE COMPANY, L.P.
______________________________ By____________________________
Name: ________________________
Title: _______________________
Address for Notices:
______________________________
______________________________
______________________________
Attn: ________________________
Telecopy No.: ________________
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Attest: THE FIRST NATIONAL BANK OF
BOSTON
______________________________ By:___________________________
Name:_________________________
Title:________________________
Address: 100 Federal Street
Boston, Massachusetts
02110
Attn: Mr. Paul
Chmielinksi
Telecopy No.: ________________
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EXHIBIT 1.01-b
Lender's Model Amount Certificate
LENDER'S MODEL: The Lender's Model Amount (L.M.A.) will be
calculated quarterly (adjusting for actual
performance) using the following assumptions:
1. Each Securitization Transaction will be
modeled separately.
2. Total Net Losses (total losses over the
life of the portfolio as a percentage of
the original portfolio amount) will be
the higher of:
a. worst actual cumulative losses on
any Securitization Transaction plus
100 basis points; or
b. 300 basis points.
3. The Annual Prepayment Speed will be the
higher of:
a. actual prepayments (to date
annualized) on any Securitization
Transaction, plus five percentage
points or
b. 35%.
On new Securitization Transactions the
prepayment speed will ramp up over ten
months.
4. Cash flow from each portfolio will be
discounted at the higher of:
a. the rate of interest for Residual
Loans, or
b. 9.0%.
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RESIDUAL NOTE
$25,000,000.00 December 31, 1996
FOR VALUE RECEIVED, the undersigned, Industry Mortgage Company, L.P., a
Delaware limited partnership ("Borrower"), HEREBY PROMISES TO PAY to the order
of The First National Bank of Boston (the "Bank"), by remittances to the Bank in
accordance with the Agreement (defined below), the principal amount of Twenty
Five Million Dollars ($25,000,000.00) in lawful money of the United States and
in immediately available funds, payable at the times, in the manner, and at the
interest rates specified in that Loan and Security Agreement dated as of
December 31, 1996 between, among others, the Borrower and the Bank, as amended,
and in effect from time to time (the "Agreement") and is subject in all respects
to the terms of the Agreement.
Terms used herein which are defined in the Agreement shall have their
defined meanings when used herein. The Agreement, among other things, contains
provisions for acceleration of the maturity of this Note upon the happening of
certain stated events and also for prepayments on account of principal hereof
prior to the maturity of this Note upon the terms and conditions specified in
the Agreement, reference to which is hereby made for a description of the
Collateral provided for therein and the rights of the Borrower and the Bank with
respect to such Collateral.
This Note shall be governed by the laws of the Commonwealth of
Massachusetts, provided that, as to the maximum rate of interest which may be
charged or collected, if the laws applicable to the Bank permit it to charge or
collect a higher rate than the laws of the Commonwealth of Massachusetts, then
such law applicable to the Bank shall apply to the Bank under this Note.
IN WITNESS WHEREOF, the undersigned has caused this Note to be duly
executed as a sealed instrument as of the day and year first above written.
Industry Mortgage Company, L.P.
By:______________________________
Title:
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DRAFT OF 01/30/97
ASSET PURCHASE AGREEMENT
BETWEEN
IMC MORTGAGE COMPANY
AND
AMERICAN MORTGAGE REDUCTION, INC.
AND
THE SHAREHOLDERS OF
AMERICAN MORTGAGE REDUCTION, INC.
JANUARY 31, 1997
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<PAGE>
TABLE OF CONTENTS
ARTICLE 1
CERTAIN DEFINITIONS
ARTICLE 2
PURCHASE AND SALE OF ASSETS
ARTICLE 3
PURCHASE PRICE - PAYMENT
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
ARTICLE 6
COVENANTS
ARTICLE 7
FURTHER COVENANTS
ARTICLE 8
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
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ARTICLE 9
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
ARTICLE 10
CLOSING
ARTICLE 11
TERMINATION
ARTICLE 12
INDEMNIFICATION
ARTICLE 13
POST-CLOSING COVENANTS
ARTICLE 14
AMENDMENTS
ARTICLE 15
MISCELLANEOUS
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DRAFT OF 02/06/97
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of January 31,
1997, is made by and between IMC MORTGAGE COMPANY, a Florida corporation
("Buyer"), and AMERICAN MORTGAGE REDUCTION, INC., a Maryland corporation
("Seller") and HARRY KOROTKI and MARC HEYMAN (the "Shareholders").
FACTUAL BACKGROUND
A. Seller is engaged in the mortgage banking and brokerage business (the
"Business").
B. Buyer desires to purchase all of the Business and substantially all
of the assets of Seller (the "Acquisition").
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, agreements, representations and warranties herein contained, and
intending to be legally bound, the parties hereto do hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
For the purpose of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, (i) the terms defined in this
Article have the meanings assigned to them in this Article and include the
plural as well as the singular and (ii) all accounting terms not otherwise
defined herein have the meanings assigned under GAAP.
Acquisition -- As defined in the Introduction.
Affiliate -- With respect to any Person, any Person directly or
indirectly controlling, controlled by, or under common control with such other
Person. For purposes of this definition, "control" (including with correlative
meaning, the terms "controlled by" and "under common control with,") as used
with respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through ownership of voting securities, by contract or
otherwise.
Affiliated Group -- Any affiliated group within the meaning of Code
Section 1504 or any similar group defined under a similar provision of state,
local or foreign law, including any consolidated, unitary or combined group of
companies.
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Agency -- FHA, VA, GNMA, FNMA, FHLMC or a State Agency, as applicable.
Agreement -- As defined in the Introduction.
AMR Division -- As defined in Section 3.3
Audited Financial Statements -- As defined in Section 4.7.
Balance Sheet -- The statement of financial condition forming a part of
the Interim Financial Statements.
Base Calculation Period -- The twelve (12) month period ending December
31, 1996.
Base Payment Adjustment -- The Base Payment plus any increase in or less
any decrease in Tangible Net Worth from 12/31/96 through 1/31/97.
Business -- As defined in the Introduction, and includes Seller's
Conforming Business and Non-Conforming Business.
Business Days -- Any day on which the New York Stock Exchange is open
for trading.
Business Pipeline -- The sum of all Conforming Mortgage Loans and
Non-Conforming Mortgage Loans of Seller in the process of being closed by Seller
for which credit approval has already been obtained which have arisen in the
ordinary course of Seller's business, consistent with . Seller's past practices,
as shown on Seller's regularly prepared reports.
Buyer -- As defined in the Introduction.
Closing -- The closing with respect to the Acquisition as defined in
preamble to Article 10.
Closing Balance Sheet -- The balance sheet of Seller as of December 31,
1996.
Closing Date -- The date and time of Closing as defined in the preamble
to Article 10.
Code -- The Internal Revenue Code of 1986, as amended.
Conforming Business -- The Conforming Mortgage Loan origination and
brokerage business conducted by Seller.
Conforming Mortgage Loan -- A Mortgage Loan which is an FHA Loan, a VA
Loan or a loan eligible to be sold to FNMA or FHLMC.
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Conventional Loan -- Any Mortgage Loan which (a) is a first lien on a
"single family" residence, (b) is neither insured by FHA nor guaranteed by VA,
(c) has a loan-to-value ratio of 95% or less at the time of origination, (d)
matures in 30 years or less, (e) bears a market yield at the time of
origination, and (f) satisfies all requirements for sale to FNMA and FHLMC.
Direct Originations -- Mortgage Loans closed in the name of Seller (or
the AMR Division post-closing) or "table funded" by Seller or brokered by Seller
(or the AMR Division post-closing)
Effective Time -- February 1, 1997 at 12:01 a.m.
Employment Agreements -- As defined in Section 6.3.
Encumbrance -- Any lien, pledge, security interest, claim, charge,
easement, limitation, commitment, restriction or encumbrance of any kind or
nature whatsoever.
ERISA -- As defined in Section 4.13(b).
Environmental Claim -- Civil, criminal, administrative action, claim or
other proceeding relating to Environmental Laws.
Environmental Laws -- As defined in Section 4.15.
Excluded Assets -- As defined in Section 2.2.
Executives -- Harry Korotki and Marc Heyman.
FHA -- Federal Housing Administration.
FHA Loans -- Mortgage Loans which satisfy all applicable rules and
requirements to be insured by FHA and which are insured by FHA.
FHLMC -- Federal Home Loan Mortgage Corporation.
Financial Statements -- As defined in Section 4.7.
FNMA -- Federal National Mortgage Association.
GAAP - - Generally accepted accounting principles as used in the United
States of America.
GNMA -- Government National Mortgage Association.
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GNMA Securities -- GNMA mortgage-backed certificates.
HUD -- United States Department of Housing and Urban Development.
Independent Accounting Firm -- Any "Big Six" accounting firm or its
successor.
Inquiry -- As defined in Section 4.29.
Interim Financial Statements -- As defined in Section 4.7.
Investor -- Any Person who owns or holds Mortgage Loans, or servicing
rights to Mortgage Loans, pursuant to Mortgage Servicing Agreements or who is a
party to an Investor Commitment.
Investor Commitment -- The commitment of a Person to purchase a Mortgage
Loan.
Investor Programs -- Mortgage participation, whole-loan sales, pooling
and servicing programs.
IRS -- Internal Revenue Service.
Liability -- As defined in Section 2.3(a).
Licenses -- As defined in Section 4.18.
Loan Property -- Any property in which Seller holds a mortgage lien or
security interest.
Loss -- Any claim, liability, loss, cost, clean up cost or
reimbursement, damage, penalty, fine, obligation, deficiency or expense of any
kind whatsoever (including, without limitation, reasonable attorneys',
accountants', consultants' or experts' fees, and disbursements including but not
limited to court costs and reasonable costs of investigation incurred in
defending against or settling any such claim, liability, loss, cost, damage or
expense, or any amounts paid in connection with the investigation, defense or
settlement thereof, whether or not arising out of third party claims and
including costs and expenses incurred on appeal or in connection with any
bankruptcy or insolvency proceeding).
Material Adverse Effect -- Material Adverse effect on the business,
condition (financial or otherwise), results of operations, properties, assets or
prospects of a Person with an economic effect of $50,000 or more.
Mortgage Loan -- Any closed mortgage loan (exclusive of Warehouse Loans)
whether or not such mortgage is included in a securitized portfolio, as
evidenced by notes or other evidences of indebtedness duly secured by mortgages
or deeds of trust.
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Non-Conforming Business -- The Non-Conforming Mortgage Loan origination
and brokerage business conducted by Seller.
Non-Conforming Mortgage Loan -- A Mortgage Loan which does not satisfy
the requirements for being an FHA Loan, VA Loan or Conventional Loan.
Operating Property -- As defined in Section 4.15.
Person -- Any individual, corporation, company, partnership (limited or
general), joint venture, association, trust or other entity, including
governmental and quasi-governmental bodies.
Plans -- As defined in Section 4.13(a).
Pooling -- Aggregation of two or more Mortgage Loans that have been
pledged or granted to secure mortgage-backed securities or participation
certificates.
Purchased Assets -- As defined in Section 2.1.
Purchase Price -- As defined in Section 3.1.
Regulations -- (i) Federal, state and local laws, rules and regulations,
(ii) the responsibilities and obligations set forth in any agreement between
Seller and an Investor or private mortgage insurer and (iii) the laws, rules,
regulations, guidelines, handbooks and other requirements of an Investor,
Agency, private mortgage insurer, Public Housing Programs or Investor Programs,
with respect to the origination, insuring, purchase, sale, or filing of claims
in connection with a Mortgage Loan.
Schedule -- The disclosure schedules delivered by Sellers to Buyer in
connection with the Acquisition.
Seller(s) -- As defined in the Introduction.
Servicing Released Loans -- As defined in Section 4.22.
Single Employer Plan -- Any employee pension benefit plan (as that term
is defined in Section 3(2) of ERISA) maintained or contributed to by any entity
which would be deemed a "single employer" with Seller under Section 4001 of
ERISA.
State Agency -- Any state agency with authority to regulate the business
of Seller, determine the investment requirements with regard to loans originated
or purchased by Seller, or originate or purchase mortgage loans, or otherwise
participate in or promote mortgage lending.
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Subsidiary -- A company is a Subsidiary of another company if 50% or
more of its outstanding voting securities is owned by such other company.
Tangible Net Worth -- As set forth on Schedule 2.1(a)(i)(B).
Tax Affiliate -- A Person is a Tax Affiliate of another Person if they
are both members of the same Affiliated Group.
Taxes -- As defined in Section 4.12(d).
Tax Return -- As defined in Section 4.12(e).
VA -- Veterans Administration.
VA Loans -- Mortgage Loans which satisfy all applicable rules and
regulations to be guaranteed by VA and which are guaranteed by VA.
Warehouse Loans -- Mortgage Loans held by Seller for sale and pledged to
secure borrowings by Seller.
ARTICLE 2
PURCHASE AND SALE OF ASSETS
2.1 Assets to be Transferred
Subject to the terms and conditions of this Agreement, on the Closing
Date (as hereinafter defined) Seller shall sell, transfer, convey, assign and
deliver to Buyer (or upon Buyer's request, to one or more wholly-owned
subsidiaries of Buyer as designated by Buyer), and Buyer shall purchase and
accept all of the business, rights, claims and assets (of every kind, nature,
character and description, whether real, personal or mixed, whether tangible or
intangible, whether accrued, contingent or otherwise, and wherever situated) of
Seller, as determined on the Closing Date, together with all rights and
privileges associated with such assets and with the business of Seller, other
than the Excluded Assets (as hereinafter defined) (collectively, the "Purchased
Assets"). The Purchased Assets shall include, but not be limited to, the
following:
(a) Leased Real Property. All of the leases of real property with
respect to real property leased by Seller, including the leases (the "Real
Property Leases") described in Schedule 2.1(a) with respect to the real property
described thereon (the "Leased Real Property").
(b) Personal Property. All machinery, equipment, tools, supplies,
spare parts, furniture and all other personal property (other than personal
property leased pursuant to Personal
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Property Leases as hereinafter defined) owned, utilized or held for use by
Seller on the Closing Date, including, without limitation, the personal property
described on Schedule 2.1(b).
(c) Mortgage Loan Inventory. All of Seller's Mortgage Loans and
Warehouse Loans described in Schedule 2.1(c).
(d) Personal Property Leases. All of Seller's rights and
interests as lessee under all leases of machinery, equipment, vehicles,
furniture and other personal property leased by Seller, including all such
leases (the "Personal Property Leases") described in Schedule 2.1(d).
(e) Trade Rights. All of Seller's interest in any Trade Rights.
As used herein, the term "Trade Rights" shall mean and include all intellectual
property including, without limitation: (i) all trademark rights, business
identifiers, trade dress, service marks, trade names, and brand names, all
registrations thereof and applications therefor and all goodwill associated with
the foregoing, including all trade names used in or associated with the
Business; (ii) all copyrights, copyright registrations and copyright
applications, and all other rights associated with the foregoing and the
underlying works of ownership; (iii) all patents and patent applications and all
international proprietary rights associated therewith; (iv) all contracts or
agreements granting any right, title, license or privilege under the
intellectual property rights of any third party; (v) all inventions, know-how,
discoveries, improvements, designs, trade secrets, shop and royalty rights,
employee covenants and agreements respecting intellectual property and
non-competition and all other types of intellectual property; and (vi) all
claims for infringement or breach of any of the foregoing.
(f) Contracts. All of Seller's rights in, to and under all
contracts, Mortgage Commitments, Investor Commitments, Investor Programs and
pending mortgage applications (hereinafter "Contracts") of Seller. To the extent
that any Contract for which assignment to Buyer is provided herein is not
assignable without the consent of another party, this Agreement shall not
constitute an assignment or an attempted assignment thereof if such assignment
or attempted assignment would constitute a breach thereof.
(g) Computer Software. All computer source codes, programs and
other software of Seller, including all machine readable code, printed listings
of code, documentation and related property and information of Seller.
(h) Literature. All sales literature, promotional literature,
catalogs and similar materials of Seller.
(i) Records and Files. All records, files, invoices, customer
lists, blueprints, specifications, designs, drawings, accounting records,
business records, operating data and other data of Seller, provided that Buyer
shall maintain such records for six years and Seller shall have reasonable
access, and the right to copy, such records for tax and other bona fide
purposes.
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(j) Notes and Accounts Receivable. All notes, drafts and accounts
receivable of Seller relating to the Mortgage Loans and Warehouse Loans,
including, without limitation, those described in Section 2.1(j) of the
Schedule.
(k) Licenses; Permits. All licenses, permits and approvals of
Seller, to the extent transferable, including, without limitation, the licenses
set forth on Schedule 2.1(k).
(l) Corporate Name. The name "American Mortgage Reduction" and
the name "All Credit Funding" and all rights to use or allow others to use each
such name and the related goodwill.
(m) General Intangibles. All prepaid items, all causes of action
arising out of occurrences before or after the Closing, and other intangible
rights and assets.
(n) Trade Secrets. All know-how, research data, business methods
and trade secrets.
(o) Prepaids. All prepaid expenses and rent and lease deposits on
Schedule 2.1(o).
2.2 Excluded Assets
The Excluded Assets are as listed on Schedule 2.2. All Mortgage Loans
that have closed but have not funded by the Effective Time are Excluded Assets.
All loans that close on or after the Effective Time are the property of the
Buyer.
2.3 Assumption of Liabilities
(a) Liabilities to be Assumed. As used in this Agreement, the
term "Liability" shall mean and include any direct or indirect indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, fixed or unfixed, known or unknown, asserted or
unasserted, liquidated or unliquidated, secured or unsecured. Subject to the
terms and conditions of this Agreement on the Closing Date, Buyer shall assume
and agree to perform and discharge the following, and only the following
Liabilities of Seller (collectively the "Assumed Liabilities"):
(i) The accounts payable and accrued liabilities relating
to Buyer's operation of the Purchased Assets which are listed on
Schedule 2.1(a)(i)(A) provided however, that in no event shall such
Liabilities, when added to all other Liabilities of Seller, exceed
Tangible Net Worth as of the Effective Time. A sample of the calculation
of Tangible Net as of 12/31/96 is as set forth on Schedule 2.1(a)(i)(B).
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(ii) Seller's Liabilities arising under and pursuant to
the contracts listed in Schedule 2.1(a) and Schedule 2.1(d). The
Contracts described in subsection 2.3(a)(ii) above are hereinafter
collectively described as the "Assumed Contracts."
(iii) Liability in respect of Maryland's Bulk Sale Tax
(the "Transfer Tax").
(b) Liabilities Not to be Assumed. Except as and to the extent
specifically set forth in Section 2.3(a), Buyer is not assuming any Liabilities
of Seller and all such Liabilities shall be and remain the responsibility of
Seller. Notwithstanding the provisions of Section 2.3(a), Buyer is not agreeing
to perform and discharge and Seller shall not be deemed to have transferred to
Buyer the following Liabilities of Seller (which list of specific liabilities
shall not be deemed to suggest that liabilities not listed are being assumed):
(i) Certain Contracts. The Liabilities of Seller under and
pursuant to any contracts with Investors for refunds or guarantees
related to Mortgage Loans, including prepayment refund obligations and
refunds to Investors upon default by borrower or prepayment.
(ii) Taxes Arising from Transaction. Any taxes applicable
to, imposed upon or arising out of the sale or transfer of the Purchased
Assets to Buyer and the other transactions contemplated by this
Agreement, including but not limited to any income, transfer, sales,
use, gross receipts or documentary stamp taxes (other than the Transfer
Tax).
(iii) Income and Franchise Taxes. Any Liability of Seller
for Federal income taxes and any state or local income, profit or
franchise taxes (and any penalties or interest due on account therefor).
(iv) Insured Claims. Any Liability of Seller insured
against, to the extent such Liability is or will be paid by an insurer.
(v) Litigation Matters. Any Liability with respect to any
action, suit, proceeding, arbitration, investigation or inquiry, whether
civil, criminal or administrative ("Litigation"), whether or not
described in Schedule 4.10.
(vi) Infringements. Any Liability to a third party for
infringement of such third party's Trade Rights.
(vii) Transaction Expenses. All Liabilities incurred by
Seller in connection with this Agreement and the transactions
contemplated therein.
(viii) Liability for Breach. Liabilities of Seller for any
breach or failure to perform any of Seller's covenants and agreements
contained in, or made pursuant to, this
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Agreement, or, prior to the Closing, any other contract, whether or not
assumed hereunder, including breach arising from assignment of contracts
hereunder without consent of third parties.
(ix) Liabilities of Affiliates. Liabilities of Seller to
its present or former Affiliates.
(x) Pre-Closing Operating Expenses. Seller's operating
expenses (including, without limitation, payroll, rent and utilities)
incurred before, or relating to the period prior to, the Closing Date.
(xi) Excluded Assets. Any Liabilities of Seller relating
to the Excluded Assets.
ARTICLE 3
PURCHASE PRICE
3.1 Purchase Price
The purchase price (the "Purchase Price") for the Purchased Assets shall
be equal to the sum of: (i) the "Base Payment" to be made at the "Initial
Closing" and (ii) the "Contingent Payment" to be made at the "Final Closing".
The Base Payment will be 7 times the Seller's Adjusted After-Tax Net Income
(Calculated as though the Seller were a "C" Corporation) for calender year 1996.
(For example, Seller's view of the calculation as of 12/31/96 is as set forth on
Schedule 3.1). All calculations will be made in accordance with generally
accepted accounting principles consistently applied ("GAAP").
(a) Adjusted After-Tax Net Income. Adjusted After-Tax Net Income
shall be after tax net earnings, subject to the following adjustments:
(i) an imputed expense shall be added in an amount equal
to the amount, if any, by which (x) the estimated average annual
retirement expense that should be reflected on Seller's financial
statements in accordance with GAAP, exceeds (y) the retirement expense
actually reflected on Seller's financial statements.
(ii) Income from extraordinary events and from sources
outside the mortgage banking and brokerage business shall be excluded;
(iii) Aggregate salaries, bonus compensation and other
fees paid to the Executives in excess of three hundred thousand dollars
($300,000), shall be included as income;
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(iv) Any ordinary income or capital gains from investment
assets shall be excluded;
(v) Any income arising from any other Excluded Assets
shall be excluded; and
3.2 Payment of Base Payment
The Base Payment shall be paid by Buyer to Seller as follows:
(a) Assumption of Liabilities. At the Initial Closing, Buyer
shall assume the Assumed Liabilities.
(b) Base Payment. At the Initial Closing, Buyer shall deliver by
wire transfer in immediately available funds an amount equal to the amount of
the Adjusted Estimated Base Payment. The Adjusted Estimated Base Payment shall
equal the Estimated Base Payment less a 15% holdback (the "Holdback").
(c) Determination of Estimated Base Payment. For the purposes of
determining the Estimated Base Payment, Seller, not less than 5 days before
Closing, shall prepare and submit to Buyer estimated financial statements as of
December 31, 1996, including estimated Profit and Loss Statement for the Base
Calculation Period, list of Estimated Assumed Liabilities and Estimated
Calculation of Base Purchase price, which shall represent the present reasonable
estimate of Seller's financial performance for the Base Calculation Period,
Mortgage Production for the Base Calculation Period and Seller's reasonable
estimate of the Purchase Price. In the event Seller and Buyer cannot agree on
the foregoing estimated financial statements and schedule, the Estimated Base
Payment for the Initial Closing shall be the average of the amount determined by
Seller and the amount determined by Buyer.
(d) Final Determination of Base Payment.
(i) Within 45 days after the Closing Date, Seller shall
deliver to Buyer a balance sheet and profit and loss statement of
Seller as of December 31, 1996, and as of January 31, 1997,
prepared from the books and record of Seller, on a basis
consistent with the GAAP theretofore followed by Seller in
accordance with this Section 3.2, and fairly presenting the
financial position of Seller as of December 31, 1996, and as of
January 31, 1997, and Seller's financial performance for the Base
Calculation Period and for the period from 1/1/97 through 1/31/97
(the "Stock Period"). The balance sheet shall be accompanied by
detailed schedules of the Purchased Assets and Assumed
Liabilities, Tangible Net Worth and Seller's Business Pipeline
and by a report of Seller's Accountants (1) setting forth the
amount of the Base Payment Amount (as defined above) reflected in
the financial statements, (2)
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stating that (a) the examination of the balance sheet and
financial statements has been made in accordance with generally
accepted auditing standards and (b) the balance sheets and
financial statements has been prepared in accordance with
generally accepted accounting principles, on a basis consistent
with the accounting principles theretofore followed by Seller,
and (3) setting forth such accountants determination of the Base
Payment and the Base Payment Adjustment. Sellers shall also
certify to Buyer that the financial statements and schedules are
accurate and correct and prepared in accordance with GAAP.
(ii) Within 30 days following the delivery of the
financial statements and schedules, Buyer or its independent
accountants ("Buyer's Accountants") may object to any of the
information contained in said financial statements or
accompanying schedules which could affect the necessity or amount
of any payment by Buyer pursuant to Section 3.2 hereof. Any such
objection shall be made in writing and shall state Buyer's
determination of the amount of the Base Payment and the Base
Payment Adjustment.
(iii) In the event of a dispute or disagreement relating
to the financial statements or schedules which Buyer and Seller
are unable to resolve, either party may elect to have all such
disputes or disagreements resolved by an Independent Accounting
Firm (the "Third Accounting Firm") to be mutually selected by
Seller and Buyer or, if no agreement is reached, by Seller's
Accountants and Buyer's Accountants. The Third Accounting Firm
shall make a resolution of the financial statements of Seller as
of 12/31/96 and as of 1/31/97 and the calculation of the Base
Payment and the Base Payment Adjustment, which shall be final and
binding for purposes of this Article 3. The Third Accounting Firm
shall be instructed to use every reasonable effort to perform its
services within 15 days of submission of the financial statement
and schedules to it and, in any case, as soon as practicable
after such admission. The fees and expenses for the services of
the Third Accounting Firm shall be shared equally by Buyer and
Seller.
(iv) Seller agrees to permit Buyer, Buyer's Accountants,
and their respective representatives, during normal business
hours, to have reasonable access to, and to examine and make
copies of, all books and records of Seller, including but not
limited to the books, records, schedules, work papers and audit
programs of Seller and Seller's Accountants and access to
representatives of Seller's Accountants, which documents and
access are necessary to review the financial statement and
schedules delivered by Buyer in accordance with Section 3.2. In
addition, Buyer's Accountants shall have the opportunity to
observe the taking of the inventory in connection with the
preparation of such balance sheet and schedule of loans in
process. Seller similarly agrees to permit Buyer's Accountants
and their respective representatives, during normal business
hours, to have reasonable access to any books and records of
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Seller which do not constitute Purchased Assets, in order to
enable them to prepare such balance sheet.
(e) Final Base Payment Adjustment. Once the Base Payment and the
Base Payment Adjustment are finally determined appropriate adjustments shall be
made in payment of the Base Payment, as finally determined and additional funds
paid by Buyer to Seller or funds returned by Seller to Buyer, as applicable
plus, in each case, interest from the Closing Date to the date of payment at a
rate equal to 8 1/4% per annum.
3.3 Contingent Payment
(a) Calculation. The Contingent Payment shall equal the excess of
(i) the "Final Value" (as defined below) over (ii) the Base Payment. The Final
Value of the Seller at the Final Closing will be calculated at 7 times the
average after-tax earnings of the division of Buyer constituting the
continuation of the business of the Seller (the "AMR Division") for the 2 years
ending on December 31, 1999. The Final Value will not be less than $0.00 but is
not limited on the upside.
(b) Adverse Change. In the event of an "Adverse Change" (as
defined below) prior to the Final Closing, then in such event, the Final Value
shall be calculated based on the AMR Division's having achieved its adjusted
"Agreed Plan" for the 2 years ending on December 31, 1999 and not based on the
actual results of that period. The term "Agreed Plan" shall mean the business
plan for the AMR Division proposed by Harry Korotki and Marc Heyman ("AMR
Management") and approved by Buyer and attached hereto as Schedule 3.3(b). The
Agreed Plan may be modified thereafter by mutual consent of Buyer and AMR
Management.
The term "Adjusted Agreed Plan" shall mean the after-tax net income of
the Post-Closing AMR Division as shown on the Agreed Plan multiplied by the
percentage (which may be more than 100%) obtained by dividing (x) by (y) where:
(x) is the total volume of retail and broker loan originations
(loans closed in the name of the AMR Division) which have been actually
completed from the Effective Time to the end of the calender month
preceding the month during which occurs a declaration of an Adverse
Change by the Shareholders, and
(y) is the total volume of retail and broker loan originations
(loans closed in the name of the AMR Division) which were projected to
have been completed in the Agreed Plan from the Effective Time to the
end of the calender month preceding the month during which occurs a
declaration of an Adverse Change by the Shareholders.
The declaration of an Adverse Change must be made by written notice to
the Buyer executed by Shareholders and delivered to Buyer not later than thirty
(30) days following the occurrence of the Adverse Change.
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An Adverse Change is any change in the following which is (w) not a
response to any breach by AMR Management of its employment agreements with
Buyer, (x) a result of an action or inaction of Buyer, (y) not cured within a
reasonable time following notice thereof (describing the nature thereof), and
(z) material and adverse to the AMR transaction as to: (i) the ability of AMR
Management to control or offer its product lines and product mix in a manner
which is consistent with other products in the sub-prime mortgage industry from
time to time, or in its authority to operate or control the AMR Division; (ii) a
change in the funding by Buyer of the Agreed Plan; or (iii) a failure of Buyer
to use commercially reasonably efforts to obtain and maintain all licenses as
provided in the Agreed Plan.
In the event that AMR Management is terminated for cause by Buyer, Buyer
shall still be obligated to pay the Contingent Payment, but the Initial Final
Value shall be calculated on the AMR Division's results up to to the date of
said termination.
(c) Payment. At Buyer's election, the Contingent Payment will be
made either in immediately available funds or in common shares of Buyer (the
"Exchange Shares") to be delivered at the Final Closing.
If the Contingent Payment is to be made in Exchange Shares, then the
number of Exchange Shares to be delivered to Seller for such Payment shall be
calculated by dividing the Contingent Payment by the "Closing Value" of the
Exchange Shares. The Closing Value shall be the average closing price of Buyer's
common shares on the NASDAQ for the five trading days ending 3 business days
before the Final Closing.
The Final Closing will occur on or before February 28, 2000, with the
Contingent Payment calculated as of the close of business on December 31, 1999.
The Final Closing will be based on the parties best estimate of the final income
and will be retroactively adjusted when final audited numbers are available.
If Buyer elects to pay the Contingent Payment in Exchange Shares, such
shares will be registered at Buyer's expense pursuant to the Securities Act of
1933 no later than 180 days following the Final Closing.
(d) Accounting Matters. Sub-prime mortgage loans ("Loans")
generated after the Closing in AMR Division will be treated for the purposes of
calculating the Contingent Purchase Price as though they had been sold
(servicing released) to Buyer by a separate entity at a purchase price and
premium equal to the purchase price and premium being paid during the same time
period by Buyer for similiar loans purchased from unrelated third parties
selling in a similar volume to Buyer.
In addition, for purposes of mortgage warehouse loan interest spreads,
late payment fees, prepayment rebates and similar income and expenses, Loans
will be treated as having been held by the AMR Division for one month following
origination.
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The expenses of the AMR Division after the Initial Closing will be the
sum of (i) the actual expenses which are controlled by the direct management of
the AMR Division, and (ii) other expenses which are not controlled by the direct
management of the AMR Division (such as corporate G & A) only to the extent such
amounts, including imputed interest, are not higher in the aggregate than the
AMR Division could acquire such services on its own and are of a type and nature
set forth in the Agreed Plan. Buyer will charge the AMR Division warehouse loan
interest for a revelant period at a rate equal to the lower of (i) the rate
which the Seller could obtain from unrelated third parties if the AMR Division
were a stand-alone company or (ii) LIBOR plus 225 basis points.
Ninety-five percent (95%) of all revenues of the AMR Division for the 2
years ending December 31, 1999 must arise from Direct Organizations.
(e) Post-Closing AMR Division. For the purpose of the foregoing
calculation, "AMR Division" shall mean the separate business unit of the Buyer
comprised of the Purchased Assets and identifiable business operations and
personnel acquired by Buyer from Seller pursuant to this Acquisition. The Buyer
intends for the AMR Division to be a separate division or other separate
business unit of Buyer (of its Affiliate) following the Closing. At Closing,
Buyer shall enter into employment agreements with certain officers and managers
of Seller, pursuant to Section 6.3 hereof, providing for them to manage the AMR
Division, subject to normal oversight of responsibilities of the Buyer's Board
of Directors and senior executives. The former Seller executives shall direct
the day-to-day operations of the AMR Division, subject to an annual budget and
business plan approved by the Buyer's Board of Directors and senior executives.
Buyer shall separately track the performance of, and account for, the AMR
Division as a separate profit and expense center and shall provide copies of
such performance reports to Seller. The AMR Division shall bear an interest
expense on the capital used to finance its warehouse mortgage loans at the rate
set forth in clause (d) above. Therefore, the business operation of the AMR
Division will include future growth and development of the Business being
acquired in this Acquisition, but not Buyer's other existing operations or
future acquisitions by Buyer. Parties acknowledges that Buyer's other business
units will compete with the AMR Division. The Seller's view of management
controlled expenses is as set forth on Schedule 3.3(e).
3.4 Prorations.
The following prorations will be made as of the close of business on
1/31/97 and with Seller liable to the extent such items relate to any time
period up to and including the Effective Time if not already taken into account
on the Closing financial statements and Buyer liable to the extent such items
relate to periods subsequent to the Effective Time.
(a) Personal property taxes, real estate taxes and assessments,
and other taxes, if any, on or with respect to the Purchased Assets; provided
that special assessments for work actually
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commenced or levied prior to the date of this Agreement shall be paid by Seller
and not from the Purchased Assets.
(b) Rents, additional rents, taxes and other items payable by
Seller under any lease, license, permit, contract or other agreement or
arrangement to be assigned or assumed by Buyer.
(c) The amount of rents, taxes and charges for sewer, water,
fuel, telephone, electricity and other utilities; provided that if practicable,
meter readings shall be taken at the Effective Time and the respective
obligations of the parties determined in accordance with such readings.
(d) All other items normally adjusted in connection with similar
transactions.
If the actual expense of any of the above items for the billing period
within which the Effective Time falls is not known on the Closing Date, the
proration shall be made based on the expense incurred in the previous billing
period, for expenses billed less often than quarterly, and on the average
expense incurred in the preceding three billing periods, for expenses billed
quarterly or more often. Seller agrees to furnish Buyer with such documents and
other records as shall be reasonably requested in order to confirm all proration
calculations.
The amount of all such items accrued but unpaid as of 1/31/97 shall
remain a liability of and be paid by the Seller.
3.5 Other Payments and Adjustments.
The amount of wages and other renumeration due in respect of the periods
to and including 1/31/97 to employees of Seller, the amount of bonuses due and
unused vacation pay and any other employee benefits to such employees for all
such periods shall remian a liability of, and be paid by Seller directly.
3.6 Allocation of Purchase Price. The allocation of the Purchase Price
shall be jointly approved by Buyer and Seller.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS
Seller and Shareholders, jointly and severally, make the following
representations and warranties to Buyer, each of which is true and correct on
the date hereof, shall be unaffected by any investigations heretofore or
hereafter made by Buyer, or any knowledge of Buyer other than as specifically
disclosed in the Disclosure Schedule delivered to Buyer at the time of execution
of this Agreement, and shall survive the Closing of the transactions provided
for herein:
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4.1 Organization
(a) Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Maryland with full corporate
power and authority to carry on its business as now conducted, to own the
properties and assets that it now owns, and to lease the properties and assets
that it now leases, and is duly licensed and qualified to do business and is in
good standing in each state or jurisdiction where its ownership or leasing of
property or assets or the conduct of its business requires such licensing or
qualification.
(b) Seller has heretofore delivered to Buyer accurate and
complete copies of the articles of incorporation and by-laws of Seller, as in
effect on the date thereof. Such articles and by-laws are in full force and
effect, and have not been subsequently amended, and Seller is not in violation
of any of the provisions thereof.
4.2 Intentionally Omitted.
4.3 Subsidiaries of the Seller; Nature of Business
Seller does not own any equity interest, directly or indirectly, in any
Subsidiary, except as set forth in Section 4.3 of the Schedule.
4.4 Authority; No Violation
(a) Seller and Shareholders have full power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed by Seller
and all Shareholders and, assuming this Agreement constitutes a valid and
binding obligation of Buyer, constitutes a valid and binding obligation of
Seller and Shareholders enforceable against Seller and Shareholders in
accordance with its terms.
(b) Neither the execution and delivery of this Agreement by
Seller and Shareholders nor the consummation by Seller and Shareholders of the
transactions contemplated hereby, nor compliance by Seller and Shareholders with
any of the terms or provisions hereof, will, to the best knowledge of Seller,
(i) conflict with or result in a breach of any provision of the articles of
incorporation or by-laws of Seller, (ii) violate any statute, code, ordinance,
rule, Regulation, judgment, order, writ, decree or injunction applicable to
Shareholders or Seller or any of their respective properties or assets, or (iii)
violate, conflict with, result in a breach of any provisions of, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of, accelerate the
performance required by, or result in a right of termination or acceleration or
the creation of any Encumbrance upon any of the respective properties or assets
of Shareholders or Seller under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed or trust, license, lease, agreement or
other instrument, or obligation to which Shareholders or Seller is a party, or
by which Shareholders, Seller or any of their
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respective properties or assets may be bound or affected except for such
violations, conflicts, breaches and defaults which either individually or in the
aggregate would not have a Material Adverse Effect on Seller.
4.5 Consents and Approvals
Except as set forth in Section 4.5 of the Schedule, no consents,
permits, authorizations or approvals of, or filings or registrations with, any
governmental or regulatory authorities, government sponsored agencies or
corporations or other third parties are necessary to be obtained or made by
Shareholders or Seller in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
4.6 Title to Purchased Assets
Seller has good and marketable title to the Purchased Assets, free and
clear of all Encumbrances, contracts, rights, options and assignments whatsoever
(except pursuant to this Agreement). The documents selling, assigning, conveying
and otherwise transferring from Seller to Buyer the Purchased Assets will grant
and transfer to Buyer good and marketable title to the Purchased Assets, free
and clear of all Encumbrances, contracts, rights, options and assignments
whatsoever, except those created by Buyer and Encumbrances securing the Assumed
Liabilities.
4.7 Financial Statements
Seller has previously delivered to Buyer copies of (i) the audited
financial statements of Seller for each of the years in the three-year period
ended December 31, 1995 (the "Audited Financial Statements", other than fiscal
year 1994 which is unaudited), together with reports on all such audited
financial statements by Seller's independent accountants, and (ii) the unaudited
interim financial statements of Seller dated December 31, 1996 (the "Interim
Financial Statements") (the Audited Financial Statements and the Interim
Financial Statements are collectively referred to herein as the "Financial
Statements"), copies of which are attached hereto as part of Schedule 4.7. The
Audited Financial Statements have been prepared in accordance with GAAP applied
on a consistent basis throughout the periods covered by such statements and
fairly present the financial position of Seller as of the respective dates
thereof, the results of its operations and the changes in its financial position
for the respective periods covered thereby. The Interim Financial Statements
have been prepared from the books and records of Seller in accordance with the
requirements of GAAP.
4.8 Undisclosed Liabilities
As of the date of this Agreement, and except as shown on Schedule 4.8,
Seller does not have any liabilities or obligations of any nature, whether
accrued, absolute, contingent or otherwise, asserted or unasserted, known or
unknown, whether or not required to be shown on a balance sheet prepared in
accordance with GAAP (collectively, "Liabilities"), except for (i) liabilities
and obligations
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stated or adequately reserved against on the Balance Sheet dated December 31,
1996, and (ii) obligations to close Non-Conforming Mortgage Loans and Conforming
Mortgage Loans for which commitments already have been made.
4.9 No Material Adverse Change
Since December 31, 1996, Seller has not suffered any Material Adverse
Effect nor taken any of the actions specified in Section 4.37(a) - (r).
4.10 Legal Proceedings
Except as described in Schedule 4.10, neither Sellers, Seller nor any of
Seller's directors or officers is party to any and there are no legal,
administrative, arbitral or other proceedings, claims, actions or governmental
investigations of any nature pending, nor to the best knowledge of Seller or
Shareholders, threatened, against or affecting Seller or any of its respective
assets or business or challenging the validity or propriety of the transactions
contemplated by this Agreement. Seller is not subject to any order, judgment,
injunction, rule or decree.
4.11 Material Contracts
Section 4.11 of the Schedule is a complete and accurate list of the
following contracts, agreements, and other written or oral arrangements (or
group of related written or oral arrangements) (hereinafter collectively
referred to as "arrangements"), to which Seller is a party on the date hereof:
(a) any arrangement with any employee, agent or independent
contractors involved in the origination of mortgage loans for Seller;
(b) any arrangement (including the lease of real or personal
property from or to third parties) providing for lease payments in excess of
$5,000 per annum or in excess of $10,000 for the remaining term of the
arrangement;
(c) any arrangement in which Seller is participating as a general
partner or joint venturer;
(d) any arrangement which shall survive the Closing under which
Seller has creat ed, incurred, assumed, or guaranteed (or may create, incur,
assume, or guarantee) indebtedness for borrowed money (including capitalized
lease obligations) involving more than $5,000;
(e) any arrangement concerning confidentiality or noncompetition;
(f) any arrangement between any Shareholder and Seller or any of
the Affiliates;
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(g) any arrangement pursuant to which Seller or any Shareholder
has promised to pay, or loan any amount to, or sold, transferred or leased any
property or assets to or from, any Person in their capacity as an officer,
director or other employee of Seller;
(h) any arrangement requiring Seller to pay severance or similar
payments as a result of the transactions contemplated hereby;
(i) any other arrangement which will survive the Closing not
entered into in the ordinary course of business; or
(j) any power of attorney or similar arrangement.
Seller has delivered to Buyer a correct and complete copy of each
written arrangement listed in Section 4.11 of the Schedule. With respect to each
arrangement so listed, to the best of Seller's knowledge: (A) the arrangement is
in full force and effect; (B) neither Shareholders nor Seller is in breach or
default, and no event has occurred which with notice or lapse of time or both
would constitute a breach or default by Shareholders or Seller, or permit
termination, modification, or acceleration against Shareholders or Seller under
the arrangement applicable to it; (C) neither Shareholders nor Seller has
repudiated or waived any material provision of any such arrangement; and (D) no
other party to any such arrangement is in default in any respect thereunder.
With respect to any lease disclosed pursuant to this Section 4.11, all rents and
other amounts currently due thereunder have been paid; no waiver or indulgence
or postponement of any obligation thereunder has been granted by any lessor or
sublessor; and Seller has not received any notice that it has breached any term,
condition or covenant.
4.12 Taxes
(a) Seller or its shareholders has (i) duly filed (or there has
been duly filed on its behalf) with the appropriate federal, state, local and
foreign taxing authorities all Tax Returns required to be filed by or with
respect to Seller, and such Tax Returns are true, correct and complete in all
respects, and (ii) paid in full on a timely basis (or there has been paid on its
behalf) all Taxes shown to be due on such Tax Returns. The provision for current
Taxes on each of the Financial Statements and the Closing Balance Sheet is or
will be adequate for the payment of all accrued but unpaid Taxes of the Seller
through the date thereof.
(b) Neither Seller nor any Affiliate thereof has received any
notice of a deficiency or assessment with respect to taxes of Seller from any
federal, state, local or foreign taxing authority which has not been fully paid
or finally settled; there are no ongoing audits or examinations of any Tax
Return which includes Seller and no notice of audit or examination of any such
Tax Return has been received; Seller has not given and there has not been given
on its behalf a waiver or extension of any statute of limitations relating to
the payment of Taxes; and no issue has been raised in writing on audit or in any
other proceeding with respect to Taxes of Seller by any federal, state, local or
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foreign taxing authority which, if resolved against Seller, would have a
Material Adverse Effect on Seller.
(c) Seller has not filed a consent under Section 341(f) of the
Code concerning collapsible corporations. Seller has not made any payments, is
not obligated to make any payments, and is not a party to any contract,
agreement or other arrangement that could obligate it to make any payments that
would not be deductible under Section 280G of the Code. Seller has disclosed on
its federal income Tax Returns all positions taken therein that could give rise
to a substantial understatement of federal income tax within the meaning of
Section 6661 (or its successor, Section 6662) of the Code.
(d) For purposes of this Agreement "Taxes" shall mean all taxes,
charges, fees, levies, penalties or other assessments imposed by any United
States federal, state, local or foreign taxing authority, including, but not
limited to, income, excise, property, sales, transfer, franchise, payroll,
gains, withholding, ad valorem, social security or other taxes, including any
interest, penalties or additions attributable to Taxes.
(e) For purposes of this Agreement, "Tax Return" shall mean any
return, report or information return required to be filed with any taxing
authority with respect to Taxes.
(f) After the Closing, Shareholders shall bear responsibility for
and pay the reasonable costs and expenses relating to the preparation of any Tax
Return relating to any period before the Closing Date and shall pay, or
reimburse Seller for the payment of, any Taxes relating to any period before the
Closing Date.
4.13 ERISA
(a) Section 4.13(a) of the Schedule contains a true and complete
list of each employee benefit, compensation or welfare benefit plan, program or
agreement maintained or contributed to or required to be contributed to by
Seller (the "Plans"). Seller has no formal plan or commitment, whether legally
binding or not, to create any additional Plan or modify or change any existing
Plan that would affect any employee or terminated employee of Seller.
(b) With respect to each of the Plans, Seller has heretofore
delivered to Buyer true and complete copies of each of the following documents:
(i) each Plan and related trust, if any, (including all amendments thereto);
(ii) annual report and actuarial report, if required to be filed under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), for the
last two (2) years and the latest financial statement, if any, for each such
Plan; (iii) the most recent summary plan description, together with each summary
of material modifications, required under ERISA; and (iv) the most recent
determination letter received from the IRS with respect to each Plan that is
intended to be qualified under Section 401 of the Code.
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(c) All required contributions have been, or will be, made with
respect to each Plan on or prior to the Closing Date or will be properly
recorded on the Closing Balance Sheet.
(d) Each of the Plans has been operated and administered in all
material respects in accordance with applicable laws, including, but not limited
to, ERISA and the Code and each of the Plans that is intended to be "qualified"
within the meaning of Section 401(a) of the Code is so qualified.
(e) Except as set forth in Section 4.13(e) of the Schedule, no
Plan provides benefits, including, without limitation, death or medical benefits
(whether or not insured), with respect to current or former employees beyond
their retirement or other termination of service (other than (A) coverage
mandated by applicable law, (B) death benefits or retirement benefits under any
"employee pension plan," as that term is defined in Section 3(2) of ERISA, (C)
deferred compensation benefits accrued as liabilities on the books of Seller or
(D) benefits the full cost of which is borne by the current or former employee
(or his beneficiary)).
(f) There are no pending, threatened or anticipated claims (other
than routine claims for benefits) by, on behalf of or against any of the Plans
or any trusts related thereto.
(g) The consummation of the transactions contemplated by this
Agreement will not (either alone or upon the occurrence of any additional acts
or events) (A) entitle any current or former employee of Seller to severance
pay, employment compensation or any other payment, benefit or award or (B)
accelerate or modify the time of payment or vesting, or increase the amount of
any benefit, award or compensation due any such employee.
4.14 Ownership of Property
Seller has good and valid title to all Purchased Assets and properties,
whether real or personal, tangible or intangible, and all other assets and
properties reflected in its balance sheet as of December 31, 1996, or acquired
subsequent thereto, subject to no Encumbrances, except (i) those items that
secure liabilities that are reflected in said balance sheet or the notes thereto
or incurred in the ordinary course of business after the date of such balance
sheet, (ii) statutory liens for amounts not yet delinquent or which are being
contested in good faith, (iii) liens and encumbrances on, and rights of
redemptions with respect to, foreclosed real estate, and (iv) such Encumbrances
that do not in the aggregate materially detract from the value or interfere with
the use or operations of the assets and properties subject thereto. Seller as
lessee has the right under valid and subsisting leases to occupy, use, possess
and control all property leased by Seller, as presently occupied, used,
possessed and controlled by Seller. The properties and assets owned or leased by
Seller are adequate for the conduct of the current business of Seller. Giving
effect to the transactions contemplated by this Agreement, Buyer shall have all
assets, personnel and property necessary and proper to conduct Seller's business
consistent with historical practice, subject to Buyer securing appropriate
licenses and regulatory approvals to the extent necessary.
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4.15 Environmental Protection
Seller has not received from any source with respect to any property
("Operating Property") that it owns (including as a trustee), leases, or
actively participates in the management of, any Environmental Claim to the
effect that Seller, or any Operating Property or Loan Property, or any
predecessor is not in compliance with all environmental or health laws, rules,
Regulations, standards and requirements relating to pollution (including the
discharge of materials into the environment or indoors) or protection of the
environment, including common law ("Environmental Laws"), nor any requests for
information which could result in or help provide a basis for any Environmental
Claim, nor are there any facts which could reasonably be expected to form the
basis of an Environmental Claim against Seller. All environmental audits,
analyses, or surveys of any Operating Property or Loan Property which have been
submitted to or by Seller are identified in Section 4.15 of the Schedule, and
copies of such audits, analyses, surveys or other documents have been made
available to Buyer. Seller has not owned, managed, supervised or participated in
the management of any com mercial real property.
4.16 Brokers and Finders
Neither Shareholders nor Seller, nor any of Seller's officers,
directors, employees or agents has employed any broker, finder or financial
advisor or incurred any liability for any fees or commissions in connection with
the transactions contemplated hereby, except for legal, accounting and other
professional fees payable by Seller or Shareholders in connection with the
Acquisition. Shareholders shall cause all legal, accounting and other
professional fees and expenses of Seller related to this transaction to be paid
by Seller prior to Closing.
4.17 Insurance
Seller is insured with reputable insurers against such risks and in such
amounts normally in sured against by companies of the same type and in the same
line of business. All of the insurance policies, binders or bonds maintained by
Seller are in full force and effect; Seller is not in default thereunder; all
claims thereunder have been filed in due and timely fashion; and all such
policies, binders and bonds will remain in full force and effect after the
Closing Date unless affected by the transactions contemplated hereby until their
respective expiration dates, as set forth on Schedule 4.17.
4.18 Intentionally Omitted.
4.19 Intentionally Omitted.
4.20 Intentionally Omitted.
4.21 Intentionally Omitted.
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4.22 No Recourse.
Except as set forth in Section 4.22 of the Schedule, Seller is
not a party to (A) any agreement or arrangement with (or otherwise obligated to)
any Person, including an Investor or insurer, to repurchase from any such Person
any Mortgage Loan and mortgaged property serviced for others or any mortgage
loan sold by Seller with servicing released ("Servicing Released Loans"), or (B)
any agreement, arrangement or understanding to reimburse, indemnify or hold
harmless any Person or otherwise assume any liability with respect to any Loss
suffered or incurred as a result of any default under or the foreclosure or sale
of any such Mortgage Loan or mortgage property or Servicing Released Loans,
except insofar as (i) such recourse is based upon breach by Seller of a
customary representation, warranty or undertaking, or (ii) Seller incurs
expenses such as legal fees in excess of the reimbursement limits, if any, set
forth in the applicable Mortgage Servicing Agreement.
4.23 Intentionally Omitted.
4.24 Intentionally Omitted.
4.25 Investment Commitments.
Set forth in Section 4.25 of the Schedule is a complete and correct list
of each Investor Commitment of to which Seller was a party on December 31. 1996.
Shareholders have made available to Buyer complete and correct copies of all
Investor Commitments in effect on such date. Each Investor Commitment
constitutes valid and binding obligations of the parties thereto, enforceable in
accordance with its terms, subject to bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors' rights generally and by general
principles of equity (whether applied in a proceeding in equity or at law).
Seller shall retain all Investor Commitments as of the Closing Date.
4.26 Intentionally Omitted.
4.27 Intentionally Omitted.
4.28 Data Processing
To the best of Seller's knowledge, Seller has good and valid title or
valid license to the data processing software (including documentation, user
manuals, upgrades and current releases, etc.), currently used by it, and the
data processing system (software and hardware), used to support Seller's
business is operating in the intended manner.
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4.29 Inquiries
Section 4.29 of the Schedule contains a true and correct list of all of
the audits, investigations, complaints and inquiries of Seller by an Agency,
HUD, an Investor, or a private mortgage insurer since June 30, 1995, the result
of which audits and investigations claimed a material failure to comply with
applicable Regulations, resulted in a repurchase of Mortgage Loans by Seller,
resulted in indemnification by Seller in connection with the Mortgage Loans,
resulted in rescission of an insurance or guaranty contract or agreement, or
resulted in payment of a penalty to a Agency, HUD, an Investor or a private
mortgage insurer, and like adverse findings. Except for customary ongoing
quality control reviews, no such audit or investigation (each an "Inquiry") is
pending or threatened. Sellers have made available to Buyer copies of all
written reports and materials received in connection with such audits,
investigations, complaints and inquiries.
4.30 Representations
No breach or violation of any representation, warranty or covenant
exists which individually, or collectively, would have a Material Adverse Effect
on Seller or any Purchased Assets with respect to any Mortgage Loans, the
ownership of which has been transferred by Seller to any Person.
4.31 Advances
Except as set forth in Section 4.31 of the Schedule, there are no
pooling, participation, servicing or other agreements to which Seller is a party
which obligate it to make servicing advances with respect to defaulted or
delinquent Mortgage Loans other than as provided in GNMA pooling and servicing
agreements.
4.32 Pools
Except as set forth in Section 4.32 of the Schedule, all Pools serviced
by Seller have been certified and, if required, re-certified. With respect to
any Pools serviced by Seller which have not been fully certified, Seller has
notified the custodian with respect thereto of all deficiencies, and such
custodian has so notified the applicable Investor or Investor Program.
4.33 Commercial Mortgages
Seller has never taken title to any commercial mortgage loan. Seller has
never foreclosed on any commercial property securing any commercial mortgage
loan in its own name, is not required under any Mortgage Servicing Agreement to
foreclose on any commercial property securing any commercial mortgage loans in
default in its own name and has never taken title to any commercial property
securing any commercial mortgage loan.
4.34 No Tax-Sharing Agreements
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Seller is not a party to any tax sharing agreement or similar
arrangement.
4.35 No Intercompany Accounts
Seller has no intercompany accounts.
4.36 Seller Employees
To the best of Sellers' knowledge, each employee of Seller will accept
Buyer's offer of employment after the Closing Date. Seller has no agreements,
policies, practices or understandings (written or oral) concerning Seller
employee bonus programs, employee incentive plans or employee benefit plans
except as set forth in Section 4.13(a) of the Schedule. A complete list of
Seller's employees is set forth in Section 4.36 of the Schedule.
4.37 Conduct Prior to Closing
Within the one (1) month prior to the Closing Date or on the Closing
Date, except as set forth in Section 4.37 of the Schedule, Seller has conducted
its business only in the ordinary course, and Seller has not:
(a) issued, sold or delivered any shares of its capital stock or
issue or sell any securities convertible into, or options with respect to, or
warrants to purchase or rights to subscribe to, any shares of its capital stock;
(b) effected any recapitalization, reclassification, stock
dividend, stock split or like change in capitalization;
(c) amended its articles of incorporation or by-laws;
(d) merged or consolidated with, or, except as a result of
foreclosure or repossession in the ordinary course of its mortgage banking
business, acquired substantially all of the assets of, any other entity;
(e) sold, transferred, leased or encumbered a material amount of
assets (other than Excluded Assets) except in the ordinary course of business;
(f) materially altered or varied its methods or policies of (i)
underwriting, pricing, originating, warehousing, selling and servicing, or
buying or selling rights to service, its Mortgage Loans, (ii) hedged (which term
includes both buying futures and forward commitments from financial
institutions) its mortgage loan positions or commitments, and (iii) obtained
financing and credit;
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(g) granted to any director, officer, employee or consultant any
material increase in compensation or benefits (other than as may be required
under the terms of written agreements in effect on the date hereof and other
than normal increases made in the ordinary course of business to officers or
employees in accordance with customary past practices and policies);
(h) granted any severance or termination pay (other than as may
be required under the terms of written agreements in effect on the date hereof)
to, or entered into or amended any employment or severance agreement with, any
person, other than termination pay paid in the ordinary course of business to
officers or employees in accordance with customary past practices and policies;
(i) adopted any new or amended any existing director, officer or
employee benefit plans (including, without limitation, profit sharing, bonus,
director and officer incentive compensation, retirement, medical,
hospitalization, life or other insurance plans, arrangements and commitments) or
any trust agreement relating thereto;
(j) incurred any debt other than in the ordinary course of
business in amounts consistent with past practice;
(k) made any change in accounting principles or methods from
those currently employed, except as required by GAAP or by applicable regulatory
requirements;
(l) granted any mortgage or security interest in, or made any
pledge of, or permitted any lien or encumbrance to be placed on, any of its
assets or properties other than in the ordinary course of business consistent
with past practice;
(m) canceled, waived, released or compromised any material debt
or claim, other than upon payment in full;
(n) failed to maintain in full force and effect all existing
insurance policies and fidelity bonds;
(o) taken any action, or failed to take any action, that would
result in a breach or violation of the representations and warranties of Sellers
contained in this Agreement or caused any condition to the transactions
contemplated hereby not to be satisfied;
(p) accelerated, terminated, modified or canceled any material
contract, lease, or license to which Seller is a party;
(q) entered into any employment or collective bargaining
agreement, or modified any existing employment or collective bargaining
agreement; and
(r) agreed to do any of the foregoing included in (a) through
(q).
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer makes the following representations and warranties to Seller and
Shareholders, each of which is true and correct on the date hereof, shall remain
true and correct to and including the Closing Date, shall be unaffected by any
investigation heretofore or hereafter made by Seller or any notice to Seller,
and shall survive the closing of the transactions provided for herein.
5.1 Organization
Buyer is a corporation duly organized and in good standing under the
laws of the State of Florida. Buyer has the corporate power and authority to own
or lease all of its properties and to carry on its business as it is now being
conducted.
5.2 Authority; No Violation
(a) Buyer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action in respect thereof and no other corporate proceedings
on the part of Buyer are necessary to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered by
Buyer and, assuming this Agreement constitutes a valid and binding agreement of
Seller, constitutes a valid and binding obligation of Buyer, enforceable against
Buyer in accordance with its terms (subject to applicable bankruptcy, insolvency
and similar laws affecting creditors' rights generally and subject, as to
enforceability, to general principles of equity.)
(b) Neither the execution and delivery of this Agreement nor the
consummation by Buyer of the transactions contemplated hereby, nor compliance by
Buyer with any of the terms or provisions hereof, will (i) conflict with or
result in a breach of any provision of the articles of incorporation or by-laws
of Buyer, (ii) violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to Buyer or any of its properties
or assets, or (iii) subject to obtaining or making the consents, permits,
authorizations, approvals, filings and registrations set forth in Section 5.2 of
the Buyer Schedule, violate, conflict with, result in a breach of any provisions
of, constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, result in the termination of,
accelerate the performance required by, or result in a right of termination or
acceleration or the creation of any Encumbrance upon any of the properties or
assets of Buyer under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Buyer is a party, or by which its properties
or assets may be bound or affected except for such violations, conflicts,
breaches or defaults which either individually or in the aggregate would not
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have a Material Adverse Effect on Buyer. Notwithstanding the foregoing, the
representations and warranties in this subsection (b) shall not relate to or
cover any consents, approvals, filings or registrations, if any, arising from
the regulated nature of Seller or made applicable to Buyer by virtue of Seller
or Buyer's acquisition of the Purchased Assets and business of Seller or such
regulations governing Seller and the mortgage banking industry as a result of
Buyer's purchase of the Purchased Assets.
5.3 Brokers and Finders
Neither Buyer nor any of its officers, directors, employees or agents
has employed any broker, finder or financial advisor or incurred any liability
for any fees or commissions in connection with the transactions contemplated
hereby, except for legal, accounting and other professional fees payable in
connection with the Acquisition.
5.4 Buyer's Review of Seller's Schedules
Buyer acknowledges that it has reviewed the Seller's schedules attached
to this Agreement. The Buyer is satisfied with the form and format of such
schedules and accepts the matters accurately disclosed therein; provided that
this representation shall not constitute a release or waiver of Buyer's claims
and causes of action arising from misstatements, errors and omissions contained
in Buyer's schedules.
ARTICLE 6
COVENANTS
6.1 Filings and Consent
The parties hereto agree that they will consult with each other with
respect to the obtaining of all necessary permits, consents, approvals and
authorizations of all third parties and governmental bodies necessary or
advisable to consummate the transactions contemplated by this Agreement, and
each party will keep the others apprised of the status of matters relating to
completion of the transactions contemplated herein.
(a) Sellers and Buyer shall promptly furnish each other with
copies of written communications received by Shareholders, Seller or Buyer, as
the case may be, or delivered by any of them, of any governmental body, Agency,
Investor or private mortgage insurer in respect of the transactions contemplated
hereby.
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6.2 Press Releases
Seller and Buyer shall cooperate with each other in the development and
distribution of all news releases and other public information disclosures with
respect to the Agreement or the transactions contemplated hereby; provided,
however, prior to the consummation of the Acquisition, no party hereto shall
make any public announcement or disclosure with respect to the transactions
contemplated hereby without the prior approval of the other parties, except
where disclosure is required by law. The parties anticipate issuing a press
release relating to the acquisition upon execution of this Agreement.
6.3 Employment Agreements
Buyer shall enter into Employment Agreements with the Executives to
serve as executive officers of the Post-Closing Seller Business Unit, or of
Buyer or an affiliate of Buyer, in the form attached hereto as Exhibit 6.3.
6.4 Marketing of Competing Products
Shareholders and Seller acknowledge that Buyer markets products that
directly compete with Seller's products, and after closing Seller's other
business units will market products which directly compete with the AMR
Division.
6.5 Intentionally Omitted.
ARTICLE 7
FURTHER COVENANTS OF SELLER AND SHAREHOLDERS
Seller and Shareholders covenant and agree as follows:
7.1 Access to Information and Records. During the period prior to the
Closing:
(a) Seller shall, and shall cause its officers, employees,
agents, independent accountants and advisors to, furnish to Buyer, its
officers, employees, agents, independent accountants and advisors, at
reasonable times and places, all information in their possession
concerning Seller as may be requested, and give such persons access to
all of the properties, books, records, contracts and other documents of
or pertaining to Seller that Seller or its officers, employees, agents,
independent accountants or advisors shall have in their custody.
(b) With the prior consent of Seller in each instance (which
consent shall not be unreasonably withheld), Buyer and its officers,
employees, agents, independent accountants
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and advisors, shall have access to vendors, customers, and others having
business dealings with Seller for the purpose of performing Buyer's due
diligence investigation.
7.2 Bank Accounts. Not less than ten (10) days prior to the Closing,
Seller shall provide to Buyer a list of each bank in which Seller has an account
or safe deposit box, the name and number of each such account or box and the
names of all persons authorized to draw thereon or who have access thereto, with
the amounts they are authorized to draw.
7.3 Conduct of Business Pending the Closing. From the date hereof until
the Closing, except as otherwise approved in writing in advance by the Buyer
(which approval shall not be unreasonably withheld):
(a) No Changes. Seller will carry on its business diligently and
in the same manner as heretofore and will not make or institute any
changes in its methods of purchase, sale, management, accounting or
operation.
(b) Maintain Organization. Seller will take such action as may be
necessary to maintain, preserve, renew and keep in favor and effect the
existence, rights and franchises of Seller and will use its best efforts
to preserve the business organization of Seller intact, to keep
available to Buyer the present officers and employees, and to preserve
for Buyer its present relationships with suppliers and customers and
others having business relationships with Seller.
(c) No Breach. Seller and Shareholders will not do or omit any
act, or permit any omission to act, which may cause a breach of any
material contract, commitment or obligation, or any breach of any
representation, warranty, covenant or agreement made by Seller and/or
the Shareholders herein, or which would have required disclosure on
Schedule 4.37 had it occurred after December 31, 1996 and prior to the
date of this Agreement.
(d) No Material Contracts. No contract or commitment will be
entered into, and no purchase of raw materials or supplies and no sale
of goods or services (real, personal, or mixed, tangible or intangible)
will be made, by or on behalf of Seller, except contracts, commitments,
purchases or sales which are in the ordinary course of business and
consistent with past practice, are not material to the Seller
(individually or in the aggregate) and would not have been required to
be disclosed in the Disclosure Schedule had they been in existence on
the date of this Agreement.
(e) No Corporate Changes. Seller shall not amend its Articles of
Incorporation or By-laws or make any changes in authorized or issued
capital stock.
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(f) Maintenance of Insurance. Seller shall maintain all of the
insurance in effect as of the date hereof and shall procure such
additional insurance as shall be reasonably requested by Buyer.
(g) Maintenance of Property. Seller shall use, operate, maintain
and repair all property of Seller in a normal business manner.
(h) Interim Financials. Seller will provide Buyer with interim
monthly financial statements and other management reports as and when
they are available.
(i) No Negotiations. Neither Seller nor any Shareholder will
directly or indirectly (through a representative or otherwise) solicit
or furnish any information to any prospective buyer, commence, or
conduct presently ongoing, negotiations with any other party or enter
into any agreement with any other party concerning the sale of Seller,
Seller's assets or business or any part thereof or any equity securities
of Seller (an "acquisition proposal"), and Seller and Shareholders shall
immediately advise Buyer of the receipt of any acquisition proposal.
7.4 Change of Corporate Name. Upon request by Buyer after the Closing,
Seller shall change its corporate name to a new name bearing no resemblance to
its present name so as to permit the use of its present name by Buyer.
7.5 Consents. Seller and Shareholders will use all reasonable efforts
prior to Closing to obtain all consents necessary for the consummation of the
transactions contemplated hereby.
7.6 Other Action. Seller and Shareholders shall use their best efforts
to cause the fulfillment at the earliest practicable date of all of the
conditions to the parties' obligations to consummate the transactions
contemplated in this Agreement.
7.7 Disclosure. Seller and Shareholders shall have a continuing
obligation to promptly notify Buyer in writing with respect to any matter
hereafter arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Disclosure Schedule, but no such disclosure shall cure any breach of any
representation or warranty which is inaccurate.
7.8 Retirement Plan. Seller and Shareholders shall take all actions that
are necessary to terminate Seller's retirement plan as soon as possible after
Closing and Seller and Shareholders shall indemnify and hold Buyer harmless from
any liabilities in respect thereof.
ARTICLE 8
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CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
Each and every obligation of Buyer to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of each of the
following conditions:
8.1 Representations and Warranties True on the Closing Date. Each of the
representations and warranties made by Seller and Shareholders in this
Agreement, and the statements contained in the Disclosure Schedule or in any
instrument, list, certificate or writing delivered by Seller pursuant to this
Agreement, shall be true and correct in all material respects when made and
shall be true and correct in all material respects at and as of the Closing Date
as though such representations and warranties were made or given on and as of
the Closing Date, except for any changes permitted by the terms of this
Agreement or consented to in writing by Buyer.
8.2 Compliance With Agreement. Seller and Shareholders shall have in all
material respects performed and complied with all of their agreements and
obligations under this Agreement which are to be performed or complied with by
them prior to or on the Closing Date, including the delivery of the closing
documents specified in Section 10.1.
8.3 Absence of Litigation. No Litigation shall have been commenced or
threatened, and no investigation by any Government Entity shall have been
commenced, against Buyer, Seller or any of the affiliates, officers or directors
of any of them, with respect to the transactions contemplated hereby.
8.4 Consents and Approvals. All approvals, consents and waivers that
Buyer and Seller anticipate are required to effect the transactions contemplated
hereby shall have been received.
ARTICLE 9
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
Each and every obligation of Seller and Shareholders to be performed on
the Closing Date shall be subject to the satisfaction prior to or at the Closing
of the following conditions:
9.1 Representations and Warranties True on the Closing Date. Each of the
representations and warranties made by Buyer in this Agreement shall be true and
correct in all material respects when made and shall be true and correct in all
material respects at and as of the Closing Date as though such representations
and warranties were made or given on and as of the Closing Date.
9.2 Compliance With Agreement. Buyer shall have in all material respects
performed and complied with all of Buyer's agreements and obligations under this
Agreement which are to be
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performed or complied with by Buyer prior to or on the Closing Date, including
the delivery of the closing documents specified in Section 10.1.
9.3 Absence of Litigation. No Litigation shall have been commenced or
threatened, and no investigation by any Government Entity shall have been
commenced, against Buyer, Seller or any of the affiliates, officers or directors
of any of them, with respect to the transactions contemplated hereby; provided
that the obligations of Seller shall not be affected unless there is a
reasonable likelihood that as a result of such action, suit, proceeding or
investigation Seller will be unable to retain substantially all the
consideration to which it is entitled under this Agreement.
ARTICLE 10
CLOSING
The closing of this transaction ("the Closing") shall take place at the
offices of Buyer's attorneys in Jacksonville, Florida at such time and place as
the parties hereto shall agree upon after the satisfaction of the conditions to
closing. Such date is referred to in this Agreement as the "Closing Date".
Regardless of the Closing Date, the transaction shall be deemed to have occurred
for all purposes as of the Effective Time and the parties shall cooperate to
treat the transaction as having occurred as of the Effective Time.
10.1 Documents to be Delivered by Seller and Shareholders. At the
Closing, Seller and Shareholders shall deliver to Buyer the following documents,
in each case duly executed or otherwise in proper form:
(a) Bills of Sale. Bills of sale and such other instruments of
assignment, transfer, conveyance and endorsement as will be sufficient
in the opinion of Buyer and its counsel to transfer, assign, convey and
deliver to Buyer the Purchased Assets as contemplated hereby.
(b) Compliance Certificate. A certificate signed on behalf of
Seller that each of the representations and warranties made by Seller
and Shareholders in this Agreement is true and correct in all material
respects on and as of the Closing Date with the same effect as though
such representations and warranties had been made or given on and as of
the Closing Date (except for any changes permitted by the terms of this
Agreement or consented to in writing by Buyer), and that Seller and
Shareholders have performed and complied with all of Seller's and
Shareholders' obligations under this Agreement which are to be performed
or complied with on or prior to the Closing Date.
(c) Opinion of Counsel. A written opinion of counsel to Seller
and Shareholders, dated as of the Closing Date, addressed to Buyer,
substantially in the form of Exhibit 10.1(c).
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(d) Employment Agreements. The Employment Agreements with the
Executives, duly executed by the Executives.
(e) Intentionally Omitted.
(f) Intentionally Omitted.
(g) Leases. The Lease Assignment and Assumption Agreements duly
executed by Seller.
(h) Intentionally Omitted.
(i) Other Documents. All other documents, instruments or writings
required to be delivered to Buyer at or prior to the Closing pursuant to
this Agreement and such other certificates of authority and documents as
Buyer may reasonably request.
10.2 Documents to be Delivered by Buyer. At the Closing, Buyer shall
deliver to Seller the following documents, in each case duly executed or
otherwise in proper form:
(a) Assumption of Liabilities. Such undertakings and instruments
of assumption as will be reasonably sufficient in the opinion of Seller
and its counsel to evidence the assumption of Assumed Liabilities as
provided for in Article 2.
(b) Compliance Certificate. A certificate signed on behalf of
Buyer that the representations and warranties made by Buyer in this
Agreement are true and correct on and as of the Closing Date with the
same effect as though such representations and warranties had been made
or given on and as of the Closing Date (except for any changes permitted
by the terms of this Agreement or consented to in writing by Seller),
and that Buyer has performed and complied with all of Buyer's
obligations under this Agreement which are to be performed or complied
with on or prior to the Closing Date.
(c) Employment Agreements. The Employment Agreements referred to
in Section 6.3 duly executed by the persons referred to in such Section.
(d) Leases. Assignment and Assumption Agreements in respect of
the Leases for Seller's offices and personal property, duly executed by
Buyer.
(e) Other Documents. All other documents, instruments or writings
required to be delivered to Seller at or prior to the Closing pursuant
to this Agreement and such other certificates of authority and documents
as Seller may reasonably request.
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ARTICLE 11
TERMINATION
11.1 Right of Termination. This Agreement may be terminated without
further liability of any party at any time prior to the Closing:
(a) by mutual written agreement of Buyer and Seller, or
(b) by either Buyer or Seller if the Closing shall not have
occurred on or before February 10, 1997.
ARTICLE 12
INDEMNIFICATION
12.1 Indemnification
(a) From and after the Closing Date, Shareholders and Sellers
shall indemnify and hold harmless, Buyer and each of its Affiliates from and
against any and all Losses which any of them may suffer, incur or sustain
arising out of or attributable to (whether or not arising out of third party
claims) (i) any breach of any covenant, representation or warranty made by
Shareholders and/or Sellers pursuant to this Agreement, and (ii) any claim or
liability (other than payment of benefits in the ordinary course), tax, penalty
asserted, legal action or administrative proceeding resulting from or arising in
connection with any Plan or Single Employer Plan that was accrued or incurred
prior to the Closing Date.
(b) From and after the Closing Date, Buyer shall indemnify and
hold harmless Seller from and against any and all Losses which it may suffer,
incur or sustain arising out of any breach of any representation, warranty or
covenant to be performed by Buyer pursuant to this Agreement.
(c) From and after the Closing Date, Seller and Shareholders
shall indemnify and hold Buyer and its affiliates harmless against, and agree to
pay, any and all expenses, costs or losses relating to the operation of Seller
prior to Closing.
(c) If any third party makes a claim for which an indemnifying
party under this Section 12.1 ("Indemnified Party") seeks indemnity from the
indemnifying party ("Indemnitor"), the Indemnified Party shall as soon as
practicable notify Indemnitor of the details of the claim ("Claim Notice").
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After receiving a Claim Notice, Indemnitor may elect, by written
notice to the Indemnified Party, to assume the defense of such claim by using
counsel selected by Indemnitor, acting reasonably. If Indemnitor assumes such
defense and admits that the claim is subject to the Indemnitor's indemnity
obligations, then (i) the claim shall be deemed to be a claim indemnified by the
Indemnitor; (ii) the Indemnified Party may, at its election, participate in the
defense of the claim, but Indemnitor will have no obligation to pay for any
defense costs including attorneys' fees of the Indemnified Party after
Indemnitor assumes the defense of the claim; and (iii) Indemnitor will have the
right, without cost to Indemnified Party, to compromise and settle the claim on
any basis believed reasonable, in good faith, by Indemnitor, and Indemnified
Party shall be bound thereby, provided that Indemnitor can reasonably
demonstrate the financial resources to perform under the terms of the proposed
Settlement.
After receiving a Claim Notice, if Indemnitor either does not
assume the defense thereof, or does so under a reservation of rights without
admitting that the claim is subject to the Indemnitor's indemnity obligations,
then: (i) the claim shall not be deemed to be a claim indemnified by the
Indemnitor and neither party shall have waived any rights to assert that the
claim is or is not properly a claim subject to the Indemnitor's indemnity
obligations; (ii) both Indemnitor and Indemnified Party may, at their individual
election, participate in the defense of such claim but Indemnitor will remain
responsible for the costs of defense, including reasonable attorneys' fees of
the Indemnified Party should the claim ultimately be determine to be subject to
Indemnitor's indemnity obligation; and (iii) the Indemnified Party shall have
the right to compromise and settle the claim on any basis believed reasonable,
in good faith, by the Indemnified Party, and the Indemnitor will be bound
thereby should the claim ultimately be determined to be subject to Indemnitor's
indemnity obligation.
(d) Notwithstanding anything to the contrary anywhere in this
Agreement, (i) Seller and Shareholders' maximum aggregate liability arising out
of this Agreement and the Acquisition shall be the Purchase Price except for
claims based on intentional fraud of Seller and/or the Shareholders; (ii) Seller
and Shareholders shall have no liability for any claim which is not presented to
them in writing within three years following the date of this Agreement; (iii)
Seller and Shareholders shall be jointly and severally liable for all
indemnification relating to claims presented in writing.
ARTICLE 13
POST-CLOSING COVENANTS
13.1 Personnel Matters
After the Closing Date, except for the Executives, each employee of
Seller will continue to be employed by Buyer on terms that are comparable to the
employment terms, compensation and benefits provided by Seller immediately prior
to the Closing.
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13.2 Shareholder Cooperation
Shareholders shall encourage Seller employees to accept employment with
Buyer.
ARTICLE 14
AMENDMENTS
14.1 Amendment, Extension and Waiver
Subject to applicable law, at any time prior to the consummation of the
transactions contemplated by this Agreement, Sellers and Buyer may (a) amend
this Agreement, (b) extend the time for the performance of any of the
obligations or other acts of any other party hereto, (c) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto, or (d) waive compliance with any of the agreements or
conditions contained in this Agreement. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto. Any
agreement on the part of a party hereto to any extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party, but such waiver or failure to insist on strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
ARTICLE 15
MISCELLANEOUS
15.1 Survival
The representations and warranties set forth herein shall survive the
Closing.
15.2 Expenses
Each party hereto shall bear and pay all costs and expenses incurred by
it in connection with the transactions contemplated hereby, including fees and
expenses of its own financial consultants, accountants and counsel.
15.3 Entire Agreement
This Agreement, including the documents, schedules and other writings
referred to herein or delivered pursuant hereto, contains the entire agreement
and understanding of the parties with respect to its subject matter. This
Agreement supersedes all prior arrangements and understandings between the
parties, both written or oral with respect to its subject matter.
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15.4 Parties in Interest
The Agreement shall be binding upon and shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
assigns; provided, however, that nothing in this Agreement, expressed or
implied, is intended to confer upon any other person or entity, any rights,
remedies, obligations or liabilities of any nature whatsoever under or by reason
of this Agreement.
15.5 Assignment
No party hereto may assign any of its rights or obligations hereunder to
any other person, without the prior written consent of the other parties
provided, however, Buyer may assign its rights and obligations hereunder to any
one or more of its Affiliates (whether existing on the date hereof or hereafter
created).
15.6 Setoff
The Buyer shall have the right to setoff against the Purchase Price
(including the Contingent Payment) and the Exchange Shares (including Exchange
Shares after they have been transferred by Seller to Shareholders as part of
Seller's liquidation) for any damages for any breach of Shareholders' or
Seller's representations, warranties or covenants. This shall not limit any of
Buyer's other remedies under this Agreement, at law or in equity.
15.7 Notices
All notices or other communications hereunder shall be in writing and
shall be deemed given if delivered personally or mailed by prepaid registered or
certified mail (return receipt requested), or by overnight courier, cable,
telegram or telex addressed as follows:
(a) If to Seller to:
______________________
______________________
______________________
______________________
cc:
______________________
______________________
______________________
______________________
(b) If to Buyer to:
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Mr. George Nicholas
Industry Mortgage Company
3450 Buschwood Park Dr., Suite 250
Tampa, FL 33618
Facsimile: (813) 935-0227
cc:
Mitchell W. Legler, P.A.
1 Independent Drive
Jacksonville, FL 32202
Facsimile: (904) 791-9333
15.8 Captions
The table of contents and captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
15.9 Counterparts
This Agreement may be executed in any number of counterparts, and each
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one Agreement. Executed counterparts
which are transmitted by facsimile are intended to be binding and enforceable.
15.10 Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of Florida, without giving effect to the principles of
conflict of laws thereof.
15.11 No Third Party Beneficiaries
There are no third party beneficiaries and no third party shall have any
rights or remedies under this Agreement.
IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement as of
the day and year first above written.
IMC MORTGAGE COMPANY
By:_________________________________________
Title: _____________________________________
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AMERICAN MORTGAGE REDUCTION, INC.
By:_________________________________________
Title: _____________________________________
____________________________________________
HARRY KOROTKI
____________________________________________
MARC HEYMAN
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<PAGE>
ASSET PURCHASE AGREEMENT
BETWEEN
IMC MORTGAGE COMPANY
AND
EQUITY MORTGAGE CO., INC.
DATED AS OF JANUARY 1, 1997
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION
ARTICLE 1
CERTAIN DEFINITIONS
ARTICLE 2
PURCHASE AND SALE OF ASSETS
ARTICLE 3
PURCHASE PRICE - PAYMENT
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
ARTICLE 6
COVENANTS
ARTICLE 7
FURTHER COVENANTS OF SELLER
ARTICLE 8
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
<PAGE>
<PAGE>
ARTICLE 9
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
ARTICLE 10
CLOSING
ARTICLE 11
TERMINATION
ARTICLE 12
SELLER'S AND BUYER'S LICENSES
ARTICLE 13
INDEMNIFICATION
ARTICLE 14
POST-CLOSING COVENANTS
ARTICLE 15
AMENDMENTS
ARTICLE 16
MISCELLANEOUS
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of January 1, 1997,
is made by and between IMC MORTGAGE COMPANY, a Florida corporation ("Buyer"),
and EQUITY MORTGAGE CO., INC. ("Seller").
INTRODUCTION
A. Seller is engaged in the mortgage banking and brokerage business (the
"Business").
B. Buyer desires to purchase all of the Business and substantially
all of the operating assets of Seller (the "Acquisition").
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, agreements, representations and warranties herein contained, and
intending to be legally bound, the parties hereto do hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
For the purpose of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, (i) the terms defined in this
Article have the meanings assigned to them in this Article and include the
plural as well as the singular and (ii) all accounting terms not otherwise
defined herein have the meanings assigned under GAAP.
Acquisition -- As defined in the Introduction.
Affiliate -- With respect to any Person, any Person directly or
indirectly controlling, controlled by, or under common control with such other
Person. For purposes of this definition, "control" (including with correlative
meaning, the terms "controlled by" and "under common control with,") as used
with respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through ownership of voting securities, by contract or
otherwise.
Affiliated Group -- Any affiliated group within the meaning of Code
Section 1504 or any similar group defined under a similar provision of state,
local or foreign law, including any consolidated, unitary or combined group of
companies.
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Agency -- FHA, VA, GNMA, FNMA, FHLMC or a State Agency, as applicable.
Agreement -- As defined in the Introduction.
Annual Financial Statements -- As defined in Section 4.7.
Balance Sheet -- The statement of financial condition forming a part of
the Interim Financial Statements.
Business -- As defined in the Introduction, and includes Seller's
Conforming Business and Non-Conforming Business.
Business Pipeline -- All Conforming Mortgage Loans and Non-Conforming
Mortgage Loans of Seller in the process of being processed and/or closed by
Seller (i.e. for which credit approval has already been obtained) which have
arisen in the ordinary course of Seller's business, consistent with Seller's
past practices, as shown on Seller's regularly prepared reports.
Buyer -- As defined in the Introduction.
Closing -- The closing with respect to the Acquisition as defined in the
preamble to Article 10.
Closing Balance Sheet -- The balance sheet of Seller as of December 31,
1996.
Closing Date -- The date and time of Closing as defined in the preamble
to Article 10.
Closing Net Worth -- As defined in Section 3.1.
Closing Date Adjustment -- The amount of the profits or loss of Seller
(other than profits or losses from Excluded Assets) from the Effective Time
through the Closing Date which have not been previously adjusted by the parties.
Code -- The Internal Revenue Code of 1986, as amended.
Conforming Business -- The Conforming Mortgage Loan origination and
brokerage business conducted by Seller.
Conforming Mortgage Loan -- A Mortgage Loan which is an FHA Loan, a VA
Loan or a loan eligible to be sold to FNMA or FHLMC.
Conventional Loan -- Any Mortgage Loan which (a) is a first lien on a
"single family" residence, (b) is neither insured by FHA nor guaranteed by VA,
(c) has a loan-to-value ratio of 95%
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or less at the time of origination, (d) matures in 30 years or less, (e) bears a
market yield at the time of origination, and (f) satisfies all requirements for
sale to FNMA and FHLMC.
Effective Time or Effective Date -- January 1, 1997 at 12:01 a.m.
Employment Agreement -- As defined in Section 9.4.
Encumbrance -- Any lien, pledge, security interest, claim, charge,
easement, restriction or encumbrance of any kind or nature whatsoever.
ERISA -- As defined in Section 4.13(b).
Environmental Claim -- Civil, criminal, administrative action, claim or
other proceeding relating to Environmental Laws.
Environmental Laws -- As defined in Section 4.15.
Excluded Assets -- As defined in Section 2.2.
FHA -- Federal Housing Administration.
FHA Loans -- Mortgage Loans which are insured by FHA.
FHLMC -- Federal Home Loan Mortgage Corporation.
Financial Statements -- As defined in Section 4.7.
FNMA -- Federal National Mortgage Association.
GAAP - - Generally accepted accounting principles and practices as used
in the United States of America.
GNMA -- Government National Mortgage Association.
GNMA Securities -- GNMA mortgage-backed certificates.
HUD -- United States Department of Housing and Urban Development.
Independent Accounting Firm -- Any "Big Six" accounting firm or its
successor.
Inquiry -- As defined in Section 4.29.
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Interim Financial Statements -- As defined in Section 4.7.
Investor -- Any Person who owns or holds Mortgage Loans, or servicing
rights to Mortgage Loans, pursuant to Mortgage Servicing Agreements or who has
agreed to purchase Mortgage Loans pursuant to an Investor Commitment.
Investor Commitment -- The commitment of a Person to purchase a Mortgage
Loan.
Investor Programs -- Mortgage participation, whole-loan sales, pooling
and servicing programs.
IRS -- Internal Revenue Service.
Lease Agreements -- As defined in Section 6.5.
Liability -- As defined in Section 2.3(a).
Licenses -- As defined in Section 4.18.
Loan Property -- Any property in which Seller holds a mortgage lien or
security interest.
Loss -- Any claim, liability, loss, cost, environmental clean up cost or
reimbursement, damage, penalty, fine, obligation, deficiency or expense of any
kind whatsoever (including, without limitation, reasonable attorneys',
accountants', consultants' or experts' fees, and disbursements including but not
limited to court costs and reasonable costs of investigation incurred in
defending against or settling any such claim, liability, loss, cost, damage or
expense, or any reasonable amounts paid in connection with the investigation,
defense or settlement thereof, whether or not arising out of third party claims
and including costs and expenses incurred on appeal or in connection with any
bankruptcy or insolvency proceeding).
Material Adverse Effect -- Adverse effect which is material in nature on
the business, condition (financial or otherwise), results of operations,
properties, assets or prospects of a Person.
Mortgage Loan -- Any closed mortgage loan (including Warehouse Loans)
whether or not such mortgage is included in a securitized portfolio, as
evidenced by notes or other evidences of indebtedness duly secured by mortgages
or deeds of trust.
Non-Conforming Business -- The Non-Conforming Mortgage Loan origination
and brokerage business conducted by Seller.
Non-Conforming Mortgage Loan -- A Mortgage Loan which does not satisfy
the requirements for being an FHA Loan, VA Loan or Conventional Loan.
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Operating Property -- As defined in Section 4.15.
Person -- Any individual, corporation, company, partnership (limited or
general), joint venture, association, limited liability company, trust or other
entity, including governmental and quasi-governmental bodies.
Plans -- As defined in Section 4.13(a).
Pooling -- Aggregation of two or more Mortgage Loans that have been
pledged or granted to secure mortgage-backed securities or participation
certificates.
Purchased Assets -- As defined in Section 2.1.
Purchase Price -- As defined in Section 3.1.
Regulations -- (i) Federal, state and local laws, rules and regulations,
(ii) the responsibilities and obligations set forth in any agreement between
Seller and an Investor or private mortgage insurer and (iii) the laws, rules,
regulations, guidelines, handbooks and other requirements of an Investor,
Agency, private mortgage insurer, Public Housing Programs or Investor Programs,
with respect to the origination, insuring, purchase, sale, or filing of claims
in connection with a Mortgage Loan.
Schedule -- The disclosure schedules delivered by Sellers to Buyer in
connection with the Acquisition.
Seller -- As defined in the Introduction.
Servicing Released Loans -- As defined in Section 4.22.
Single Employer Plan -- Any employee pension benefit plan (as that term
is defined in Section 3(2) of ERISA) maintained or contributed to by any entity
which would be deemed a "single employer" with Seller under Section 4001 of
ERISA.
State Agency -- Any state agency with authority to regulate the business
of Seller, determine the investment requirements with regard to loans originated
or purchased by Seller or otherwise participate in or promote mortgage lending.
Subsidiary -- A company is a Subsidiary of another company if 50% or
more of its outstanding voting securities is owned by such other company.
Taxes -- As defined in Section 4.12(d).
Tax Return -- As defined in Section 4.12(e).
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VA -- Veterans Administration.
VA Loans -- Mortgage Loans which are guaranteed by VA.
Warehouse Loans -- Mortgage Loans held by Seller for sale and pledged to
secure borrowings by Seller.
ARTICLE 2
PURCHASE AND SALE OF ASSETS
2.1 Assets to be Transferred
Subject to the terms and conditions of this Agreement, on the Closing
Date (as hereinafter defined) Seller shall sell, transfer, convey, assign and
deliver to Buyer (or upon Buyer's request, to one or more wholly-owned
subsidiaries of Buyer as designated by Buyer), and Buyer shall purchase and
accept all of the business, rights, claims and assets (of every kind, nature,
character and description, whether real, personal or mixed, whether tangible or
intangible, whether accrued, contingent or otherwise, and wherever situated) of
Seller, together with all rights and privileges associated with such assets and
with the business of Seller, other than the Excluded Assets (as hereinafter
defined) (collectively, the "Purchased Assets"). The Purchased Assets shall
include, but not be limited to, the following:
(a) Leased Real Property. All of the leases of real property with
respect to real property leased by Seller, including the leases (the "Real
Property Leases") described in Schedule 2.1(a) with respect to the real property
described thereon (the "Leased Real Property").
(b) Personal Property. All machinery, equipment, tools, supplies,
spare parts, furniture and all other personal property (other than personal
property leased pursuant to Personal Property Leases as hereinafter defined)
owned, utilized or held for use by Seller on the Closing Date, including,
without limitation, the personal property described on Schedule 2.1(b).
(c) Mortgage Loan Inventory. All of Seller's Mortgage Loans and
Warehouse Loans (including loans which have closed but not funded), other than
the Mortgage Loans and Warehouse Loans (i) reflected on the Closing Balance
Sheet and (ii) funded prior to 1/1/97 even if not on the Closing Balance Sheet
(collectively the "Excluded Mortgages"). Mortgage Loans and Warehouse Loans
which were funded on or after 1/1/97 shall be the property of Buyer (some of
which already have been sold by Seller) and shall be properly adjusted between
the parties.
(d) Personal Property Leases. All of Seller's rights and
interests as lessee under all leases of machinery, equipment, vehicles,
furniture and other personal property leased by Seller, including all such
leases (the "Personal Property Leases") described in Schedule 2.1(d).
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(e) Trade Rights. All of Seller's interest in any Trade Rights.
As used herein, the term "Trade Rights" shall mean and include: (i) all
trademark rights, business identifiers, trade dress, service marks, trade names,
and brand names, all registrations thereof and applications therefor and all
goodwill associated with the foregoing, including Seller's name; (ii) all
copyrights, copyright registrations and copyright applications, and all other
rights associated with the foregoing and the underlying works of ownership;
(iii) all patents and patent applications and all international proprietary
rights associated therewith; (iv) all contracts or agreements granting any
right, title, license or privilege under the intellectual property rights of any
third party; (v) all inventions, mask works and mask work registrations,
know-how, discoveries, improvements, designs, trade secrets, shop and royalty
rights, employee covenants and agreements respecting intellectual property and
non-competition and all other types of intellectual property; and (vi) all
claims for infringement or breach of any of the foregoing.
(f) Contracts. All of Seller's rights in, to and under all
contracts, Mortgage Commitments, Investor Commitments, Investor Programs and
pending mortgage applications (hereinafter "Contracts") of Seller. To the extent
that any Contract for which assignment to Buyer is provided herein is not
assignable without the consent of another party, this Agreement shall not
constitute an assignment or an attempted assignment thereof if such assignment
or attempted assignment would constitute a breach thereof.
(g) Computer Software. All computer source codes, programs and
other software of Seller, including all machine readable code, printed listings
of code, documentation and related property and information of Seller.
(h) Literature. All sales literature, promotional literature,
catalogs and similar materials of Seller.
(i) Records and Files. All records, files, invoices, customer
lists, blueprints, specifications, designs, drawings, accounting records,
business records, operating data and other data of Seller, provided that Seller
shall have reasonable access, and the right to copy, such records for tax and
other bona fide purposes at all reasonable times.
(j) Notes and Accounts Receivable. All notes, drafts and accounts
receivable of Seller relating to the Mortgage Loans and Warehouse Loans other
than those (i) reflected on the Closing Balance Sheet and (ii) funded prior to
1/1/97, even if not on the Closing Balance Sheet (collectively, the "Excluded
Accounts"). Such items funded on or after 1/1/97 shall be the property of the
Buyer (some of which have already been sold by Seller) and shall be properly
adjusted between the parties.
(k) Licenses; Permits. All licenses, permits and approvals of
Seller, to the extent transferable, including, without limitation, the licenses
set forth on Schedule 2.1(k).
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(l) Corporate Name. The name "Equity Mortgage" and all rights to
use or allow others to use such name and the related goodwill.
(m) General Intangibles. All prepaid items, all causes of action
arising out of occurrences before or after the Closing (other than those related
to Excluded Assets), and other intangible rights and assets.
(n) Trade Secrets. All know-how, research data, business methods
and trade secrets.
2.2 Excluded Assets
There are no Excluded Assets other than (i) the Excluded Mortgages and
the Excluded Accounts, (ii) cash and cash equivalents and the $50,000 due from
officer's, reflected on the Closing Balance Sheet and (iii) minor items of
tangible personal property listed on Schedule 2.2 and the vehicle driven by Mark
Greenberg.
2.3 Assumption of Liabilities
(a) Liabilities to be Assumed. As used in this Agreement, the
term "Liability" shall mean and include any direct or indirect indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, fixed or unfixed, known or unknown, asserted or
unasserted, liquidated or unliquidated, secured or unsecured. Subject to the
terms and conditions of this Agreement on the Closing Date, Buyer shall assume
and agree to perform and discharge, (and shall indemnify and hold Seller
harmless from) the following, and only the following Liabilities of Seller
(collectively the "Assumed Liabilities"):
(i) The accounts payable reflected on the Closing Balance
Sheet and (ii) the expenses and Liabilities relating to Buyer's
operation of the Purchased Assets which accrue following the Effective
Time, including costs and expenses arising after the Effective Time
(including, but not limited to, regulatory audit fees until Buyer
terminates the temporary management agreement with Seller, if any, under
Section 12.1 hereof) related to Mortgage Loans which have not closed at
the Effective Time or to Mortgage Loans and Warehouse Loans which have
closed, but not funded at the Effective Time.
(ii) Seller's Liabilities arising from and after the
Effective Time under and pursuant to the contracts listed in Schedule
2.3. The Contracts described in subsection 2.3(a)(ii) above are
hereinafter collectively described as the "Assumed Contracts."
(b) Liabilities Not to be Assumed. Except as and to the extent
specifically set forth in Section 2.3(a), Buyer is not assuming any Liabilities
of Seller and all such Liabilities shall be
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and remain the responsibility of Seller. Notwithstanding the provisions of
Section 2.3(a), Buyer is not agreeing to perform and discharge and Seller shall
not be deemed to have transferred to Buyer the following Liabilities of Seller
(which list of specific liabilities shall not be deemed to suggest that
liabilities not listed are being assumed):
(i) Certain Contracts. The Liabilities of Seller under and
pursuant to any contracts with Investors for refunds or guarantees
related to Mortgage Loans (other than with respect to Mortgage Loans
funded on or after 1/1/97) including prepayment refund obligations and
refunds to Investors upon default by borrower or prepayment.
(ii) Taxes Arising from Transaction. Any taxes applicable
to, imposed upon or arising out of the sale or transfer of the Purchased
Assets to Buyer and the other transactions contemplated by this
Agreement, including but not limited to any income, transfer, sales,
use, gross receipts or documentary stamp taxes, provided however, Buyer
and Seller shall each pay 1/2 of the sales tax applicable to the Closing
of this transaction.
(iii) Income and Franchise Taxes. Any Liability of Seller
for Federal income taxes and any state or local income, profit or
franchise taxes (and any penalties or interest due on account therefor).
(iv) Insured Claims. Any Liability of Seller insured
against, to the extent such Liability is or will be paid by an insurer.
(v) Litigation Matters. Any Liability with respect to any
action, suit, proceeding, arbitration, investigation or inquiry, whether
civil, criminal or administrative ("Litigation"), whether or not
described in Schedule 4.10.
(vi) Infringements. Any Liability to a third party for
infringement of such third party's Trade Rights.
(vii) Transaction Expenses. All Liabilities incurred by
Seller in connection with this Agreement and the transactions
contemplated therein.
(viii) Liability for Breach. Liabilities of Seller for any
breach or failure to perform any of Seller's covenants and agreements
contained in, or made pursuant to, this Agreement, or, prior to the
Closing, any other contract, whether or not assumed hereunder, including
breach arising from assignment of contracts hereunder without consent of
third parties provided, however, Buyer shall assume the obligations of
Seller, and hold Seller harmless in respect of obligation's (other than
for Seller's breach) under the Assumed Contracts that accrue after the
Effective Date.
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(ix) Liabilities of Affiliates. Liabilities of Seller to
its present or former Affiliates.
(x) Pre-Effective Date Operating Expenses. Seller's
operating expenses (including, without limitation, payroll, rent and
utilities) incurred before, or relating to the period prior to, the
Effective Date that are not reflected on the Closing Balance Sheet.
(xi) Excluded Assets. Any Liabilities of Seller relating
to the Excluded Assets.
ARTICLE 3
PURCHASE PRICE
3.1 Purchase Price
The purchase price (the "Purchase Price") for the Purchased Assets shall
be equal to the sum of the following: (i) the total stockholder's equity of the
Seller as of the Effective Time, as shown on the Seller's regularly prepared
accrual basis balance sheet to be prepared by Seller's certified public
accountants consistent with prior periods, with appropriate adjustment (i.e.
reduction), on a book value basis, for any Excluded Assets and plus Liabilities
associated with Excluded Assets which were included in arriving at stockholder's
equity ("Closing Net Worth"), plus (ii) the sum of $150,000, being the
agreed-upon goodwill value associated with Seller's Business plus (iii) the
amount of liabilities included in Closing Net Worth.
(a) The Purchase Price for the Purchased Assets has been
estimated by the parties based on the draft balance sheet prepared by
Seller's certified public accountants consistent with prior periods (the
parties acknowledging that such balance sheet, a copy of which is
attached as Schedule 3.1, shows as of the Effective Time, the total
stockholder's equity was $871,672). At Closing the Buyer shall assume
all of the liabilities included in the Closing Net Worth and shall
promptly make payment of same or deliver sufficient monies to Seller in
order for Seller to promptly make payment of same (it being acknowledged
that Seller may already have paid certain of such liabilities in
Seller's ordinary course of business, in which event Buyer shall make
appropriate adjustment and payment to Seller with respect to same).
Based on the foregoing, the parties agree to allocate the Purchase Price
among the Purchased Assets based on their respective book values as
reflected on the Closing Balance Sheet, with an additional allocation of
the sum of $150,000 for Seller's goodwill.
In accordance with the foregoing, and with reference to the Closing
Balance Sheet, the Closing Net Worth has been estimated by the parties as
follows based on the draft balance sheet prepared by Seller's accountant:
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<TABLE>
<CAPTION>
CATEGORY AMOUNT/STATUS
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<S> <C>
Cash Excluded Asset
Interest Receivable Excluded Asset
Prepaid Expenses $38,655
Settlement Funds Advanced Excluded Asset
Due from Employees $3,279
Due from Officers Excluded Asset
Property and Equipment - Net $53,898
Deposits $28,552
Total Assets $124,384
Accounts Payable $127,162
Accrued Expenses Excluded Asset
Short Term Borrowings Excluded Asset
Total Liabilities $127,162
CLOSING NET WORTH $(2,778)
</TABLE>
The Estimated Payment described below has been computed as follows:
$(2,778) + $150,000= $147,222. In addition, at Closing, Buyer shall assume the
accounts payable (as set forth above in the amount of $127,162 for a total
estimated Purchase Price of $274,384), and shall make an initial operating
adjustment with respect to Mortgage Loans as described in Section 3.2(c) below.
3.2 Payment of Purchase Price
The Purchase Price shall be paid by Buyer to Seller as follows:
(a) Assumption of Liabilities. At the Closing, Buyer shall assume
the Liabilities included in Closing Net Worth.
(b) Payment. At the Closing, Buyer shall deliver immediate
available funds equal to the amount of the Estimated Payment.
(c) Partial Payment on Operating Adjustment. In addition to the
Estimated Payment, at Closing Buyer shall pay to Seller (by way of payment
against Seller's warehouse loan and/or credit line loan) a reasonable estimate
of the monies advanced by Seller following the Effective Time with respect to
all Mortgage Loans funded by Seller following the Effective Time and which
remain in Seller's portfolio of Mortgage Loans at the time of Closing (all such
Mortgage Loans to be and become Buyer's Mortgage Loans based upon the adjustment
provisions of this Agreement).
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(d) Final Determination of Payment.
(i) Within 45 days after the Closing Date, Seller shall
deliver to Buyer balance sheets and profit and loss statements of
Seller for the year ending December 31, 1996, and for the period
from the Effective Time through the Closing Date, (the "Stub
Period"), prepared from the books and record of Seller, on a
basis consistent with the GAAP theretofore followed by Seller and
fairly presenting the financial position of Seller as of December
31, 1996, and as of the Closing Date, and Seller's financial
performance during the past year, and during the Stub Period,
accompanied by detailed schedules of the Purchased Assets,
Excluded Assets and Assumed Liabilities and Seller's Business
Pipeline and by (x) Seller's determination of the Closing Date
Adjustment and (y) with respect to the 12/31/96 financial
statements, a report of Seller's Accountants (1) setting forth
the amount of the Purchase Price (as defined above) reflected in
the financial statements, (2) stating that (a) the compilation of
the balance sheet and financial statements has been made in
accordance with statements on standards applicable for accounting
and review services and (b) the balance sheets and financial
statements have been compiled in accordance with such statements
and (3) setting forth the amount of such accountants
determination of the Purchase Price. Seller shall also certify to
Buyer that the financial statements and schedules are accurate
and correct and prepared in accordance with GAAP.
(ii) Within 30 days following the delivery of the
financial statements and schedules, Buyer or its independent
accountants ("Buyer's Accountants") may object to any of the
information contained in said financial statements or
accompanying schedules which could affect the necessity or amount
of any payment by Buyer or Seller pursuant to Section 3.2(e)
hereof. Any such objection shall be made in writing and shall
state Buyer's determination of the amount of the Purchase Price
and Closing Date Adjustment.
(iii) In the event of a dispute or disagreement relating
to the Closing Date Adjustment or the financial statements or
schedules which Buyer and Seller are unable to resolve, either
party may elect to have all such disputes or disagreements
resolved by an Independent Accounting Firm (the "Third Accounting
Firm") to be mutually selected by Seller and Buyer or, if no
agreement is reached, by Seller's Accountants and Buyer's
Accountants. The Third Accounting Firm shall make a resolution of
the Closing Date Adjustment or the financial statements of Seller
as of the Effective Time and the calculation of the Purchase
Price and Closing Date Adjustment, which shall be final and
binding for purposes of this Article 3. The Third Accounting Firm
shall be instructed to use every reasonable effort to perform its
services within 15 days of submission of the financial statement
and schedules to it and, in any case, as soon as
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practicable after such admission. The fees and expenses for the
services of the Third Accounting Firm shall be shared equally by
Buyer and Seller.
(iv) The parties and their respective representatives,
shall be granted access during normal business hours, to examine
and make copies of, all books and records of Seller, including
but not limited to the books, records, schedules, work papers and
audit programs of Seller and Seller's Accountants and access to
representatives of Seller's Accountants, which documents and
access are necessary to review the financial statement and
schedules delivered by Buyer in accordance herewith. In addition,
Buyer's Accountants shall have the opportunity to observe the
taking of the inventory in connection with the preparation of
such balance sheet and schedule of loans in process. Seller
similarly agrees to permit Buyer's Accountants and their
respective representatives, during normal business hours, to have
reasonable access to any books and records of Seller which do not
constitute Purchased Assets, in order to enable them to prepare
such balance sheet.
(e) Final Payment Adjustment. Once the Purchase Price and Closing
Date Adjustment is finally determined pursuant to this Section 3.2, Buyer or
Seller, as the case may be, shall pay the amount due the other within three
business days.
3.3 Prorations.
The cost of all rent (including base rent, common area charges and all
other pass-throughs and sums due landlords), utilities, leases and equipment
maintenance agreements and all other on-going business expenses directly related
to the day-to-day operation of the Business shall be adjusted and apportioned to
the Effective Date. With respect to Seller's employees employed by Buyer,
accrued sick pay, vacation pay and employee wages and benefits, such wages and
benefits shall be pro-rated between Buyer and Seller based upon the number of
days in the applicable period(s) before and after the Effective Date. There
shall be an adjustment (to be pro-rated based upon the number of days elapsed)
for any tangible personal property taxes paid (or to be paid in connection with
the Purchased Assets being sold. Sales tax in respect of this transaction shall
be shared equally by the parties. In the event that there are any errors in
adjustments or inaccurate estimates, the parties agree to correct the same
promptly after Closing upon the discovery of the correct information.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller makes the following representations and warranties to Buyer, each
of which is true and correct in all material respects on the date hereof, shall
be unaffected by any investigations heretofore or hereafter made by Buyer, or
any knowledge of Buyer other than as specifically disclosed in the
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Disclosure Schedule delivered to Buyer at the time of execution of this
Agreement, and liability in respect thereof shall survive the Closing of the
transactions provided for herein:
4.1 Organization
(a) Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Maryland with full corporate
power and authority to carry on its business as now conducted, to own the
properties and assets that it now owns, and to lease the properties and assets
that it now leases, and, to the best of Seller's knowledge, is duly licensed and
qualified to do business and is in good standing in each state or jurisdiction
where its ownership or leasing of property or assets or the conduct of its
business requires such licensing or qualification.
(b) Seller has heretofore delivered to Buyer accurate and
complete copies of the articles of incorporation, as amended, and by-laws of
Seller, as in effect on the date thereof. Such articles and by-laws are in full
force and effect, and have not been subsequently amended, and Seller is not in
violation of any of the provisions thereof.
4.2 Intentionally Omitted.
4.3 Subsidiaries of the Seller; Nature of Business
Seller does not own any equity interest, directly or indirectly, in any
Subsidiary, except as set forth in Section 4.3 of the Schedule.
4.4 Authority; No Violation
(a) Seller has full power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed by Seller and, assuming this
Agreement constitutes a valid and binding obligation of Buyer, constitutes a
valid and binding obligation of Seller enforceable against Seller in accordance
with its terms (subject to applicable bankruptcy insolvency and similar laws
affecting creditors' rights generally and to general principles of equity).
(b) To the best of Seller's knowledge, neither the execution and
delivery of this Agreement by Seller nor the consummation by Seller of the
transactions contemplated hereby (assuming Buyer has obtained all necessary
licenses, permits and approvals), nor compliance by Seller with any of the terms
or provisions hereof, will (i) conflict with or result in a breach of any
provision of the articles of incorporation, as amended, or by-laws of Seller,
(ii) violate any statute, code, ordinance, rule, Regulation, judgment, order,
writ, decree or injunction applicable to Seller or any of its properties or
assets, or (iii) violate, conflict with, result in a breach of any provisions
of, constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, result in the termination of,
accelerate the performance required by, or result in a right
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of termination or acceleration or the creation of any Encumbrance upon any of
the respective properties or assets of Seller under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed or trust,
license, lease, agreement or other instrument, or obligation to which Seller is
a party, or by which Seller or any of its properties or assets may be bound or
affected, except for such violations, conflicts, breaches or defaults which,
individually or in the aggregate, would not have a Material Adverse Effect on
Buyer or Seller. This Section 4.4(b) is qualified by, and subject to the last
sentence of Section 5.2(b).
4.5 Consents and Approvals
To the best of Seller's knowledge, except as set forth in Section 4.5 of
the Schedule, no consents, permits, authorizations or approvals of, or filings
or registrations with, any governmental or regulatory authorities, government
sponsored agencies or corporations or other third parties are necessary to be
obtained or made by Seller in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
4.6 Title to Purchased Assets
Seller has good and marketable title to the Purchased Assets, free and
clear of all Encumbrances, contracts, rights, options and assignments whatsoever
(except pursuant to this Agreement). The documents selling, assigning, conveying
and otherwise transferring from Seller to Buyer the Purchased Assets will grant
and transfer to Buyer good and marketable title to the Purchased Assets, free
and clear of all Encumbrances, contracts, rights, options and assignments
whatsoever, except those created by Buyer and Encumbrances securing the Assumed
Liabilities.
4.7 Financial Statements
Seller has previously delivered to Buyer copies of (i) the financial
statements of Seller (either audited or unaudited, as applicable) for each of
the years in the three-year period ended December 31, 1995 (the "Annual
Financial Statements"), together with reports on all such financial statements
by Seller's independent accountants, and (ii) the unaudited interim financial
statements of Seller dated October 31, 1996 (the "Interim Financial Statements")
(the Annual Financial Statements and the Interim Financial Statements are
collectively referred to herein as the "Financial Statements"). The Annual
Financial Statements (i) to the best of Seller's knowledge, have been prepared
in accordance with GAAP applied on a consistent basis throughout the periods
covered by such statements and (ii) fairly present the financial position of
Seller as of the respective dates thereof, the results of its operations and the
changes in its financial position for the respective periods covered thereby.
The
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Interim Financial Statements have been prepared from the books and records of
Seller and, to the best knowledge of Seller, are in accordance with the
requirements of GAAP.
4.8 Undisclosed Liabilities
To the best of Seller's knowledge, Seller does not have any liabilities
or obligations of any nature, whether accrued, absolute, contingent or
otherwise, asserted or unasserted, known or unknown, whether or not required to
be shown on a balance sheet prepared in accordance with GAAP (collectively,
"Liabilities"), except for (i) liabilities and obligations stated or adequately
reserved against on the Balance Sheet dated October 31, 1996, and (ii)
obligations to close Non-Conforming Mortgage Loans and Conforming Mortgage
Loans for which commitments already have been made and (iii) liabilities
incurred in the ordinary cause of business.
4.9 No Material Adverse Change
Since October 31, 1996, Seller has not suffered any Material Adverse
Effect nor taken any of the actions specified in Section 4.37(a) - (r) except
that Seller has reversed into income during 1996 the $57,889 of advances payable
reflected on the 12/31/95 balance sheet.
4.10 Legal Proceedings
To the best of Seller's knowledge, except as described in Schedule 4.10,
neither Seller nor any of Seller's directors or officers is party to any and
there are no legal, administrative, arbitral or other proceedings, claims,
actions or governmental investigations of any nature pending, threatened,
against or affecting Seller or any of its respective assets or business or
challenging the validity or propriety of the transactions contemplated by this
Agreement. Seller is not subject to any order, judgment, injunction, rule or
decree which would affect the transaction contemplated hereunder.
4.11 Material Contracts
Section 4.11 of the Schedule is a complete and accurate list of the
following contracts, agreements, and other written or oral arrangements (or
group of related written or oral arrangements) (hereinafter collectively
referred to as "arrangements"), to which Seller is a party on the date hereof:
(a) any arrangement with any employee, agent or independent
contractors involved in the origination of mortgage loans for Seller;
(b) any arrangement (including the lease of real or personal
property from or to third parties) providing for lease payments in excess of
$5,000 per annum or in excess of $10,000 for the remaining term of the
arrangement;
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(c) any arrangement in which Seller is knowingly participating as
a general partner or joint venturer;
(d) any arrangement which shall survive the Closing (other than
recourse servicing) under which Seller has created, incurred, assumed, or
guaranteed (or may create, incur, assume, or guarantee) indebtedness for
borrowed money (including capitalized lease obligations) involving more than
$5,000;
(e) any arrangement concerning confidentiality or noncompetition;
(f) any arrangement between Seller or any of its Affiliates;
(g) any arrangement pursuant to which Seller has promised to pay,
or loan any amount to, or sold, transferred or leased any property or assets to
or from, any Person in their capacity as an officer, director or other employee
of Seller; or
(h) any arrangement requiring Seller to pay severance or similar
payments as a result of the transactions contemplated hereby;
Seller has delivered to Buyer (and/or Buyer has had an opportunity to
review) a correct and complete copy of each written arrangement listed in
Section 4.11 of the Schedule. With respect to each arrangement so listed, to the
best of Seller's knowledge: (A) the arrangement is in full force and effect
(unless otherwise noted on Schedule 4.11); (B) Seller is not in breach or
default, and no event has occurred which with notice or lapse of time or both
would constitute a breach or default by Seller, or permit termination,
modification, or acceleration against Seller under the arrangement applicable to
it; (C) Seller has not repudiated or waived any material provision of any such
arrangement; (D) no other party to any such arrangement is in default in any
respect thereunder; and (E) no consent is required under any arrangement for
Seller to enter into and perform this Agreement and the transactions
contemplated herein. With respect to any lease disclosed pursuant to this
Section 4.11, all rents and other amounts currently due thereunder have been
paid; no waiver or indulgence or postponement of any obligation thereunder has
been granted by any lessor or sublessor; and Seller has not received any notice
that it has breached any term, condition or covenant.
4.12 Taxes
(a) Seller has (i) duly filed (or there has been duly filed on
its behalf) with the appropriate federal, state, local and foreign taxing
authorities all Tax Returns required to be filed by or with respect to Seller,
and such Tax Returns are true, correct and complete in all material respects,
and (ii) paid in full on a timely basis (or there has been paid on its behalf)
all Taxes shown to be due on such Tax Returns. The provision for current Taxes
on each of the Financial Statements and the Closing Balance Sheet is or will be
adequate for the payment of all accrued but unpaid Taxes through the date
thereof. Seller shall pay all of its Taxes as and when the same are due.
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(b) Neither Seller nor any Affiliate thereof has received any
notice of a deficiency or assessment with respect to taxes of Seller from any
federal, state, local or foreign taxing authority which has not been fully paid
or finally settled; there are no ongoing audits or examinations of any Tax
Return which includes Seller and no notice of audit or examination of any such
Tax Return has been received; Seller has not given and there has not been given
on its behalf a waiver or extension of any statute of limitations relating to
the payment of Taxes; and no issue has been raised in writing on audit or in any
other proceeding with respect to Taxes of Seller by any federal, state, local or
foreign taxing authority which, if resolved against Seller, would have a
Material Adverse Effect on Seller.
(c) Intentionally Omitted.
(d) For purposes of this Agreement "Taxes" shall mean all taxes,
charges, fees, levies, penalties or other assessments imposed by any United
States federal, state, local or foreign taxing authority, including, but not
limited to, income, excise, property, sales, transfer, franchise, payroll,
gains, withholding, ad valorem, social security or other taxes, including any
interest, penalties or additions attributable to Taxes.
(e) For purposes of this Agreement, "Tax Return" shall mean any
return, report or information return required to be filed with any taxing
authority with respect to Taxes.
(f) After the Closing, Seller shall bear responsibility for and
pay the reasonable costs and expenses relating to the preparation of any Tax
Return relating to any period prior to Closing.
4.13 ERISA
(a) Section 4.13(a) of the Schedule contains a true and complete
list of each employee benefit, compensation or welfare benefit plan, program or
agreement maintained or contributed to or required to be contributed to by
Seller (the "Plans"). Seller has no formal plan or commitment, whether legally
binding or not, to create any additional Plan or modify or change any existing
Plan that would affect any employee or terminated employee of Seller.
(b) With respect to each of the Plans, Seller has heretofore
delivered to Buyer true and complete copies of each of the following documents:
(i) each Plan and related trust, if any, (including all amendments thereto);
(ii) annual report and actuarial report, if required to be filed under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), for the
last two (2) years and the latest financial statement, if any, for each such
Plan; (iii) the most recent summary plan description, together with each summary
of material modifications, required under ERISA; and (iv) the most recent
determination letter received from the IRS with respect to each Plan that is
intended to be qualified under Section 401 of the Code and which requires a
determination of qualification from the IRS.
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(c) All required contributions have been, or will be, made with
respect to each Plan on or prior to the Closing Date or will be properly
recorded on the Closing Balance Sheet as a liability of Seller.
(d) To the best of Seller's knowledge, each of the Plans has been
operated and administered in all material respects in accordance with applicable
laws, including, but not limited to, ERISA and the Code and each of the Plans
that is intended to be "qualified" within the meaning of Section 401(a) of the
Code is so qualified.
(e) Except as set forth in Section 4.13(e) of the Schedule, to
the best of Seller's knowledge, no Plan provides benefits, including, without
limitation, death or medical benefits (whether or not insured), with respect to
current or former employees beyond their retirement or other termination of
service (other than (A) coverage mandated by applicable law, (B) death benefits
or retirement benefits under any "employee pension plan," as that term is
defined in Section 3(2) of ERISA, (C) deferred compensation benefits accrued as
liabilities on the books of Seller or (D) benefits the full cost of which is
borne by the current or former employee (or his beneficiary)).
(f) There are no pending, threatened or anticipated claims (other
than routine claims for benefits) by, on behalf of or against any of the Plans
or any trusts related thereto.
(g) To the best of Seller's knowledge, the consummation of the
transactions contemplated by this Agreement will not (either alone or upon the
occurrence of any additional acts or events) (A) entitle any current or former
employee of Seller to severance pay, employment compensation or any other
payment, benefit or award or (B) accelerate or modify the time of payment or
vesting, or increase the amount of any benefit, award or compensation due any
such employee.
4.14 Ownership of Property
Seller has good and valid title to all Purchased Assets and properties,
whether real or personal, tangible or intangible, and all other assets and
properties reflected in its balance sheet as of October 31, 1996, or acquired
subsequent thereto, subject to no Encumbrances, except (i) those items that
secure liabilities that are reflected in said balance sheet or the notes thereto
or incurred in the ordinary course of business after the date of such balance
sheet, (ii) statutory liens for amounts not yet delinquent or which are being
contested in good faith, (iii) liens and encumbrances on, and rights of
redemptions with respect to, foreclosed real estate, and (iv) such Encumbrances
that do not in the aggregate materially detract from the value or interfere with
the use or operations of the assets and properties subject thereto. Seller as
lessee has the right under valid leases to occupy, use, possess and control all
property leased by Seller, as presently occupied, used, possessed and controlled
by Seller. To the best of Seller's knowledge, the properties and assets owned or
leased by Seller are adequate for the conduct of the current business of Seller.
Giving effect to the transactions contemplated by this Agreement, to the best of
Seller's knowledge, Buyer shall have all assets, personnel and property
necessary and proper to conduct Seller's business consistent with historical
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practice, subject to Buyer securing appropriate licenses and regulatory
approvals to the extent necessary.
4.15 Environmental Protection
Seller has not actually received from any source with respect to any
property ("Operating Property") that it owns (including as a trustee), leases,
or actively participates in the management of, any Environmental Claim to the
effect that Seller, or any Operating Property or Loan Property, or any
predecessor is not in compliance with all environmental or health laws, rules,
Regulations, standards and requirements relating to pollution (including the
discharge of materials into the environment or indoors) or protection of the
environment, including common law ("Environmental Laws"), nor any requests for
information which could result in or help provide a basis for any Environmental
Claim, nor, to the best of Seller's knowledge, are there any facts which could
reasonably be expected to form the basis of an Environmental Claim against
Seller.
4.16 Brokers and Finders
Neither Seller, nor any of Seller's officers, directors, employees or
agents has employed any broker, finder or financial advisor or incurred any
liability for any fees or commissions in connection with the transactions
contemplated hereby, except for legal, accounting and other professional fees
payable by Seller in connection with the Acquisition. Seller shall cause all
legal, accounting and other professional fees and expenses of Seller related to
this transaction to be paid by Seller.
4.17 Insurance
To the best of Seller's knowledge, Seller is insured with reputable
insurers against such risks and in such amounts normally insured against by
companies of the same type and in the same line of business. To the best of
Seller's knowledge, all of the insurance policies, binders or bonds maintained
by Seller are in full force and effect; Seller is not in default thereunder; all
claims thereunder have been filed in due and timely fashion; and all such
policies, binders and bonds will remain in full force and effect after the
Closing Date unaffected by the transactions contemplated hereby to the extent
insurance prepaids are reflected on the Closing Balance Sheet.
4.18 Mortgage Banking Licenses and Qualifications
To the best of Seller's knowledge, Seller has all material
certifications, authorizations, licenses, permits and other approvals
("Licenses") necessary to conduct its current mortgage banking business, and is
in good standing under all applicable federal, state and local laws and
regulations thereunder, as a mortgage lender. A complete list of such Licenses
is set forth in Schedule 4.18. The parties shall cause, at Buyer's sole expense,
all regulatory filings and other actions necessary or desirable in connection
with the Acquisition and change in ownership of the Business of Seller.
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4.19 Intentionally Omitted.
4.20 Intentionally Omitted.
4.21 Intentionally Omitted.
4.22 No Recourse
Except as set forth in Section 4.22 of the Schedule, Seller is not a
party to (A) any agreement or arrangement with (or otherwise obligated to) any
Person, including an Investor or insurer, to repurchase from any such Person any
Mortgage Loan and mortgaged property serviced for others or any mortgage loan
sold by Seller with servicing released ("Servicing Released Loans"), or (B) any
agreement, arrangement or understanding to reimburse, indemnify or hold harmless
any Person or otherwise assume any liability with respect to any Loss suffered
or incurred as a result of any default under or the foreclosure or sale of any
such Mortgage Loan or mortgage property or Servicing Released Loans, except
insofar as (i) such recourse is based upon breach by Seller of a customary
representation, warranty or undertaking or based upon recapture of premium
liability, prepayment refund obligations, first payment default obligations,
refund to Investors upon default by borrower or prepayment, or (ii) Seller
incurs expenses such as legal fees in excess of the reimbursement limits, if
any, set forth in the applicable Mortgage Servicing Agreement.
4.23 Intentionally Omitted.
4.24 Compliance
To the best of Seller's knowledge, Seller has been and is (and
specifically the documentation, origination, purchase, assumption, modification,
sale, servicing of Mortgage Loans (including the maintenance of and transactions
with respect to custodial Account) and maintenance of books and records by it
has been and is) in compliance with all Regulations, orders, writs, decrees,
injunctions and other requirements of any court or governmental authorities
applicable to it, its properties and assets or its conduct of business in all
material respects. To the best of Seller's knowledge, Seller has not done or
failed to do, and has not caused to be done or omitted to be done, any act or
omission, the effect of which would operate to invalidate or materially impair
(i) any approvals of the FHA, VA, FNMA, FHLMC, GNMA or HUD, (ii) any FHA
insurance or commitment of the FHA to insure, (iii) any VA guarantee or
commitment of the VA to guarantee, (iv) any private mortgage insurance or
commitment of any private mortgage insurer to insure, (v) any title insurance
policy, (vi) any hazard insurance policy, (vii) any flood insurance policy
required by the National Flood Insurance Act of 1968, as amended, (viii) any
fidelity bond, direct surety bond, or errors and omissions insurance policy
required by HUD, GNMA, FNMA, FHA, FHLMC, VA or private mortgage insurers, (ix)
any surety or guaranty agreement or (x) any guaranty issued by GNMA to Seller
respecting mortgage backed securities issued by Seller and other like
guaranties. During the twelve month period preceding the date hereof, no Agency,
Investor or private mortgage insurer has (i) claimed that Seller
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has violated or not complied with the applicable underwriting standards with
respect to mortgage loans sold by Seller to such Investor or (ii) imposed
restrictions on the activities (including commitment authority) on Seller.
4.25 Intentionally Omitted.
4.26 Custodial Accounts
Seller has full power and authority to maintain escrow accounts
("Custodial Accounts") for certain serviced loans. Such Custodial Accounts
comply in all respects with (i) all applicable Regulations (including without
limitation Regulations governing the calculation of the amount of the monthly
payments for deposit into Custodial Accounts that mortgagors are required to
make), and (ii) any terms of the Mortgage Loans (and Mortgage Servicing
Agreements) relating thereto. The Custodial Accounts contain the amounts shown
in the records of Seller, which amounts represent all monies received or
advanced by Seller as required by the applicable Mortgage Servicing Agreements,
less amounts remitted by or on behalf of Seller pursuant to applicable Mortgage
Servicing Agreements except for checks in process.
4.27 Accounts Receivable
All accounts receivable included on the Closing Balance Sheet, including
without limitation the amounts that have been advanced by Seller in connection
with servicing the Mortgage Loans pursuant to Mortgage Servicing Agreements
(such as principal, accrued interest, taxes and insurance premiums) are valid
and subsisting amounts owing to Seller, have been acquired in the ordinary
course of business and are carried on the books at values determined in
accordance with GAAP, and are not, to the best of Seller's knowledge, subject to
defenses, setoffs or claims of the mortgagor (other than those already accounted
for) arising from acts or omissions of Seller.
4.28 Data Processing
Seller has good and valid title or valid license to the data processing
software (including documentation, user manuals, upgrades and current releases,
etc.), currently used by it, and the data processing system (software and
hardware), used to support Seller's mortgage servicing business is operating in
the intended manner.
4.29 Inquiries
Section 4.29 of the Schedule contains a true and correct list of all of
the audits, investigations, complaints and inquiries of Seller by an Agency,
HUD, an Investor, or a private mortgage insurer since June 30, 1995, the result
of which audits and investigations claimed a material failure to comply with
applicable Regulations, resulted in a repurchase of Mortgage Loans by Seller,
resulted in indemnification by Seller in connection with the Mortgage Loans,
resulted in rescission of an
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insurance or guaranty contract or agreement, or resulted in payment of a penalty
to a Agency, HUD, an Investor or a private mortgage insurer, and like adverse
findings. Except for customary ongoing quality control reviews, no such audit or
investigation (each an "Inquiry") is pending or, to the best of Seller's
knowledge, threatened. Seller has made available to Buyer copies of all written
reports and materials received in connection with such audits, investigations,
complaints and inquiries.
4.30 Representations
No breach or violation of any representation, warranty or covenant with
respect to any Mortgage Loans, the ownership of which has been transferred by
Seller to any Person exists which individually, or collectively, would have a
Material Adverse Effect on Seller or any Purchased Assets.
4.31 Advances
There are no pooling, participation, servicing or other agreements to
which Seller is a party which obligate it to make servicing advances with
respect to defaulted or delinquent Mortgage Loans.
4.32 Pools
There are no Pools serviced by Seller.
4.33 Commercial Mortgages
Seller has no commercial loans on its books currently and Seller has no
commitment to make any such loan.
4.34 No Tax-Sharing Agreements
Seller is not a party to any tax sharing agreement or similar
arrangement.
4.35 No Intercompany Accounts
Seller has no intercompany accounts.
4.36 Seller Employees
To the best of Seller's knowledge, each employee of Seller will accept
Buyer's offer of employment after the Closing Date (to be effective as of the
Effective Date). Seller has no agreements, policies, practices or understandings
(written or oral) concerning Seller employee bonus programs, employee incentive
plans or employee benefit plans except as set forth in Schedule 4.11(a). A
complete list of Seller's employees is set forth in Section 4.36 of the
Schedule.
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4.37 Conduct Prior to Closing
Within the four (4) months prior to the Closing Date or on the Closing Date,
except as set forth in Section 4.37 of the Schedule, Seller has conducted its
business only in the ordinary course, and Seller has not:
(a) issued, sold or delivered any shares of its capital stock or
issue or sell any securities convertible into, or options with respect to, or
warrants to purchase or rights to subscribe to, any shares of its capital stock;
(b) effected any recapitalization, reclassification, stock
dividend, stock split or like change in capitalization;
(c) amended its articles of incorporation or by-laws;
(d) merged or consolidated with, or, except as a result of
foreclosure or repossession in the ordinary course of its mortgage banking
business, acquired substantially all of the assets of, any other entity;
(e) sold, transferred, leased or encumbered a material amount of
assets (other than Excluded Assets) except in the ordinary course of business;
(f) materially altered or varied its methods or policies of (i)
underwriting, pricing, originating, warehousing, selling and servicing, or
buying or selling rights to service, its Mortgage Loans, (ii) hedged (which term
includes both buying futures and forward commitments from financial
institutions) its mortgage loan positions or commitments, and (iii) obtained
financing and credit;
(g) granted to any director, officer, employee or consultant any
material increase in compensation or benefits (other than as may be required
under the terms of written agreements in effect on the date hereof and other
than normal increases made in the ordinary course of business to officers or
employees in accordance with customary past practices and policies);
(h) granted any severance or termination pay (other than as may
be required under the terms of written agreements in effect on the date hereof)
to, or entered into or amended any employment or severance agreement with, any
person, other than termination pay paid in the ordinary course of business to
officers or employees in accordance with customary past practices and policies;
(i) adopted any new or amended any existing director, officer or
employee benefit plans (including, without limitation, profit sharing, bonus,
director and officer incentive compensation, retirement, medical,
hospitalization, life or other insurance plans, arrangements and commitments) or
any trust agreement relating thereto;
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(j) incurred any debt other than in the ordinary course of
business in amounts consistent with past practice;
(k) made any change in accounting principles or methods from
those currently employed, except as required by GAAP or by applicable regulatory
requirements;
(l) granted any mortgage or security interest in, or made any
pledge of, or permitted any lien or encumbrance to be placed on, any of its
assets or properties other than in the ordinary course of business consistent
with past practice;
(m) canceled, waived, released or compromised any material debt
or claim, other than upon payment in full;
(n) failed to maintain in full force and effect all existing
insurance policies and fidelity bonds;
(o) To the best of Seller's knowledge, taken any action, or
failed to take any action, that would result in a material breach or violation
of the representations and warranties of Seller contained in this Agreement or
caused any condition to the transactions contemplated hereby not to be
satisfied;
(p) accelerated, terminated, modified or canceled any material
contract, lease, or license to which Seller is a party;
(q) entered into any employment or collective bargaining
agreement, or modified any existing employment or collective bargaining
agreement; and
(r) agreed to do any of the foregoing included in (a) through
(q).
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer makes the following representations and warranties to Seller, each
of which is true and correct on the date hereof, shall remain true and correct
in all material respects to and including the Closing Date, shall be unaffected
by any investigation heretofore or hereafter made by Seller or any notice to
Seller, and liability in respect thereof shall survive the closing of the
transactions provided for herein.
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5.1 Organization
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Florida. Buyer has the corporate power
and authority to own or lease all of its properties and to carry on its business
as it is now being conducted and is duly licensed and qualified to do business
and is in good standing in each jurisdiction where its ownership or leasing of
property or the conduct of its business requires such licensing or
qualification.
5.2 Authority; No Violation
(a) Buyer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action in respect thereof and no other corporate proceedings
on the part of Buyer are necessary to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered by
Buyer and, assuming this Agreement constitutes a valid and binding agreement of
Seller, constitutes a valid and binding obligation of Buyer, enforceable against
Buyer in accordance with its terms (subject to applicable bankruptcy, insolvency
and similar laws affecting creditors' rights generally and subject, as to
enforceability, to general principles of equity.)
(b) Neither the execution and delivery of this Agreement nor the
consummation by Buyer of the transactions contemplated hereby, nor compliance by
Buyer with any of the terms or provisions hereof, will (i) conflict with or
result in a breach of any provision of the articles of incorporation or by-laws
of Buyer, (ii) subject to making or obtaining the consents, permits,
authorizations, approvals, filings and registrations set forth in Section 5.2 of
the Buyer Schedule, violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to Buyer or any of its
properties or assets, or (iii) subject to obtaining or making the con sents,
permits, authorizations, approvals, filings and registrations set forth in
Section 5.2 of the Buyer Schedule, violate, conflict with, result in a breach of
any provisions of, constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, result in the termination
of, accelerate the performance required by, or result in a right of termination
or acceleration or the creation of any Encumbrance upon any of the properties or
assets of Buyer under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Buyer is a party, or by which its properties
or assets may be bound or affected except for such violations, conflicts,
breaches or defaults which either individually or in the aggregate would not
have a Material Adverse Effect on Buyer. Notwithstanding the foregoing, the
representations and warranties in this subsection (b) shall not relate to or
cover any consents, approvals, filings or registrations, if any, arising from
the regulated nature of Seller or made applicable to Buyer by virtue of Seller
or Buyer's acquisition of the Purchased Assets and business of Seller or such
regulations governing Seller and the mortgage banking industry as a result of
Buyer's purchase of the Purchased Assets.
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5.3 Brokers and Finders
Neither Buyer nor any of its officers, directors, employees or agents
has employed any broker, finder or financial advisor or incurred any liability
for any fees or commissions in connection with the transactions contemplated
hereby, except for legal, accounting and other professional fees payable in
connection with the Acquisition.
5.4 Buyer's Review of Seller's Schedules
Buyer acknowledges that it has reviewed the Seller's schedules attached
to this Agreement, it has had an opportunity to review the books and records of
Seller and it has had an opportunity to ask questions and receive answers
concerning all aspects of the Business. The Buyer is satisfied with the form and
format of the Seller's schedules and accepts the matters accurately disclosed
therein; provided that this representation shall not constitute a release or
waiver of Buyer's claims and causes of action arising from material
misstatements, errors and omissions contained in Buyer's schedules.
5.5 Consents.
To the best of Buyer's knowledge, no consents, permits, authorizations
or approvals of, or filings or registrations with, any governmental or
regulatory authorities, government sponsored agencies or corporations or other
third parties are necessary to be obtained or made by Buyer in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
5.6 Legal Proceedings.
Buyer is not a party to any, and to the best of Buyer's knowledge, there
are no legal, administrative, arbitral or other proceedings, claims, actions or
governmental investigations of any nature pending, nor to the best knowledge of
Buyer, threatened, challenging the validity of propriety of the transactions
contemplated by this Agreement. Buyer is not subject to any order, judgement,
injunction, rule or decree which would affect the transaction contemplated
hereunder.
5.7 Buyer's Knowledge of Industry.
Buyer represents, warrants and acknowledges that it and its
representative(s) have been provided with full and complete access to all of the
books and records of the Seller and have been provided with access and/or copies
of the Seller's Lease Agreements, all other contracts with major suppliers of
services, and any and all other documents, instruments and reports which they
have requested and that are listed in the schedules of this Agreement. Further,
Buyer (and/or its predecessor entity) acknowledges that it has been involved in
the mortgage banking and brokerage business for a number of years and that it
has familiarity with all aspects of the industry and with the various
transactions engaged in by businesses operating in that industry, such as
Seller. Further,
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Buyer acknowledges that Seller has made no representation or warranty to Buyer
whatsoever in connection with the future profitability of the Business, nor has
Seller made any representation or warranty as to Buyer's ability to retain the
existing customers or referral sources of Seller after Closing.
ARTICLE 6
COVENANTS
6.1 Filings and Consent
(a) Promptly following the execution and delivery hereof, the
parties shall, obtain or file all consents (including Agency and Investor
consents), approvals, permits, authorizations, notices, and registrations
(collectively, "filings and consent solicitations") necessary to consummate the
assignment to Buyer of the Purchased Assets and business of Seller. The parties
shall cooperate in obtaining or making the necessary filings and consent
solicitations. The parties will use their reasonable efforts to cause the
filings and consent solicitations to be made as soon as practicable. The parties
hereto agree that they will consult with each other with respect to the
obtaining of all necessary permits, consents, approvals and authorizations of
all third parties and governmental bodies necessary or advisable to consummate
the transactions contemplated by this Agreement, and each party will keep the
other apprised of the status of matters relating to completion of the
transactions contemplated herein.
(b) Seller and Buyer shall promptly furnish each other with
copies of written communications received by Seller or Buyer, as the case may
be, or delivered by any of them, of any governmental body, Agency, Investor or
private mortgage insurer in respect of the transactions contemplated hereby.
6.2 Press Releases
Seller and Buyer shall cooperate with each other in the development and
distribution of all news releases and other public information disclosures with
respect to the Agreement or the transactions contemplated hereby; provided,
however, prior to the consummation of the Acquisition, no party hereto shall
make any public announcement or disclosure with respect to the transactions
contemplated hereby without the prior approval of the other parties, except
where disclosure is required by law. The parties anticipate issuing a press
release relating to the acquisition upon execution of this Agreement. All press
releases are at Buyer's expenses.
6.3 Intentionally Omitted.
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6.4 Marketing of Competing Products
Seller acknowledges that Buyer markets products that directly compete
with Seller's products.
6.5 Leases
Following the execution of this Agreement, the parties agree to use
their best reasonable efforts to obtain Landlord approval to lease assignments
from Seller to Buyer with respect to all office leases of Seller (the "Lease
Agreements"). Buyer agrees to indemnify and hold Seller (and all guarantors, if
any) harmless from all liability accruing after the Effective Time under all
Lease Agreements and the parties shall use their best efforts to have Seller
(and all guarantors, if any) released from all Lease Agreements.
ARTICLE 7
FURTHER COVENANTS OF SELLER
Seller covenants and agrees as follows:
7.1 Access to Information and Records. During the period prior to the
Closing:
(a) Seller shall, and shall cause its officers, employees,
agents, independent accountants and advisors to, furnish to Buyer, its
officers, employees, agents, independent accountants and advisors, at
reasonable times and at Seller's place of business, all information in
their possession concerning Seller as may be reasonably requested, and
give such persons access to all of the properties, books, records,
contracts and other documents of or pertaining to Seller that Seller or
its officers, employees, agents, independent accountants or advisors
shall have in their custody.
(b) With the prior consent of Seller in each instance (which
consent shall not be unreasonably withheld), Buyer and its officers,
employees, agents, independent accountants and advisors, shall have
access to vendors, customers, and others having business dealings with
Seller for the purpose of performing Buyer's due diligence
investigation.
7.2 Intentionally Omitted.
7.3 Conduct of Business Pending the Closing. From the date hereof until
the Closing, except as otherwise approved in writing in advance by the Buyer
(which approval shall not be unreasonably withheld):
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(a) No Changes. Seller will carry on its business diligently and
in the same manner as heretofore and will not make or institute any
changes in its methods of purchase, sale, management, accounting or
operation.
(b) Maintain Organization. Seller will take such action as may be
necessary to maintain, preserve, renew and keep in favor and effect the
existence, rights and franchises of Seller and will use its reasonable
best efforts to preserve the business organization of Seller intact, to
keep available to Buyer the present employees, and to preserve for Buyer
its present relationships with suppliers and customers and others having
business relationships with Seller.
(c) No Breach. Seller will not knowingly do or omit any act, or
knowingly permit any omission to act, which may cause a breach of any
material contract, commitment or obligation, or any breach of any
representation, warranty, covenant or agreement made by Seller herein,
or which would have required disclosure on Schedule 4.37 had it occurred
after October 31, 1996 and prior to the date of this Agreement.
(d) No Material Contracts. No contract or commitment will be
entered into, and no purchase of raw materials or supplies and no sale
of goods or services (real, personal, or mixed, tangible or intangible)
will be made, by or on behalf of Seller, except contracts, commitments,
purchases or sales which are in the ordinary course of business and
consistent with past practice, are not material to the Seller
(individually or in the aggregate) and would not have been required to
be disclosed in the Disclosure Schedule had they been in existence on
the date of this Agreement.
(e) No Corporate Changes. Seller shall not amend its Articles of
Incorporation or By-laws or make any changes in authorized or issued
capital stock.
(f) Maintenance of Insurance. Seller shall maintain all of the
insurance in effect as of the date hereof.
(g) Maintenance of Property. Seller shall use, operate, maintain
and repair all property of Seller in a normal business manner.
(h) Interim Financials. Seller will provide Buyer with interim
monthly financial statements and other management reports as and when
they are available.
(i) No Negotiations. Seller will not directly or indirectly
(through a representative or otherwise) solicit or furnish any
information to any prospective buyer, commence, or conduct presently
ongoing, negotiations with any other party or enter into any agreement
with any other party concerning the sale of Seller, Seller's assets or
business or any substantial part thereof (other than Excluded Assets) or
any equity securities of Seller (an "acquisition
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proposal"), and Seller shall immediately advise Buyer of the receipt of
any acquisition proposal.
7.4 Change of Corporate Name. Concurrently with the Closing (or at such
time as all Licenses have been obtained) , Seller shall change its corporate
name to a new name bearing no resemblance to its present name so as to permit
the use of its present name by Buyer.
7.5 Consents. The parties will use their best reasonable efforts prior
to Closing to obtain all consents necessary for the consummation of the
transactions contemplated hereby.
7.6 Other Action. The parties shall use their best reasonable efforts to
cause the fulfillment at the earliest practicable date of all of the conditions
to the parties' obligations to consummate the transactions contemplated in this
Agreement.
7.7 Disclosure. Seller shall have a continuing obligation to promptly
notify Buyer in writing with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Disclosure Schedule, but no
such disclosure shall cure any breach of any representation or warranty which is
inaccurate.
ARTICLE 8
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
Each and every obligation of Buyer to be performed on the Closing Date
shall be subject to the satisfaction (or waiver by Buyer) prior to or at the
Closing of each of the following conditions:
8.1 Representations and Warranties True on the Closing Date. Each of the
representations and warranties made by Seller in this Agreement, and the
statements contained in the Disclosure Schedule or in any instrument, list,
certificate or writing delivered by Seller pursuant to this Agreement, shall be
true and correct in all material respects when made and shall be true and
correct in all material respects at and as of the Closing Date as though such
representations and warranties were made or given on and as of the Closing Date,
except for any changes permitted by the terms of this Agreement or consented to
in writing by Buyer.
8.2 Compliance With Agreement. Seller shall have in all material
respects performed and complied with all of its agreements and obligations under
this Agreement which are to be performed or complied with by Seller prior to or
on the Closing Date, including the delivery of the closing documents specified
in Section 10.1.
8.3 Absence of Litigation. No litigation shall have been commenced or
threatened, and no investigation by any Government Entity shall have been
commenced, against Buyer, Seller or any of
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the affiliates, officers or directors of any of them, with respect to the
transactions contemplated hereby.
8.4 Consents and Approvals. All approvals, consents and waivers that are
required to effect the transactions contemplated hereby shall have been
received, and executed counterparts thereof shall have been delivered to Buyer
prior to the Closing. Notwithstanding the foregoing, receipt of the consent of
any third party to the assignment of a Contract which is not (and is not
required to be) disclosed in the Disclosure Schedule shall not be a condition to
Buyer's obligation to close, provided that the aggregate of all such Contracts
does not represent a material portion of Seller's sales or expenditures. After
the Closing, Seller will continue to use its reasonable best effects to obtain
any such consents or approvals. This is also a Closing condition for Seller.
8.5 Volume of Non Conforming Business. Seller's Volume of Non Conforming
Business must have been (i) at least $2,600,000 in gross loan proceeds advanced
per month on average, for the period 7/1/96 through 10/31/96 and (ii) not
materially less than $2,600,000 in gross loan proceeds advanced per month, on
average, for each of the last two months of 1996.
ARTICLE 9
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
Each and every obligation of Seller to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of the following
conditions:
9.1 Representations and Warranties True on the Closing Date. Each of the
representations and warranties made by Buyer in this Agreement, and the
statements contained in any instrument, certificate or writing delivered by
Buyer pursuant to this Agreement, shall be true and correct in all material
respects when made and shall be true and correct in all material respects at and
as of the Closing Date as though such representations and warranties were made
or given on and as of the Closing Date.
9.2 Compliance With Agreement. Buyer shall have in all material respects
performed and complied with all of Buyer's agreements and obligations under this
Agreement which are to be performed or complied with by Buyer prior to or on the
Closing Date, including the delivery of the closing documents.
9.3 Absence of Litigation. No litigation shall have been commenced or
threatened, and no investigation by any Government Entity shall have been
commenced, against Buyer, Seller or any of the affiliates, officers or directors
of any of them, with respect to the transactions contemplated hereby; provided
that the obligations of Seller shall not be affected unless there is a
reasonable
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likelihood that as a result of such action, suit, proceeding or investigation
Seller will be unable to retain substantially all the consideration to which it
is entitled under this Agreement.
9.4 Employment Agreement. Buyer shall have entered into an employment
agreement (the "Employment Agreement") with Mark Greenberg on mutually
satisfactory terms.
9.5 Sale of Excluded Mortgages. Buyer shall have purchased, pursuant to
the agreement referred to in Section 16.13, all Excluded Mortgages offered for
sale by Seller and that qualify for purchase by Buyer (using Buyer's ordinary
standards for loan purchases) and any related liability of Seller to warehouse
lenders in respect of such mortgages purchased by Buyer shall be assumed and
paid by Buyer.
ARTICLE 10
CLOSING
Subject to the satisfaction or waiver of the closing conditions set
forth in this Agreement, the closing of this transaction ("the Closing") shall
take place at the principal office of Seller, at 11:00 A.M. on a date mutually
acceptable to Buyer and Seller, or at such other place as the parties hereto
shall agree upon. Such date is referred to in this Agreement as the "Closing
Date". Regardless of the Closing Date, the transaction shall be deemed to have
occurred for all purposes as of the Effective Time and the parties shall
cooperate to treat the transaction as having occurred as of the Effective Time,
making appropriate adjustments for all receipts, disbursements, liabilities and
expenses from and after the Effective Time in order to place the parties in the
position as if the Closing actually occurred at the Effective Time.
10.1 Documents to be Delivered by Seller. At the Closing, Seller shall
deliver to Buyer the following documents, in each case duly executed or
otherwise in proper form:
(a) Bills of Sale. Bills of sale and such other instruments of
assignment, transfer, conveyance and endorsement as will be sufficient
in the reasonable opinion of Buyer and its counsel to transfer, assign,
convey and deliver to Buyer the Purchased Assets as contemplated hereby.
(b) Compliance Certificate. A certificate signed by the chief
executive officer of Seller that, to the best of his knowledge, each of
the representations and warranties made by Seller in this Agreement is
true and correct in all material respects on and as of the Closing Date
with the same effect as though such representations and warranties had
been made or given on and as of the Closing Date (except for any changes
permitted by the terms of this Agreement or consented to in writing by
Buyer), and that, to the best of his knowledge,
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Seller has performed and complied with all of Seller's obligations under
this Agreement which are to be performed or complied with on or prior to
the Closing Date.
(c) Opinion of Counsel. A written opinion of counsel to Seller,
dated as of the Closing Date, addressed to Buyer, substantially in the
form of Exhibit 10.1(c) hereto.
(d) Intentionally Omitted.
(e) Certified Resolutions. A certified copy of the resolutions of
the Board of Directors and the shareholders of Seller authorizing and
approving this Agreement and the consummation of the transactions
contemplated by this Agreement.
(f) Real Estate Leases. The Real Estate Lease Assignment and
Assumption Agreement duly executed by Seller (also to be executed by
Buyer).
(g) Other Documents. All other documents, instruments or writings
required to be delivered to Buyer at or prior to the Closing pursuant to
this Agreement and such other certificates of authority and documents as
Buyer may reasonably request.
10.2 Documents to be Delivered by Buyer. At the Closing, Buyer shall
deliver to Seller the following documents, in each case duly executed or
otherwise in proper form:
(a) Assumption of Liabilities. Such undertakings and instruments
of assumption as will be reasonably sufficient in the opinion of Seller
and its counsel to evidence the assumption of Assumed Liabilities as
provided for in Article 2.
(b) Compliance Certificate. A certificate signed by the chief
executive officer of Buyer that the representations and warranties made
by Buyer in this Agreement are true and correct on and as of the Closing
Date with the same effect as though such representations and warranties
had been made or given on and as of the Closing Date (except for any
changes permitted by the terms of this Agreement or consented to in
writing by Seller), and that Buyer has performed and complied with all
of Buyer's obligations under this Agreement which are to be performed or
complied with on or prior to the Closing Date.
(c) Opinion of Counsel. A written opinion of counsel to Buyer,
dated as of the Closing Date, addressed to Seller, substantially in the
form of Exhibit 10.2(c) hereto.
(d) Certified Resolutions. A certified copy of the resolutions of
the Board of Directors of Buyer authorizing and approving this Agreement
and the consummation of the transactions contemplated by this Agreement.
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(e) Other Documents. All other documents, instruments or writings
required to be delivered to Seller at or prior to the Closing pursuant
to this Agreement and such other certificates of authority and documents
as Seller may reasonably request.
ARTICLE 11
TERMINATION
11.1 Right of Termination Without Breach. This Agreement may be
terminated without further liability of any party at any time prior to the
Closing:
(a) by mutual written agreement of Buyer and Seller, or
(b) by either if the Closing shall not have occurred on or before
February 15, 1997, provided the terminating party has not, through
breach of a representation, warranty or covenant, prevented the Closing
from occurring on or before such date.
11.2 Termination for Breach.
(a) Termination by Buyer. If (i) there has been a material
violation or breach by Seller of any of its agreements, representations
or warranties contained in this Agreement which has not been waived in
writing by Buyer, or (ii) Seller shall have attempted to terminate this
Agreement under this Article 11 or otherwise without grounds to do so,
then Buyer may, by written notice to Seller at any time prior to the
Closing that such violation, breach, or wrongful termination attempt is
continuing, terminate this Agreement with the effect set forth in
Section 11.2(c) hereof.
(b) Termination by Seller. If (i) there has been a material
violation or breach by Buyer of any of its agreements, representations
or warranties contained in this Agreement which has not been waived in
writing by Seller, or (ii) Buyer shall have attempted to terminate this
Agreement under this Article 11 or otherwise without grounds to do so,
then Seller may, by written notice to Buyer at any time prior to the
Closing that such violation, breach, or wrongful termination attempt is
continuing, terminate this Agreement with the effect set forth in
Section 11.2(c) hereof.
(c) Effect of Termination. Termination of this Agreement pursuant
to this Section 11.2 shall not in any way terminate, limit or restrict
the rights and remedies of any party hereto against any other party
which has violated, breached or failed to satisfy any of the
representations, warranties, covenants, agreements or other provisions
of this Agreement prior to termination hereof. In such event, the
non-breaching party, following written notice of any breach and the
failure to make cure thereof within fifteen (15) calendar days following
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such notice (such notice specifically setting forth the nature and facts
of the alleged breach), shall be entitled to pursue an action for its
actual monetary damages or grounded in specific performance, and no
other remedy (including, but not limited to, an action for incidental or
consequential damages for lost profits, lost sales or any other
incidental or consequential loss) shall be available to either party.
ARTICLE 12
SELLER'S AND BUYER'S LICENSES
12.1 Buyer's Temporary Operation of Seller's Business Pending License
Transfer
(a) The parties acknowledge that Buyer (which term for purposes
of this Section 12.5 shall include Buyer's Affiliates) may require, but not yet
have, all Licenses necessary to conduct the mortgage banking business and
mortgage brokering business being acquired from Seller. The parties have been
coordinating regarding Buyer's efforts to obtain all necessary licenses but in
certain situations, it is not practical for Buyer to obtain requisite licenses
prior to Closing. Buyer covenants to use reasonable good faith efforts to secure
all appropriate Licenses as soon as possible.
(b) After the Effective Date and until the earlier of (i) Buyer
obtaining all Licenses necessary or appropriate for Buyer's operation of the
mortgage banking and mortgage brokering business consistent with Seller's past
practices or (ii) the close of business on June 30, 1997, Buyer shall be
permitted to operate, manage and supervise Seller's mortgage banking business in
the name of Seller, and to thereby take advantage of Seller's Licenses, to the
extent that Buyer has not yet secured its own Licenses to conduct such business.
Buyer shall pay all costs and expenses relating to, or arising out of, Buyer's
management of Seller's business, including without limitation, providing or
facilitating the credit facilities necessary to fund such business. Unless
otherwise required by law, all personnel involved in Buyer's temporary operation
of Seller's business shall be on Buyer's payroll. Seller shall pay Buyer a
management fee equal to all profits which Seller would otherwise earn from
Buyer's temporary operation of Seller's business and Buyer shall reimburse
Seller for any loss from such temporary operation of Seller's business. Buyer's
temporary operation of Seller's business shall result in Seller making no profit
or loss from such temporary operation, except as otherwise required by law.
Seller shall cooperate with Buyer to facilitate Buyer's temporary operation of
Seller's business. Seller may impose such conditions and restrictions upon
Buyer's temporary operation of Seller's business as Seller shall consider
appropriate, acting reasonably and in good faith, and provided that Seller and
shareholders shall not seek to profit directly or indirectly from the imposition
of such conditions and restrictions. Buyer shall indemnify and hold Seller
harmless from and against all liability, cost and expense incurred by Seller as
the result of Buyer's utilization of Seller's License or otherwise conducting
any business in the name of Seller in accordance herewith.
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ARTICLE 13
INDEMNIFICATION
13.1 Indemnification
(a) From and after the Closing Date, Seller shall indemnify and
hold harmless, Buyer and each of its Affiliates from and against any and all
Losses which any of them may suffer, incur or sustain arising out of or
attributable to (whether or not arising out of third party claims) (i) any
breach of any covenant, representation or warranty made by Seller pursuant to
this Agreement, and (ii) any claim or liability (other than payment of benefits
in the ordinary course), tax, penalty asserted, legal action or administrative
proceeding resulting from or arising in connection with any Plan or Single
Employer Plan that was accrued or incurred prior to the Closing Date.
(b) From and after the Closing Date, Buyer shall indemnify and
hold harmless Seller from and against any and all Losses which Seller may
suffer, incur or sustain arising out of or attributable to (whether or not
arising out of third party claims) the Assumed Liabilities and/or any breach of
any covenant, representation, warranty or agreement made by Buyer pursuant to
this Agreement and/or relating to the operation of the Business by Buyer after
the Effective Date (other than breaches or failure by Seller).
(c) From and after the Closing Date, Seller shall indemnify and
hold Buyer and its affiliates harmless against, and agree to pay, any and all
expenses, costs or losses relating to the Seller or the operation of the
Business prior to the Effective Time (except for such expenses that were
included in the liabilities on the Closing Balance Sheet for which the parties
have made an adjustment in arriving at the Purchase Price).
(d) If any third party makes a claim for which a party seeking
indemnification under this Section 13.1 ("Indemnified Party") seeks indemnity
from the indemnifying party ("Indemnitor"), the Indemnified Party shall as soon
as practicable notify Indemnitor of the details of the claim ("Claim Notice").
After receiving a Claim Notice, Indemnitor may elect, by written
notice to the Indemnified Party, to assume the defense of such claim by using
counsel selected by Indemnitor, acting reasonably. If Indemnitor assumes such
defense and admits that the claim is subject to the Indemnitor's indemnity
obligations, then (i) the claim shall be deemed to be a claim indemnified by the
Indemnitor; (ii) the Indemnified Party may, at its election, participate in the
defense of the claim, but Indemnitor will have no obligation to pay for any
defense costs including attorneys' fees of the Indemnified Party after
Indemnitor assumes the defense of the claim; and (iii) Indemnitor will have the
right, without cost to Indemnified Party, to compromise and settle the claim on
any basis believed reasonable, in good faith, by Indemnitor, and Indemnified
Party shall be bound thereby, provided that
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Indemnitor can reasonably demonstrate the financial resources to perform under
the terms of the proposed Settlement.
After receiving a Claim Notice, if Indemnitor either does not
assume the defense thereof, or does so under a reservation of rights without
admitting that the claim is subject to the Indemnitor's indemnity obligations,
then: (i) the claim shall not be deemed to be a claim indemnified by the
Indemnitor and neither party shall have waived any rights to assert that the
claim is or is not properly a claim subject to the Indemnitor's indemnity
obligations; (ii) both Indemnitor and Indemnified Party may, at their individual
election, participate in the defense of such claim but Indemnitor will remain
responsible for the costs of defense, including reasonable attorneys' fees of
the Indemnified Party should the claim ultimately be determine to be subject to
Indemnitor's indemnity obligation; and (iii) the Indemnified Party shall have
the right to compromise and settle the claim on any basis believed reasonable,
in good faith, by the Indemnified Party, and the Indemnitor will be bound
thereby should the claim ultimately be determined to be subject to Indemnitor's
indemnity obligation.
(e) For purposes of this Article 13, Losses shall be limited to
actual monetary damages, costs and expenses and shall not include incidental or
consequential damages for lost profits, lost sales or any other incidential or
consequential loss.
ARTICLE 14
POST-CLOSING COVENANTS
14.1 Personnel Matters
After the Closing Date, each employee of Seller that is employed by
Buyer shall be employed as of the Effective Date (with appropriate adjustments
for all salaries and benefits paid by Seller following the Effective Time) on
terms that are comparable to the employment terms, compensation and benefits
provided by Seller immediately prior to the Closing (other than Mark Greenberg
who shall be employed under the terms of the Employment Agreement).
14.2 Cooperation
Seller shall encourage Seller employees to accept employment with Buyer.
14.3 Guaranties
Within forty-five (45) days following the Closing Date, Buyer shall
exercise its reasonable best efforts to cause the release of all guaranties and
collateral provided by Seller with respect to Assumed Liabilities.
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ARTICLE 15
AMENDMENTS
15.1 Amendment, Extension and Waiver
Subject to applicable law, at any time prior to the consummation of the
transactions contemplated by this Agreement, Seller and Buyer may (a) amend this
Agreement, (b) extend the time for the performance of any of the obligations or
other acts of any other party hereto, (c) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, or (d) waive compliance with any of the agreements or
conditions contained in this Agreement. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto. Any
agreement on the part of a party hereto to any extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party, but such waiver or failure to insist on strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
ARTICLE 16
MISCELLANEOUS
16.1 Survival
The representations and warranties set forth herein shall survive the
Closing.
16.2 Expenses
Each party hereto shall bear and pay all costs and expenses incurred by
it in connection with the transactions contemplated hereby, including fees and
expenses of its own financial consultants, accountants and counsel other than as
provided in Section 3.2(d)(iii).
16.3 Entire Agreement
This Agreement, including the documents, schedules and other writings
referred to herein or delivered pursuant hereto, contains the entire agreement
and understanding of the parties with respect to its subject matter. This
Agreement supersedes all prior arrangements and understandings between the
parties, both written or oral with respect to its subject matter.
16.4 Parties in Interest
The Agreement shall be binding upon and shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
assigns; provided, however, that nothing in this
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Agreement, expressed or implied, is intended to confer upon any other person or
entity, any rights, remedies, obligations or liabilities of any nature
whatsoever under or by reason of this Agreement.
16.5 Assignment
No party hereto may assign any of its rights or obligations hereunder to
any other person, without the prior written consent of the other parties
provided, however, Buyer may assign its rights and obligations (with Buyer
remaining primarily liable to Seller) hereunder to any one or more of its
Affiliates (whether existing on the date hereof or hereafter created).
16.6 Notices
All notices or other communications hereunder shall be in writing and
shall be deemed given if delivered personally or mailed by prepaid registered or
certified mail (return receipt requested), or by overnight courier, cable,
telegram or telex addressed as follows:
(a) If to Seller to:
Mark J. Greenberg
Equity Mortgage Co., Inc.
7920 McDonogh Road, Suite 204
Owings Mills, Maryland 21117
Facsimile: (410) 581-2295
Copy to:
Michael J. Kandel, Esquire
Kandel, Klitenic & Chernow
6 Park Center Court, Suite 100
Owings Mills, Maryland 21117
Facsimile: (410) 581-1404
(b) If to Buyer to:
Mr. George Nicholas
Industry Mortgage Company
3450 Buschwood Park Drive, Suite 250
Tampa, FL 33618
Facsimile: (813) 935-0227
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Copy to:
Mitchell W. Legler, Esquire
Mitchell W. Legler, P.A.
One Independent Drive, Suite 3104
Jacksonville, FL 32202
Facsimile: (904) 791-9333
16.7 Captions
The captions contained in this Agreement are for reference purposes only
and are not part of this Agreement.
16.8 Counterparts
This Agreement may be executed in any number of counterparts, and each
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one Agreement. Executed counterparts
which are transmitted by facsimile are intended to be binding and enforceable.
16.9 Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of Maryland, without giving effect to the principles of
conflict of laws thereof.
16.10 No Third Party Beneficiaries
There are no third party beneficiaries and no third party shall have any
rights or remedies under this Agreement.
16.11 Ambiguity
It is acknowledged that this Agreement is the product of negotiation
between the parties hereto, and the fact that counsel to a particular party
prepared the draft(s) or final form of this Agreement shall not be relevant in
the construction or interpretation of this Agreement should any provision or
portion of this Agreement be deemed to be ambiguous.
16.12 Number and Gender
Unless the context otherwise requires, whenever used in this Agreement,
the singular shall include the plural, the plural shall include the singular,
and the masculine gender shall include the neuter and feminine gender, and vice
versa.
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16.13 Prior Mortgage Sale Obligation; Dissolution of EMLP
Effective as of the Closing Date, the Seller and Equity Mortgage Limited
Partnership, a Maryland limited partnership whose partnership interests are
directly or indirectly owned by the stockholders of Seller ("EMLP"),
automatically shall be fully released by Buyer and Buyer's Affiliates from their
contractual obligation to sell to Buyer and/or Buyer's Affiliates any dollar
amount of Mortgage Loans. Buyer acknowledges that Seller and EMLP have fully
satisfied all obligations to sell a certain dollar amount of Mortgage Loans to
Buyer and/or Buyer's Affiliates with respect to all prior periods. In addition
to the foregoing, Buyer acknowledges that EMLP, being the registered owner of
certain restricted securities of Buyer, desire to liquidate and dissolve. Buyer
agrees to use its best reasonable efforts to acknowledge such dissolution and to
cause to be issued to the partners of EMLP, based upon their pro-rata
percentages of ownership in EMLP, restricted securities of Buyer (in the
aggregate in like number and character and subject to identical restrictions),
in exchange for the restricted securities of Buyer currently held by EMLP.
IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement as of
the day and year first above written.
EQUITY MORTGAGE CO., INC.
By:
-----------------------------------------
Title:
--------------------------------------
IMC MORTGAGE COMPANY, INC.
By:
-----------------------------------------
Title:
--------------------------------------
42
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Draft of 2/7/97
EMPLOYMENT AGREEMENT
This Agreement is made as of the 1st day of January, 1997, between:
IMC MORTGAGE COMPANY, a Florida corporation, the address of which
is 3450 West Bush Blvd., Suite 250, Tampa, Florida 33618 (the
"COMPANY")
and
MARK J. GREENBERG, whose address is 2328 Melinda Drive, Owings
Mills, Maryland, 21117 (the "EMPLOYEE").
Background
The following facts constitute the background for this agreement:
A. The Company, which is in the mortgage banking business,
simultaneously herewith is purchasing substantially all the assets and business
of Equity Mortgage Co., Inc., a Maryland corporation ("EQUITY").
B. The Employee is a shareholder and key employee of Equity and the
Company intends to continue the business of Equity in the Company and/or one or
more of its affiliates (which continuation, regardless of the affiliate of
Company through which such business is continued is called the "EQUITY DIVISION"
of Company's business).
C. The Company believes that the services of Employee in continuing to
direct the Equity Division is very important to it continued success and
therefor, the Company desires to retain the services of the Employee, and the
Employee desires to be employed by the Company, in accordance with the terms and
conditions set forth in this Agreement. In addition to directing the Equity
Division, the Employee shall be a senior marketing vice president of the Company
with certain responsibilities for generating business from loss mitigation
activities and the sale of real estate owned by third parties (the "Loss
Mitigation Business").
NOW, THEREFORE, in consideration of the covenants and agreements set
forth herein, the parties hereto, intending to be legally bound, agree that the
background facts are true and correct and form a substantive and integral part
of this Agreement, and do further hereby agree as follows:
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1. Employment and Duties.
The Company hereby employs, either directly or through one of Company's
affiliates engaged in the mortgage banking business as the successor to Equity's
mortgage banking business in the Territory (as defined below) (the Company and
such affiliate sometimes hereinafter collectively called the "EMPLOYER, it being
agreed that the Company shall at all times continue to have primary liability
under this Agreement"), the Employee as the Senior Vice-President of the Equity
Division of Employer and as a senior marketing vice president for the Loss
Mitigation Business, and the Employee hereby accepts such employment upon the
terms and conditions contained in this Agreement. The Employee shall have such
rights, duties and responsibilities as are consistent with those of a Senior
Vice-President of a mortgage banking company and such other executive and
managerial responsibilities as may be from time to time reasonably designated by
the Board of Directors of the Company (the "BOARD") or the chief executive
officer of the Company or the president of the Company (the "EXECUTIVE
OFFICERS") that are consistent with Employee directing the day to day operations
of the Equity Division. The Employee will work from offices in Owings Mills,
Maryland and the Company agrees not to relocate Employee without Employee's
consent. The Employee shall perform his duties in a conscientious, reasonable
and competent manner, shall devote his reasonable best efforts, skill and
abilities to promote the Company and the business of the Equity Division and
shall devote Employee's full business time and attention to the performance of
his duties. The Employee shall at all times discharge his duties as an officer
and employee subject to the general control of the Board and the Executive
Officers of Employer, but the Company will not exercise unreasonable control
over the day-to-day operations of the Equity Division which shall be directed by
Employee.
2. Term.
This Agreement shall have an initial term beginning on January 1, 1997
and continuing until December 31, 2000 (the "CONTRACT TERM") unless earlier
terminated as provided herein. Employee is to serve at the pleasure of the Board
and such employment is subject to termination by either party, with or without
Cause, upon thirty (30) days written notice. At the expiration of the initial
term hereof (or any renewal term, if applicable), this Agreement shall
automatically renew for an additional two year term unless either party provides
notice to the other of intent not to renew at least 30 days prior to the
expiration of the initial term, or renewal term as applicable. If this Agreement
renews, then the Equity Division Bonus will not be applicable to the renewal
term. For purposes of this Section 2 (and Subsection 4(h)), "CAUSE" shall mean
(i) serious, willful misconduct by the Employee in respect to his obligation to
Company or Employer, including for example (but not limited to) the commission
by Employee of a felony or the perpetration by Employee of a common law fraud;
(ii) the violation by Employee of any material term of this Agreement, including
the failure of Employee to perform the amount and quality of service to Employer
reasonably expected of him, which violation or failure is not cured or rectified
after reasonable notice thereof and a reasonable opportunity to do so; or (iii)
willful refusal to follow the Employer's reasonable policies and directives
which violation is not cured or rectified after reasonable notice thereof and a
reasonable opportunity to do so.
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3. Compensation.
(a) Base Salary. The Company shall or shall cause Employer to pay the
Employee a base salary ("Base Salary"), throughout the term of employment under
this Agreement payable monthly, pro rated for any partial month such amount as
is established by the Board from time to time, but not less than the following:
(1) First Year. For the first 12 months of employment, a base
salary per year of One Hundred Seventy-Five Thousand Dollars
($175,000);
(2) Cost of Living Adjustments. Beginning on the first
anniversary of Employee's employment, and upon each anniversary
thereafter, the base salary per year shall equal the sum of (i) the
salary paid to Employee for the last year prior to such anniversary
date (the "LAST YEAR'S SALARY"), plus (ii) an amount equal to Last
Year's Salary times the CPI Adjustment (as hereinafter defined).
As used in this agreement, the term "CPI ADJUSTMENT" shall mean the
percentage increase for the twelve (12) months ending on the applicable
anniversary date of Employee's employment, in the Consumer Price Index-All Urban
Consumers, U.S. City average All Items (1967=100) Not Seasonally Adjusted, as
published by the Bureau of Labor Statistics, U.S. Department of Labor ("CPI")
over the prior twelve (12) months. The percentage increase in the cost of living
shall be zero percent (0%) if the CPI is decreased during the past year. If the
CPI is discontinued or unavailable, such other comparable governmental index
shall be used to obtain substantially the same result as if the CPI had been
continued or available.
(b) Equity Division Bonus. Employer shall pay to Employee within sixty
(60) days following the end of each of the Company's calendar years beginning
with calendar year 1997, and ending with calendar year 2000, a bonus (the
"EQUITY DIVISION BONUS") in an amount equal to 1 1/2% of the mortgage
originations ("Originations") of the Equity Division of Company which will be
directed and operated primarily by Employee provided, however, in no event will
the Equity Division Bonus be greater than the after tax profits of such Equity
Division computed before taking into effect the Equity Division Bonus. Upon
termination of Employee's employment, Employee shall be entitled to the bonus
earned through the date of termination (plus bonus that accrues with respect to
business in the pipeline as of such termination date that closes following such
termination date)with such amount to be paid within sixty days following
termination. The Employee shall be entitled to access reports and books and
records to verify the computation of the Equity Division Bonus.
(c) Loss Mitigation Business Bonus. Employer shall pay Employee within
sixty (60) days following the end of each of the Company's calendar years
beginning with calendar year 1997, a bonus (the "Loss Mitigation Business
Bonus") in an amount equal to the greater of (i) 25 basis points (.0025) on all
sub-prime mortgage loans originated by Company's Loss Mitigation Business, or
(ii) ten percent (10%) of the front-end points received by Company on all loans
originated by the Loss Mitigation Business. Employee will pay from the Loss
Mitigation Business
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Bonus any amounts due to Mark Friedman in connection with such Loss Mitigation
Business. The Equity Division Bonus and the Loss Mitigation Business Bonus are
collectively called the "Bonus." Upon termination of Employee's employment,
Employee shall be entitled to the bonus earned through the date of termination
(plus bonus that accrues with respect to business in the pipeline as of such
termination date that closes following such termination date) with such amount
to be paid within sixty days following termination. The Employee shall be
entitled to access reports and books of records to verify the computation of the
Loss Mitigation Business Bonus.
(d) Employee Benefits. Employee shall be eligible for, and shall
receive, all benefits on the same basis as otherwise generally available to
other executives of the Company, including, but not limited to: health and
dental insurance, life insurance, profit sharing plans, investment and
retirement plans and vacations and holidays. A general listing of the benefits
currently available to executives of the Company is attached hereto as EXHIBIT
A.
(e) Employment Taxes. The Company shall deduct from any payments to the
Employee taxes required to be withheld and paid to any federal, state or local
government as a result of the Employee's employment.
(f) Expense Reimbursement. The Employer shall reimburse Employee for all
customary and reasonable business expenses (including automobile expenses)
incurred by Employee in connection with Employer's business, subject to a
reasonable budget approved by the Company and subject to reasonable
documentation. The Company shall arrange to have a credit card issued to
Employee for business use.
4. Non-Competition and Proprietary Information.
(a) Restricted Business Activity and Geographic Scope. The Employee will
not compete with the Company, Employer or any of their respective affiliates in
the mortgage banking business (including, without limitation, either the
conforming or nonconforming loan business), either directly or indirectly, alone
or in conjunction with others, anywhere inside of the Territory (as defined
below), during the term of Employee's employment with the Employer (except to
wind-down the assets of Equity). In addition, for a period beginning on this
date and ending two (2) years following Employee's termination of employment
(the "NON-COMPETITION TERM") for whatever cause or reason, including expiration
of the Contract Term, but subject to subsection (h) of this Section 4, the
Employee will not compete with the Company, the Employer or any of their
affiliates in the mortgage banking business (including, without limitation,
either the conforming or nonconforming loan business), either directly or
indirectly, alone or in conjunction with others, within the Territory, and
during said period, the Employee will not act as a competitor to the Company or
its affiliates directly, or indirectly, as a proprietor, owner, shareholder
(other than as a shareholder of a publicly traded Company so long as Employee
does not own or control more than 5% of the shares of such Company), partner,
joint venturer, trustee, director, representative, employee, agent or consultant
to any person or entity (called an "ASSOCIATED PERSON") where Associated Person
competes with Company or any of its affiliates, as described above.
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(b) Territory. "TERRITORY" means such areas where the Equity
Division actually engaged in the mortgage banking business during the term of
this Agreement and prior to termination of employment.
(c) Customers/Relationships. The Employee shall not directly or
indirectly through an Associated Person, do anything to interfere with any
relationship between the Company, or it's affiliates and any of their customers,
clients, lenders, or persons or concerns dealing with the Company or it's
affiliates during his employment and the Non-Competition Term; provided,
however, that if subsection 4(h) becomes operative, general competition by
Employee (or by an Associates Person) shall not be deemed interference for
purposes of this subsection 4(c).
(d) Employees. The Employee shall not directly or indirectly
through an Associated Person, without the prior consent of the Company and its
affiliates solicit, hire away or employ any person who is an employee of the
Company or the Company's affiliates during the Non-Competition Term if such
employee earns more than $50,000 per year ("SENIOR PERSONNEL").
(e) Reasonable and Necessary Restrictions. The Employee
acknowledges that the restrictions, prohibitions and other provisions of this
Section 4 are reasonable, fair and equitable in scope, term and duration, are
necessary to protect the legitimate business interests of the Company, and are a
material inducement to the Company to enter into the transactions herein
contemplated. The Employee covenants that he will not raise any defenses as to
the reasonableness of the Non- Competition Term or geographic scope of the
restrictions found in this Section 4.
(f) Enforceability. In the event that any restriction contained
in this Section 4 shall be held to be too broad to allow enforcement of such
restriction to its full extent, then such restriction shall be enforced to the
maximum extent permitted by law, and the Employee hereby consents and agrees
that such scope may be judicially modified accordingly in any proceeding brought
to enforce such restriction.
(g) Inadequacy of Remedy at Law. The Employee acknowledges and
agrees that the Company's remedy at law for any breach of his obligations under
this section may be inadequate, and agrees and consents that temporary and/or
permanent or injunctive relief may be sought against him from breaching this
Agreement and further agrees that any proceeding may be brought to enforce any
provision of this section without the requirement that the Company prove actual
damages as a result of the premature breach of this Agreement.
(h) Termination of Certain Non-Competition Restrictions. In the
event (i) the Employee quits as a result of a breach of this Agreement by the
Company, (ii) the Employee becomes disabled and subsequently is ready to return
to work and the Company does not hire him back on substantially similar terms
(iii) prior to the end of the initial term, or any renewal term, the Company and
the Employee (both acting reasonably) have not agreed upon a bonus arrangement
for the renewal period and the Company or the Employee gives a notice of
nonrenewal or (iv) the Employee is terminated without Cause during the initial
term or any renewal term, or (v) the Employee's
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employment is not continued by the Company without Cause at the expiration of
the initial term or any renewal term, then the Employee will be released from
the non-competition restrictions in subsection (a), but the obligations not to
interfere and not to hire Senior Personnel stated in subsections (c) and (d)
shall continue until the later of the expiration of the Non-Competition Term or
twelve months following such termination without Cause.
5. Proprietary Information. During the term of this Agreement, the
Employee shall only make disclosures of information that the Employee believes
in good faith to be in the best interests of the Company and its affiliates. At
all times thereafter, the Employee shall not, directly or indirectly, in any
fashion, form or manner, divulge, disclose, furnish, communicate or make
accessible to any person who is not authorized by the Company or its affiliates
to receive such information any client or prospect list, financial data, sales
data, advertising or marketing plans, technological information or any other
confidential information of the Company or its affiliates. All files, records,
documents, forms, plans, policy and procedures manuals, client or prospective
client lists, written memoranda and similar materials relating to the business
of the Company or its affiliates, whether prepared by the Employee or otherwise
coming into the Employee's possession or knowledge during the term of this
Agreement, shall remain the exclusive property of the Company.
Notwithstanding the foregoing, and in light of the Employee's
significant first hand knowledge of the mortgage banking business and his direct
and substantial participation in designing, developing, implementing and
monitoring certain information which otherwise might be deemed confidential or
proprietary information, it is agreed that for purposes of this Agreement, the
term "confidential information" as used in this Paragraph 5, shall not include
any oral or written information which (i) is in the public domain or becomes
generally available to the public other than as a result of a disclosure by the
Employee, (ii) is or becomes available to the Employee on a non-confidential
basis from a source other than the Employer, (iii) the Employee is required by
applicable law to disclose, (iv) the Employee had knowledge of before being
employed by the Employer, or (v) the Employee designed or developed while
employed by the Employer.
6. Termination.
(a) General. This Agreement is for employment at will and either party
may terminate the Employee's employment hereunder, with or without Cause, upon
thirty (30) days written notice.
(b) Termination in the Event of Death. This Agreement shall terminate
automatically upon the death of the Employee. In such event, the Company shall
pay to the Employee's legal representative only the salary and bonus due to the
Employee up to the date of termination (plus bonus that accrues with respect to
business in the pipeline as of such termination date that closes following such
termination date) as well as the benefits and reimbursed expenses due to the
Employee at the time of death.
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(c) Effect of Termination. In the event of the termination of Employee's
employment hereunder then:
(i) By Employee Without Good Reason, or by Employer With Cause. If the
termination is either (aa) by the Employee without a material breach by
Employer of the terms of this agreement, or (bb) by Employer with Cause,
then Employee will receive his Base Salary (plus bonus pipeline) through
the effective date of termination (the "ACCRUED SALARY") and the Bonus
earned until the termination date (plus bonus that accrues with respect to
business in the pipeline as of such termination date that closes following
such termination date).
(ii) By Employee With Good Reason or by Employer Without Cause. If the
termination is either (aa) by the Employee due to a material breach by
Employer of the terms of this agreement, or (bb) by the Employer without
Cause, then Employee will receive his Base Salary through the end of the
initial term (or the renewal term, as applicable) of this Agreement (the
"FULL CONTRACT SALARY") and the Bonus for the remaining initial term (or
the renewal term, as applicable) of this Agreement will continue to be paid
as though the Employee's employment had continued except that the Bonus
shall be calculated at one hundred and twenty percent (120%) of the Bonus
for the calendar year preceding the year of such termination of employment;
provided, however, that (a) there shall be no after tax profit ceiling
(i.e. no ceiling based upon the profits of the current or future periods)
in computing the Bonus to be payable under this subsection (ii), and (b) if
such termination occurs during the first year of employment, the Bonus
shall be predicated on the mortgage originations of Equity for the 1996
calendar year.
7. Successors and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Employee and his heirs and personal representatives
and the Company and its successors, assigns and legal representatives. This
Agreement is for the personal services of the Employee. The benefits and
obligations hereunder are personal to the Employee and are not assignable or
transferrable by the Employee. This Agreement shall not be assigned by the
Company to any entity or person without the prior written consent of the
Employee, provided that it may be assigned by the Company (with the Company
continuing to have primary liability hereunder) without the prior written
consent of the Employee to any entity or person which (a) acquires all or
substantially all of the assets of the Company by purchase, merger or
consolidation or (b) is formed as a wholly owned subsidiary by the Company to
conduct the business formerly conducted by the Company at a substantially
comparable level. In the event of any permitted assignment, any and all
reference to the Company in this Agreement shall be deemed to mean such
assignee.
8. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given (i) when delivered to such person by hand
delivery or recognized national overnight
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delivery service, or (ii) on the seventh day after being deposited in the United
States mail, certified mail, return receipt requested, postage prepaid, to the
person at the address first listed above or to such other person and/or address
as may be designated from time to time in writing.
9. Entire Agreement. This Agreement constitutes the entire understanding
between the Company and the Employee with respect to the subject matter hereof.
10. Modification and Waiver. No provision of this Agreement may be
amended, modified or waived unless such amendment, modification or waiver shall
be agreed to in writing and signed by the Employee and by a person duly
authorized by the Board of the Company. Any waiver by either party of any breach
of any of the terms of this Agreement shall not be considered a waiver of any
subsequent breach.
11. No Assignment of Compensation. No right to or interest in any
compensation or reimbursement payable hereunder shall be assignable or divisible
by the Employee; provided, however, that this provision shall not preclude the
Employee from designating one or more beneficiaries (otherwise to his estate) to
receive any amount that may be payable after his death and shall not preclude
his executor or administrator from assigning any right hereunder to the person
or persons entitled thereto.
12. No Attachments. Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge or hypothecation, or
to execution, attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect.
13. Headings. The heading of Sections and Subsections hereof are
included solely for convenience of reference and shall not control the meaning
or interpretation of any of the provisions of this Agreement.
14. Governing Law. This Agreement shall be construed in accordance with
and governed for all purposes by the substantive laws of the State of Florida.
15. Severability. In the event that any provision of this Agreement
shall be held invalid and unenforceable for any reason whatsoever, such
provision shall be deleted and the remainder of the Agreement shall not be
affected and shall be valid and enforceable to the fullest extent permitted by
law without the deleted provision or provisions.
16. Attorneys' Fees and Costs. In connection with any legal action to
enforce the terms of this Agreement, the prevailing party in such action shall
be entitled to receive from the other party all costs incurred in connection
therewith, including reasonable attorneys', legal assistant, investigator and
other paralegal and clerical fees and costs, including such costs and fees on
appeal, if any.
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17. Counterparts. This Agreement shall become effective only upon
execution hereof by the Company and Employee. It may be executed in several
counterparts, any one of which shall constitute the agreement between the
parties.
18. Termination of Prior Agreements. This Agreement shall supersede any
and all prior oral or written agreements existing between the Company, Equity
and the Employee with respect to employment or compensation and, as between
Company and Employee, specifically supersedes the Employment Agreement between
Equity Mortgage Co., Inc. and the Employee dated April 10, 1987 (collectively
all such prior agreements being the "Prior Agreements"). Accordingly, the
Employee hereby releases and discharges the Employer and it's affiliates from
any further obligation, liability or responsibility under any such Prior
Agreements, and the Company, for and on behalf of itself and on behalf of its
affiliates, hereby releases and discharges the Employee from any further
obligation, liability or responsibility under any such Prior Agreements.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed all as of the day and year first above written.
IMC MORTGAGE COMPANY, a Florida
corporation
By:
-------------------------------------
Its
-----------------------------
("Company")
-------------------------------------
MARK J. GREENBERG
("Employee")
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EXHIBIT A
Benefits for Senior Executives
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WSAR1
WAREHOUSE SECURITY AGREEMENT
WAREHOUSE SECURITY AGREEMENT, dated as of January 30, 1997 , among IMC
MORTGAGE COMPANY, a Florida corporation ("IMC Company"), INDUSTRY MORTGAGE
COMPANY, L.P., a Delaware limited partnership ("IMC Partnership") (IMC Company
and IMC Partnership each being referred to individually as an "Assignor" or the
"Assignor" and collectively as the "Assignors"), and GE CAPITAL MORTGAGE
SERVICES, INC., a New Jersey corporation ("Lender"), as the Lender under the
Warehouse Credit Agreement dated as of January 30, 1997, among the Assignors and
the Lender (as the same may from time to time be amended or supplemented, the
"Warehouse Credit Agreement"). Capitalized terms used herein and not defined
herein shall have the meanings specified in the Warehouse Credit Agreement.
W I T N E S S E T H :
WHEREAS, the Assignors desire to receive Advances under the Warehouse
Credit Agreement;
WHEREAS, the Lender has agreed to provide the Advances to the Assignors
on the terms and conditions specified in the Warehouse Credit Agreement; and
WHEREAS, it is a condition precedent to the effectiveness of the
Warehouse Credit Agreement and the making of the Advances that each Assignor
shall have executed and delivered this Warehouse Security Agreement to the
Lender.
NOW, THEREFORE, in consideration of the benefits to the Assignors the
receipt and sufficiency of which are hereby acknowledged, each Assignor hereby
makes the following representations and warranties to the Lender and hereby
covenants and agrees with the Lender as follows:
1. Security Interests. As security for the prompt and complete payment
and performance when due of all of the Obligations, the Assignor does hereby
sell, pledge, assign, hypothecate, transfer and grant unto the Lender, a
continuing security interest of first priority in all of the right, title and
interest of the Assignor in, to and under all of the following, whether now
existing or hereafter from time to time acquired (all of the following,
collectively, the "Collateral"):
(i) all Mortgage Loans which from time to time are, or are required to
be, pledged or delivered to the Lender hereunder or pursuant to the
Warehouse Credit Agreement, and all Mortgage Loans as to which any
Collateral Document is, or is required to be, pledged or delivered to
the Lender hereunder or pursuant to the Warehouse Credit Agreement, in
each case including, without limitation, each Mortgage Note evidencing
each such Mortgage Loan and each Mortgage securing each such Mortgage
Note;
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2
(ii) all Liquid Assets which are from time to time pledged or delivered
to, or registered by book-entry in the name of, the Lender or any
designee thereof or agent therefor hereunder and pursuant to the
Warehouse Credit Agreement and all instruments or certificates
evidencing any such Liquid Assets;
(iii) all General Intangibles, Instruments, Documents and Chattel Paper
evidencing, securing, supporting or relating to Mortgage Loans described
in clause (i) above, including, without limitation, causes of action,
foreclosure suits and any judgments therein, relating thereto;
(iv) all Receivables, Contracts, and Contract Rights relating to
Mortgage Loans described in clause (i) above and pursuant to the
Warehouse Credit Agreement, including, without limitation, (A) all
Purchase Commitments, (B) all Master Commitments, (C) all commitments to
insure or guarantee and all guarantees, (D) all insurance policies and
any claims thereunder, (E) rights to maintain any escrows, (F) rights
under any agreement pursuant to which any Mortgage Loan described in
clause (i) above was purchased, and (G) all escrow accounts and all
monies, securities and instruments deposited or required to be deposited
in the escrow accounts;
(v) all rights of the Assignor to service any Mortgage Loan described in
clause (i) above, and to receive any payment or compensation for the
servicing of any such Mortgage Loan, and all rights to receive from any
mortgagor on whose behalf the Assignor has advanced funds, and whose
Mortgage Loan is described in clause (i) above, payment or reimbursement
of the amount so advanced;
(vi) all Collateral Documents and all other documents, instruments,
certificates, forms, statements, surveys, appraisals, correspondence,
files, tapes, discs, cards, computer programs, accounting records and
other information and data relating to any or all of the foregoing;
(vii)all Hedging Contracts with respect to the Mortgage Loans described
in clause (i) above; and
(viii) any Proceeds of any and all of the foregoing.
2. Power of Attorney. The Assignor hereby constitutes and appoints the
Lender its true and lawful attorney, irrevocably, with full power after the
occurrence of an Event of Default (in the name of such Assignor or otherwise) to
act, require, demand, receive, compound and give acquittance for any and all
monies and claims for monies due or to become due to the Assignor under or
arising out of the Collateral, to execute and deliver any consents, approvals,
powers of attorney, assignments of mortgage, purchase contracts or any other
documents related to the Collateral, to endorse any checks or other instruments
or orders in connection therewith and to file any claims or take any action or
institute any proceedings which the Lender may deem to be necessary or advisable
in the premises, which appointment as attorney is coupled with an interest.
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3
3. Payments on the Collateral. If, while this Security Agreement is in
effect, the Assignor shall become entitled to receive or shall receive any
principal or interest or any other payment in respect of the Collateral, the
Assignor agrees to accept the same as the Lender's agent and to hold the same in
trust on behalf of the Lender, and, if required to do so pursuant to the terms
of the Warehouse Credit Agreement, to deliver the same forthwith to the Lender.
All sums of money so paid in respect of the Collateral which are received by the
Assignor and paid to the Lender shall be credited against the Obligations. So
long as no Default or Event of Default has occurred and is continuing, any
amounts received by the Lender in respect of the stated interest on any
Collateral in excess of the amounts then owing to the Lender pursuant to the
Warehouse Credit Agreement and the Note shall, upon request of the Assignor, be
remitted to the Assignor subject to the deduction therefrom by the Lender of
such amount as the Lender shall designate as a reserve for application to any
fees, accrued interest or breakage costs payable by the Assignor with respect to
the calendar month in which such amounts are received by the Lender.
4. Release of Collateral; Substitution. (a) So long as no Default or
Event of Default has occurred and is continuing or would result therefrom, upon
the Assignor's request therefor and a prepayment by the Assignor of Advances in
an amount sufficient to cause the amount of Advances outstanding to be less than
or equal to the Borrowing Base (calculated without reference to any Collateral
which the Assignor requests be released from the Lien granted pursuant hereto)
and a deposit by the Assignor of such amount as the Lender shall designate as a
reserve for application to any fees, accrued interest or breakage costs payable
under the Warehouse Credit Agreement with respect to the calendar month in which
such prepayment occurs, the Lender shall, within one Business Day after the
later of the receipt of such request or such prepayment and deposit, release
from the Lien granted pursuant hereto and deliver to the Assignor (i) the
Collateral corresponding to such Mortgage Loan(s) and (ii) the Collateral
Documents pertaining thereto.
(b) So long as no Default or Event of Default has occurred and is
continuing, in lieu of any required prepayment of principal pursuant to Section
4.02 of the Warehouse Credit Agreement, the Assignor may, subject to the terms
and conditions of the Warehouse Credit Agreement and the consent of the Lender,
substitute and pledge additional Eligible Mortgage Loans (together with all
required Collateral Documents with respect thereto) having a Collateral Value in
an amount such that immediately after giving effect to such substitution or
addition, such prepayment is no longer required.
(c) In the event that the Lender shall be required to release any
Collateral pursuant to the provisions of Sections 4.03 or 4.04 of the Warehouse
Credit Agreement, the Lender shall release any such Collateral consisting of
Mortgage Loans under the following circumstances:
(i) To an Investor (or its custodian) under a bailee agreement in the
form of either Schedule I or Schedule II attached hereto (a "Bailee
Agreement"), as and to the extent required hereunder, for its
examination and purchase, which Bailee Agreement shall provide
instructions to such Investor (or its custodian) to remit payment
directly to the Lender (but in no event shall such amounts be paid to
the Lender later than the date of
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4
settlement) or to return the Collateral to the Lender within 45 days, in
accordance with the Lender's instructions, and subject to the following:
(A) such delivery may be made upon the receipt by the Lender of a
written request from the Assignor at least one Business Day
before such delivery is to be made, provided that such delivery
is in compliance with the terms of the applicable Purchase
Commitment;
(B) before the Lender shall deliver any Collateral to any
Investor or to any custodian for such Investor, the Assignor
shall have delivered to the Lender copies of all necessary or
appropriate forms, schedules and/or other documents requested by
the Lender to effect delivery and payment thereof in accordance
with instructions to be provided by the Lender; and
(C) the forms described in the preceding clause (B) shall be
delivered to such Investor, or to a custodian for such Investor,
as the case may be, in connection with the delivery of the
Collateral.
(ii) If a pledged Collateral Document requires correction, to the
Assignor under cover of a bailee letter requiring the document to be
returned to the Lender within 10 days as set forth hereunder.
(d) Notwithstanding anything in the foregoing to the contrary, the
Lender shall not be obligated to take any action in respect of any release of
any Collateral which would adversely affect any possessory lien in favor of the
Lender in such Collateral unless such release is for the purpose of terminating
such possessory lien.
5. Rights of the Lender. The Lender shall not be liable for failure to
collect under or realize upon any Collateral or any part thereof, or for any
delay in so doing nor shall it be under any obligation to take any action
whatsoever with regard thereto. If an Event of Default or Default has occurred
and is continuing, the Lender may thereafter, without notice, exercise all
rights, privileges or options pertaining to any Collateral as if it were the
absolute owner thereof, upon such terms and conditions as it may determine, all
without liability except to account for property actually received by it, but
the Lender shall have no duty to exercise any of the aforesaid rights,
privileges or options and shall not be responsible for any failure to do so or
delay in so doing.
6. Remedies. The Assignor agrees that, if any Event of Default shall
have occurred and be continuing, then and in every such case, subject only to
any mandatory requirements of applicable law then in effect, the Lender, in
addition to any rights now or hereafter existing under applicable law, shall
have all rights of a secured creditor under the Uniform Commercial Code in all
relevant jurisdictions and may:
(a) Instruct the obligor or obligors on any agreement, instrument or
other obligation constituting the Collateral to make any payment
required by the terms of such instrument,
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5
agreement or obligation directly to the Lender and, in connection
therewith, complete and deliver to such obligors the notification
letters from the Assignor delivered to the Lender pursuant to Section
10(e) hereof; and
(b) Sell, assign or otherwise liquidate, or direct the Assignor to sell,
assign or otherwise liquidate, any or all of the Collateral or any part
thereof, on a servicing released basis or otherwise, and take possession
of the proceeds of any such sale, assignment or liquidation. Any
Collateral may be sold, assigned, or otherwise disposed of under one or
more contracts or as an entirety, and without the necessity of gathering
at the place of sale the property to be sold, and in general in such
manner, at such time or times, at such place or places and on such terms
as the Lender may, in compliance with any mandatory requirements of
applicable law, determine to be commercially reasonable. To the extent
permitted by any such requirement of law, the Lender and/or the holder
of the Note may bid for and become the purchaser of the Collateral or
any item thereof, offered for sale in accordance with this Section 6
without accountability to the Assignor (except to the extent of surplus
money received as provided in Section 8). The Lender need give the
Assignor only such notice of disposition as shall be required under the
provisions of applicable law.
7. Waiver of Claims. (a) Except as otherwise provided in this Agreement,
THE ASSIGNOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE
AND JUDICIAL HEARING IN CONNECTION WITH THE LENDER'S DISPOSITION OF ANY OF THE
COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING
FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH THE ASSIGNOR
WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES
OR OF ANY STATE, and the Assignor hereby further waives, to the extent permitted
by law:
(i) All requirements as to the time, place and terms of sale or other
requirements with respect to the enforcement of the Lender's rights
hereunder; and
(ii) All rights of redemption, appraisement, valuation, stay, extension
or moratorium now or hereafter in force under any applicable law in
order to prevent or delay the enforcement of this Agreement or the
absolute sale of the Collateral or any portion thereof, and the
Assignor, for itself and all who may claim under it, insofar as it now
or hereafter lawfully may, hereby waives the benefit of all such laws.
Any sale of, or the grant of options to purchase, or any other realization upon,
any Collateral shall operate to divest all right, title, interest, claim and
demand, either at law or in equity, of the Assignor therein and thereto, and
shall be a perpetual bar both at law and in equity against the Assignor and
against any and all Persons claiming or attempting to claim the Collateral so
sold, optioned or realized upon, or any part thereof, from, through and under
the Assignor.
(b) In the event that a dispute should arise over whether any item of
the Collateral is subject to the rights of a third party, the Assignor agrees to
hold the Lender harmless in respect of claims of such third parties.
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6
8. Application of Proceeds. The proceeds of any Collateral disposed of
pursuant to Section 6 shall be applied as follows:
(a) To the payment of any and all expenses and fees (including
reasonable attorneys' fees) incurred by the Lender in disposing of
Collateral and any and all amounts incurred by the Lender in connection
therewith;
(b) Next, any surplus then remaining to the payment of the Obligations
in the following order of priority:
(i) all interest accrued and unpaid on the Advances made;
(ii) the principal amount owing on the Advances made;
(iii) the Fees then owing to the Lender; and
(iv) all other Obligations then owing.
(c) If the Commitment is then terminated, and no other Obligation is
outstanding, any surplus then remaining shall be paid to the Assignors,
subject, however, to the rights of the holder of any then existing Lien
of which the Lender has actual notice (without investigation);
it being understood that the Assignors shall remain liable to the Lender to the
extent of any deficiency between the amount of the proceeds of the Collateral
and the aggregate amount of the sums referred to in clauses (a) and (b) of this
Section 8 with respect to the Assignors.
9. Discontinuance of Proceedings. In case the Lender shall have
instituted any proceeding to enforce any right, power or remedy under this
Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall
have been discontinued or abandoned for any reason or shall have been determined
adversely to the Lender, then and in every such case the Assignors, the Lender
and each holder of any of the Obligations shall be restored to their former
positions and rights hereunder with respect to the Collateral subject to the
security interest created under this Agreement, and all rights, remedies and
powers of the Lender shall continue as if no such proceeding had been
instituted.
10. Representations, Warranties and Covenants of the Assignors. Each
Assignor represents and warrants on the date hereof, on each date on which any
Advance is made and on each date on which any Mortgage Loans are delivered to
the Lender for the purposes of pledge hereunder, and covenants that:
(a) Necessary Filings. All filings, registrations and recordings
necessary or appropriate to create, preserve, protect and perfect the
security interest granted by the Assignor hereby in respect of the
Collateral have been accomplished and the security interest granted
pursuant
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7
to this Agreement in and to the Collateral constitutes a valid
and enforceable perfected security interest therein superior and prior
to the rights of all other Persons therein and subject to no other Liens
(except that the Collateral may be subject to Liens permitted pursuant
to Section 8.01 of the Warehouse Credit Agreement) and is entitled to
all the rights, priorities and benefits afforded by the Uniform
Commercial Code or other relevant law as enacted in any relevant
jurisdiction to perfected security interests.
(b) No Liens. The Assignor is, and as to Collateral acquired by it from
time to time after the date hereof the Assignor will be, the owner of
all the Collateral free from any Lien or other right, title or interest
of any Person (other than Liens permitted pursuant to Section 8.01 of
the Warehouse Credit Agreement), and the Assignor shall defend the
Collateral against all claims and demands of all Persons at any time
claiming the same or any interest therein adverse to the Lender.
(c) Other Financing Statements. There is no financing statement (or
similar statement or instrument of registration or perfection under the
law of any jurisdiction) covering or purporting to cover any interest of
any kind in the Collateral and so long as the Commitment has not been
terminated, the Note is outstanding or any of the Obligations remain
unpaid, the Assignor will not execute or authorize to be filed in any
public office any financing statement (or similar statement or
instrument of registration or perfection under the law of any
jurisdiction) or statements relating to the Collateral, except financing
statements filed or to be filed in respect of and covering the security
interests granted to the Lender hereby by the Assignor.
(d) Chief Executive Offices; Records. The chief executive office of the
Assignor is located at the address set forth opposite its signature
hereto. The Assignor will not move such office except to such new
location as the Assignor may establish in accordance with the last
sentence of this Section 10(d). Except as provided in the Warehouse
Credit Agreement, the originals of all documents evidencing the
Collateral and the only original books of account and records of the
Assignor relating thereto are, and will continue to be, kept at such
chief executive office, or at such new locations as the Assignor may
establish in accordance with the last sentence of this Section 10(d).
Except as provided in the Warehouse Credit Agreement, all of the
Collateral is, and will continue to be, maintained at, and controlled
and directed (including, without limitation, for general accounting
purposes) from, such office locations shown above, or such new locations
as the Assignor may establish in accordance with the last sentence of
this Section 10(d). The Assignor shall not establish a new location for
such offices until (i) it shall have given to the Lender not less than
45 days' prior written notice of its intention so to do, clearly
describing such new location and providing such other information in
connection therewith as the Lender may reasonably request, and (ii) with
respect to such new location, it shall have taken all action,
satisfactory to the Lender, to maintain the security interest of the
Lender in the Collateral intended to be granted hereby at all times
fully perfected and in full force and effect.
(e) Obligor Notices. The Assignor shall deliver to the Lender at the
time of the initial pledge of Collateral to the Lender hereunder, and at
such times thereafter as the Lender
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8
shall request, such number of form letters to obligors on Mortgage Loans
as the Lender shall reasonably request, such letters to be on the
Assignor's letterhead, addressed in blank, signed by the Assignor and
instructing such obligors that, commencing with the payment date
following receipt thereof, all payments to be made by such obligor on
such obligor's Mortgage Loan shall henceforth be made to the Lender or
its designee. The Lender agrees that it will only complete and/or
deliver any such letter to an obligor on a Mortgage Loan if an Event of
Default shall have occurred and be continuing.
(f) Protection of Security. The Assignor will do nothing to impair the
rights of the Lender in the Collateral.
(g) No Disposition, etc. Without the prior written consent of the
Lender, the Assignor agrees that it will not sell, assign, transfer,
exchange, or otherwise dispose of, or grant any option with respect to,
the Collateral, nor will it create, incur or permit to exist any pledge,
lien, mortgage, hypothecation, security interest, charge, option or any
other encumbrance with respect to any of the Collateral, or any interest
therein, or any proceeds thereof, except for Liens permitted pursuant to
Section 8.01 of the Warehouse Credit Agreement and the Lien and security
interest provided for by this Agreement and except for any sale or other
disposition as permitted under Section 4(c)(i) of this Agreement.
(h) Further Actions. The Assignor will, at its own expense, make,
execute, endorse, acknowledge, file and/or deliver to the Lender from
time to time such lists, descriptions and designations of the
Collateral, confirmatory assignments, conveyances, financing statements,
transfer endorsements, powers of attorney, certificates, reports and
other assurances or instruments and take such further steps relating to
the Collateral and other property or rights covered by the security
interest hereby granted, which the Lender deems reasonably appropriate
or advisable to perfect, preserve or protect its security interest in
the Collateral. The Assignor will pay any applicable filing fees and
related expenses. The Assignor authorizes the Lender to file any such
financing statement without the signature of the Assignor to the extent
permitted by applicable law.
(i) Mortgage Files and Related Records. The Assignor, if it is servicing
any Mortgage Loans pledged as Collateral, will maintain (or will cause
any subservicer thereof to maintain) satisfactory and complete records
with respect to such Mortgage Loans (including but not limited to any
applicable credit/origination files) sufficient to permit the proper
servicing and efficient sale thereof. Upon the occurrence of an Event of
Default, the Assignor will (i) deliver and turn over to the Lender, or
at the option of the Lender shall provide the Lender with access to, at
any time on demand of the Lender, the mortgage files maintained by the
Assignor with respect to, and all books, records and computer software,
tapes or disks relating to, the Mortgage Loans pledged as Collateral
hereunder and/or (ii) allow the Lender to occupy the premises of the
Assignor where such mortgage files, books, records and computer tapes
are located and utilize such premises and the equipment located thereon
to service, administer and collect the Collateral.
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9
(j) Mortgage Notes. The Assignor shall notify the Lender (x) of (i) any
payment default in respect of any pledged Collateral which has continued
for 30 days, 60 days or 90 days, respectively, and any other material
default in any other term of any pledged Collateral, (ii) the occurrence
of an Insolvency Event in respect of any obligor on any Mortgage Loan
pledged as Collateral and (iii) the commencement of foreclosure or
similar proceedings in respect of the premises which secure any Mortgage
Loan pledged as Collateral, such notice to be delivered not later than
three (3) Business Days following the occurrence thereof in the case of
clauses (i) and (iii) and promptly upon the Assignor's receiving notice
or otherwise becoming aware thereof in the case of clause (ii) and (y)
immediately upon the payment by any mortgagor of principal under any
Mortgage Note then held by the Lender hereunder in an amount of $1,000
or more in excess of the regularly scheduled installment thereon,
identifying the loan number of such Mortgage Loan and the amount so
paid.
(k) Recourse. This Agreement is made with full recourse to the Assignor
and pursuant to and upon all the warranties, representations, covenants
and agreements on the part of the Assignor contained herein, in the
Warehouse Credit Agreement and otherwise in writing in connection
herewith or therewith.
11. Severability. Any provision of this Security Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
12. No Waiver; Remedies Cumulative. The Lender shall not by any act,
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder and no waiver shall be valid unless in writing, signed by the
Lender, and then only to the extent therein set forth. A waiver by the Lender of
any right or remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which the Lender would otherwise have on any future
occasion. No failure or delay on the part of the Lender or any holder of the
Note in exercising any right, power or privilege hereunder or under any other
Credit Document and no course of dealing between the Assignor and the Lender or
the holder of the Note shall operate as a waiver thereof; nor shall any single
or partial exercise of any right, power or privilege hereunder or under any
other Credit Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder or thereunder. The
rights, powers and remedies herein or in any other Credit Document provided are
cumulative and may be exercised singly or concurrently, and are not exclusive of
any rights, powers or remedies which the Lender or the holder of the Note would
otherwise have. No notice to or demand on the Assignor in any case shall entitle
the Assignor to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the Lender or the holder
of the Note to any other or further action in any circumstances without notice
or demand. In the event that the Lender shall bring any suit to enforce any of
its rights hereunder and shall be entitled to judgment, then the Lender may
recover the reasonable expenses, including attorneys' fees, incurred in such
suit and the amounts thereof shall be included in such judgment.
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10
13. Indemnity; Reimbursement. (a) Each Assignor agrees to indemnify,
reimburse and hold the Lender, the holder of the Note, and their respective
officers, directors, employees, representatives, agents and assigns (hereinafter
in this Section 13 referred to individually as an "Indemnitee" and collectively
as the "Indemnitees") harmless from any and all liabilities, obligations,
losses, damages, penalties, claims, actions, judgments, suits, costs, expenses
or disbursements (including reasonable attorneys' fees and expenses) (for the
purposes of this Section 13 the foregoing are collectively called "expenses") of
whatsoever kind or nature which may be imposed on, asserted against or incurred
by any of the Indemnitees in any way relating to or arising out of this
Agreement, any other Credit Document or the documents executed in connection
herewith and therewith or in any other way connected with the administration of
the transactions contemplated hereby and thereby or the enforcement of any of
the terms of or the preservation of any rights under any thereof, or in any way
relating to or arising out of the ownership, ordering, purchase, delivery,
control, acceptance, financing, possession, condition, sale, return or other
disposition or use of the Collateral (including, without limitation, latent or
other defects, whether or not discoverable), the violation of the laws of any
country, state or other governmental body or unit, any tort (including, without
limitation, claims arising or imposed under the doctrine of strict liability, or
for or on account of injury to or the death of any Person (including any
Indemnitee), or for property damage) or any contract claim; provided that no
Indemnitee shall be indemnified pursuant to this Section 13(a) for expenses to
the extent caused by the gross negligence or willful misconduct of such
Indemnitee. Each Assignor agrees that upon written notice by any Indemnitee of
any assertion that could give rise to an expense, it shall assume full
responsibility for the defense thereof. Each Indemnitee agrees to use its best
efforts to promptly notify the Assignors of any such assertion of which such
Indemnitee has knowledge.
(b) Without limiting the application of Section 13(a), each Assignor
agrees to pay, or reimburse the Lender for, any and all fees, costs and expenses
of whatever kind or nature incurred by it in connection with (i) the handling of
the Collateral and its other obligations hereunder and the enforcement of its
rights hereunder and (ii) the creation, preservation or protection of the
Lender's Lien on, and security interest in, the Collateral, including, without
limitation, any fees, costs and expenses in connection with the transmittal and
delivery of any Mortgage Loan or related documents to any third party, all fees
and taxes in connection with the recording or filing of instruments and
documents in public offices, payment or discharge of any taxes or Liens upon or
in respect of the Collateral, premiums for insurance with respect to the
Collateral and all other fees, costs and expenses (including, without
limitation, the reasonable fees and out-of-pocket expenses of any legal counsel,
public accountant and other expert or advisor retained by the Lender) in
connection with protecting, maintaining or preserving the Collateral and the
Lender's interest therein, whether through judicial proceedings or otherwise, or
in defending or prosecuting any actions, suits or proceedings arising out of or
relating to the Collateral.
(c) Without limiting the application of Section 13(a) or (b), each
Assignor agrees to pay, indemnify and hold each Indemnitee harmless from and
against any expenses which such Indemnitee may suffer, expend or incur in
consequence of or growing out of any misrepresentation by the Assignor in this
Agreement or any of the other Credit Documents or in any statement or writing
contemplated by or made or delivered pursuant to or in connection with this
Agreement or any of the other Credit Documents.
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11
(d) If and to the extent that the obligations of the Assignors under
this Section 13 are unenforceable for any reason, each Assignor hereby agrees to
make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable law.
14. Definitions. The following terms shall have the meanings herein
specified unless the context otherwise requires. Such definitions shall be
equally applicable to the singular and plural forms of the terms defined.
"Agreement" shall mean this Warehouse Security Agreement, as modified,
supplemented or amended from time to time.
"Assignor" shall have the meaning provided in the first paragraph of
this Agreement.
"Chattel Paper" shall have the meaning assigned that term under the UCC.
"Collateral" shall have the meaning provided in Section 1.
"Contract Rights" shall mean all rights of an Assignor (including,
without limitation, all rights to payment) under each Contract.
"Contracts" shall mean all contracts between an Assignor and one or more
additional parties.
"Documents" shall have the meaning assigned that term under the UCC.
"General Intangibles" shall have the meaning assigned that term under
the UCC.
"Indemnitee" shall have the meaning specified in Section 13.
"Instrument" shall have the meaning assigned that term under the UCC.
"Lender" shall have the meaning provided in the first paragraph of this
Agreement.
"Obligations" shall mean: (a) all indebtedness, fees, obligations and
liabilities (including, without limitation, guarantees and other contingent
liabilities) of an Assignor to the Lender or the holder of the Note arising
under or in connection with any Credit Document; (b) any and all sums advanced
by the Lender in order to preserve the Collateral or preserve its security
interest in the Collateral and any other amounts owing to the Lender hereunder;
and (c) in the event of any proceeding for the collection or enforcement of any
indebtedness, obligations or liabilities of an Assignor referred to in clause
(a), after an Event of Default shall have occurred and be continuing, the
reasonable expenses of re-taking, holding, preparing for sale or lease, selling
or otherwise disposing or realizing on the Collateral, or of any exercise by the
Lender of its rights hereunder, together with reasonable attorneys' fees and
court costs.
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12
"Proceeds" shall have the meaning assigned that term under the UCC or
under other relevant law and, in any event, shall include, but not be limited
to, (i) any and all proceeds of any insurance, indemnity or warranty or payable
to the Lender or the Assignors from time to time with respect to any of the
Collateral, (ii) any and all payments (in any form whatsoever) made or due and
payable to the Assignors from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental authority (or any Person acting under color of
governmental authority), (iii) any and all securities issued with respect to any
of the Collateral (whether issued by GNMA, FNMA, FHLMC or otherwise) and (iv)
any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral (including, without limitation, under any
Purchase Commitment, Master Commitment or guaranty or commitment for guaranty).
"Receivables" shall mean any "account" as such term is defined in the
UCC, now or hereafter owned by an Assignor and, in any event, shall include, but
shall not be limited to, all rights to payment, whether now in existence or
arising from time to time hereafter, including, without limitation, rights
evidenced by an account, note, contract, security agreement, chattel paper or
other evidence of indebtedness of security, together with (i) all security
pledged, assigned, hypothecated or granted to or held by an Assignor to secure
the foregoing, (ii) all of an Assignor's right, title and interest in and to any
property or goods, the sale of which give rise thereto, (iii) all guarantees,
endorsements and identifications on, or of, any of the foregoing, (iv) all
powers of attorneys for the execution of any evidence of indebtedness or
security or underwriting in connection therewith, (v) all books, records, ledger
cards, data and invoices relating thereto, (vi) all evidences of the filing of
financing statements and other statements and the registration of other
instruments in connection therewith and amendments thereto, notices to other
creditors or secured parties and certificates from filing or other registration
officers, (vii) all credit information, reports, memoranda relating thereto and
(viii) all other writings related in any way to the foregoing.
"UCC" shall mean the Uniform Commercial Code as in effect on the date
hereof in the State of New Jersey or in any other relevant jurisdiction.
"Warehouse Credit Agreement" shall have the meaning provided in the
first paragraph of this Agreement.
15. Notices. All notices and other communications hereunder shall be
made at the addresses, in the manner and with the effect provided in Section
10.02 of the Warehouse Credit Agreement.
16. Obligations Absolute. The obligations of the Assignors under this
Agreement shall be absolute and unconditional and shall remain in full force and
effect without regard to, and shall not be released, suspended, discharged,
terminated or otherwise affected by, any circumstance or occurrence whatsoever,
including, without limitation: (a) any renewal, extension, amendment or
modification of, or addition or supplement to or deletion from, any of the
Credit Documents or any other instrument or agreement referred to therein, or
any assignment or transfer of any thereof; (b) any waiver, consent, extension,
indulgence or other action or inaction under or in respect of any such
instrument or agreement or this Agreement or any exercise or non-exercise of any
right,
<PAGE>
<PAGE>
13
remedy, power or privilege under or in respect of this Agreement or any other
Credit Document; (c) any furnishing of any additional security to the Lender or
any acceptance thereof or any sale, exchange, release, surrender or realization
of or upon any security by the Lender; or (d) any invalidity, irregularity or
unenforceability of all or part of the Obligations or of any security therefor.
17. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided, however, that the Assignors may not
assign or transfer any of their rights or obligations hereunder without the
prior written consent of the Lender. All agreements, statements, representations
and warranties made by an Assignor herein or in any certificate or other
instrument delivered by an Assignor or on its behalf under this Agreement or any
Credit Document shall be considered to have been relied upon by the Lender and
shall survive the execution and delivery of this Agreement and the other Credit
Documents regardless of any investigation made by the Lender or on its behalf.
18. Headings, Descriptive, etc. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
All references to Sections are to Sections of this Agreement unless otherwise
specified. The words "hereof," "herein," "hereto," and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement.
19. Assignors' Duties. It is expressly agreed, anything herein contained
to the contrary notwithstanding, that the Assignors shall remain liable to
perform all of the obligations, if any, assumed by them with respect to the
Collateral and the Lender shall not have any obligations or liabilities with
respect to any Collateral by reason of or arising out of this Agreement, nor
shall the Lender be required or obligated in any manner to perform or fulfill
any of the obligations of the Assignors under or with respect to any Collateral.
20. Termination; Release. After the termination of the Commitment, and
when all Obligations have been paid in full and the Note is no longer
outstanding, this Agreement shall terminate, and the Lender, at the request and
expense of the Assignors, will execute and deliver to the Assignors the proper
instruments acknowledging the termination of this Agreement, and will duly
assign, transfer and deliver or cause to be delivered to the Assignors (without
recourse and without any representation or warranty) such of the Collateral as
may be in possession of the Lender and has not theretofore been sold or
otherwise applied or released pursuant to this Agreement.
21. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
<PAGE>
<PAGE>
14
22. Governing Law; Submission to Jurisdiction; Venue. (a) This Agreement
and the rights and obligations of the parties hereunder shall be construed is
accordance with and be governed by the law of the State of New York, without
regard to principles of conflicts of laws. Any legal action or proceeding
against the Assignors with respect to this Agreement may be brought in the
courts of the State of New Jersey located in Camden County or in the United
States Federal Courts located in Camden County, and, by execution and delivery
of this Agreement, each Assignor hereby irrevocably accepts for itself and in
respect of its property, generally and unconditionally, the jurisdiction of the
aforesaid courts.
(b) Each Assignor hereby irrevocably waives any objection which it may
now or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement brought in the
courts referred to in clause (a) above and hereby further irrevocably waives and
agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.
23. Waiver of Jury Trial. THE ASSIGNORS AND THE LENDER HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER OF THEM MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR
IN CONNECTION WITH THIS AGREEMENT AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED
IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY RELATING HERETO OR THERETO.
THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER TO ENTER INTO THIS
AGREEMENT.
<PAGE>
<PAGE>
15
IN WITNESS WHEREOF, the Assignors and the Lender have caused this
Security Agreement to be duly executed and delivered on the day and year first
above written.
Address IMC MORTGAGE COMPANY,
3450 Buschwood Park Drive, Suite 250 as Assignor
Tampa, FL 33618
Attn.: Michael Sample
Telephone No.(813) 915-2524 By: ___________________________
Facsimile No.: (813) 933-6023 Name:
Title:
3450 Buschwood Park Drive, Suite 250 INDUSTRY MORTGAGE COMPANY, L.P.,
Tampa, FL 33618 as Assignor
Attn.: Michael Sample
Telephone No.: (813) 915-2524 By: INDUSTRY MORTGAGE CORPORATION,
Facsimile No.: (813) 933-6023 General Partner
By: _______________________________
Name:
Title:
Three Executive Campus GE CAPITAL MORTGAGE SERVICES, INC.,
Cherry Hill, NJ 08002 as the Lender
Attn.: James C. Zollo
Telephone No.: (609) 661-5909 By: ___________________________
Facsimile No.: (609) 661-7528 Name:
Title: Vice President
<PAGE>
<PAGE>
SCHEDULE I
[FORM OF BAILEE AGREEMENT]
BAILEE AGREEMENT
Bailee Agreement, dated as of _______ __, 199_ (this Agreement), by and
between _________________________ [INSERT NAME OF THE INVESTOR/PURCHASER] (the
"Purchaser") and GE Capital Mortgage Services, Inc. (the "Lender").
W I T N E S S E T H :
WHEREAS, pursuant to the terms of that certain Warehouse Credit
Agreement, dated as of __________ ___, 199__ (the "Warehouse Credit Agreement"),
by and between ______________ [INSERT NAME OF THE BORROWER] (the "Borrower") and
GE Capital Mortgage Services, Inc. (the "Lender"), from time to time, make
warehouse loans to the Borrower for the purpose of funding residential mortgage
loans made by the Borrower (collectively, the "Mortgage Loans");
WHEREAS, the Borrower has granted to the Lender a security interest in
and to the mortgage notes and the other mortgage loan documentation relating to
the Mortgage Loans (collectively, the "Collateral") as security for the
Warehouse Loans;
WHEREAS, the Purchaser and the Borrower have entered into one or more
purchase commitments or purchase contracts (the "Purchase Contracts") pursuant
to which the Purchaser proposes to purchase from the Borrower, from time to
time, certain Mortgage Loans and the Collateral relating thereto;
WHEREAS, the Borrower may, from time to time, request the Lender to
deliver the Collateral relating to certain Mortgage Loans to the Purchaser for
the purposes of the Purchaser's inspection of such Collateral prior to the
purchase thereof by the Purchaser; and
WHEREAS, the Purchaser shall hold any Collateral received by it as
bailee for the benefit of the Lender until such time as the Purchaser either
purchases such Collateral or returns such Collateral to the Lender upon the
terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the agreements herein set forth and
for other good and valuable consideration, the parties hereto agree as follows:
<PAGE>
<PAGE>
SCHEDULE I
Page 2
1. Upon written request from the Borrower to the Lender pursuant to the
terms of the Warehouse Credit Agreement, the Lender will, from time to time,
deliver Collateral to the Purchaser to be held by the Purchaser as bailee for
the benefit of the Lender. The Collateral shall be delivered to the Purchaser's
address set forth opposite its signature below or any other address the
Purchaser may designate in writing to the Lender. Enclosed with each such
delivery of Collateral shall be a bailee letter (a "Bailee Letter")
substantially in the form of Exhibit A to this Agreement.
2. The Purchaser hereby acknowledges the security interest of the Lender
in and to any Collateral received by the Purchaser and hereby agrees to hold
such Collateral as bailee for the benefit of the Lender pursuant to the
applicable provisions of the Uniform Commercial Code and upon the terms and
conditions herein set forth.
3. The Purchaser's obligations as bailee with respect to any Collateral
received by the Purchaser shall terminate without further action by any party at
such time as the Purchaser has either (a) purchased such Collateral by remitting
in full the purchase price with respect to such Collateral specified in the
applicable Purchase Contract (the "Purchase Price") by wire transfer in
immediately available funds to the account of the Lender specified below and
such funds have been received in such account; or (b) delivered and returned
such Collateral to the Lender at the Lender's address set forth opposite its
signature below or any other address the Lender may designate in writing to the
Purchaser (the "Lender's Address").
INSTRUCTIONS FOR WIRE TRANSFER OF FUNDS:
To: [INSERT NAME OF BANK]
Credit No.:__________________
Acct. No.:___________________
Attention:___________________
4. Until such time as any Collateral received by the Purchaser has been
purchased by the Purchaser in accordance with the Purchase Agreement and the
Purchase Price has been remitted or credited and received in full by the Lender
as set forth in paragraph 3 above, the Purchaser acknowledges and agrees that
(a) such Collateral shall remain subject to the liens and security interests
granted by the Borrower to the Lender and (b) such Collateral shall be held by
the Purchaser only for the Purchaser's inspection and shall not be delivered or
released to any party (including, without limitation, the Borrower) other than
the Lender or its designee identified by the Lender to the Purchaser in writing.
<PAGE>
<PAGE>
SCHEDULE I
Page 3
5. Upon receipt by the Lender of the Purchase Price in full with respect
to any Collateral held by the Purchaser in immediately available funds in the
account specified in paragraph 3 above, the Lender's security interest in such
Collateral so purchased shall automatically terminate and be cancelled and
released without notice or demand. Upon the Purchaser's written request to the
Lender, the Lender shall provide the Purchaser with appropriate filings,
registrations or recordings necessary to effect such termination, cancellation
and release.
6. Until such time as the Purchaser has paid the Purchase Price in full
with respect to any Collateral held by the Purchaser, the Lender shall have the
right to require the Purchaser at any time, by written notice to the Purchaser,
to immediately deliver and return such Collateral to the Lender at the Lender's
Address. Anything to the contrary in this Agreement or any related document
notwithstanding, unless such Purchase Price shall have been received by the
Lender, the Purchaser agrees to deliver and return such Collateral to the Lender
by no later than the date which is [20] calendar days after the date of the
Bailee Letter with which such Collateral is delivered to the Purchaser without
any notice, demand or other action by the Lender.
7. The Purchaser agrees that the Purchase Price paid to the Lender with
respect to any particular Collateral shall not be reduced due to any adjustments
without the prior written approval of the Lender.
8. This Agreement may be executed in two counterparts, each of which
counterpart when executed and delivered shall be an original, but together shall
constitute one and the same instrument.
9. This Agreement and the rights and obligations of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of New York.
Three Executive Campus GE CAPITAL MORTGAGE SERVICES,
Cherry Hill, N.J. 08002 INC., as the Lender
Attention: James C. Zollo By____________________________
Name:
Title:
[INSERT ADDRESS] [INSERT NAME OF INVESTOR/
PURCHASER]
_________________________
_________________________ By____________________________
Name:
Title:
Attention: _____________
<PAGE>
<PAGE>
EXHIBIT A
to
BAILEE AGREEMENT
GE Capital Mortgage Services, Inc.
Three Executive Campus
Cherry Hill, New Jersey 08002
[INSERT ADDRESS OF INVESTOR/PURCHASER]
Attention: ____________________
Bailee Letter
Re: [INSERT NAME OF THE BORROWER]
Sirs:
Reference is made to the Bailee Agreement, dated as of_________, 199_,
between [INSERT NAME OF INVESTOR/PURCHASER] (the "Purchaser") and GE Capital
Mortgage Services, Inc. (the "Lender").
Enclosed are the original mortgage note[s] and mortgage loan
documentation described in the attached Schedule (the "Collateral").
In accordance with the terms of the Bailee Agreement, by your receipt of
the Collateral: (a) you acknowledge that the Collateral is subject to the
Lender's security interest therein; (b) agree to hold the Collateral as bailee
for the benefit of the Lender subject to the terms of the Bailee Agreement; and
(c) agree to (i) remit in full the Purchase Price relating to the Collateral as
provided in paragraph 3 of the Bailee Agreement or (ii) in the alternative,
deliver and return the Collateral to the Lender at the address set forth below
for the Lender's receipt by no later than ______________, 199__ [INSERT THE DATE
THAT IS 20 CALENDAR DAYS AFTER THE DATE OF THIS LETTER].
Sincerely yours,
Three Executive Campus GE CAPITAL MORTGAGE SERVICES,
Cherry Hill, N.J. 08002 INC., as the Lender
Attention: _________________ By___________________________
Name:
Title:
<PAGE>
<PAGE>
SCHEDULE II
[ALTERNATE FORM OF BAILEE AGREEMENT]
GE Capital Mortgage Services, Inc.
Three Executive Campus
Cherry Hill, New Jersey 08002
______________, 199_
[INSERT NAME AND ADDRESS OF THE INVESTOR]
_______________________
_______________________
Attention:_____________
BAILEE LETTER
Re: [INSERT NAME OF THE BORROWER]
Sirs:
The undersigned (the "Lender"), a Lender to ___________________ (the
"Borrower"), has been requested by the Borrower to deliver the enclosed original
mortgage note[s] and mortgage loan documents (collectively, the "Collateral")
described in the attached Schedule for your inspection prior to purchase of the
Collateral by you pursuant to a certain purchase contract (the "Purchase
Contract") between you and the Borrower.
The Borrower has granted to us as Lender a security interest in and to
the Collateral. We hereby deliver the Collateral to you to be held by you as
Bailee, and by your receipt of the Collateral you agree to hold the Collateral
as bailee, for the benefit of us as Lender pursuant to the applicable provisions
of the Uniform Commercial Code and upon the terms and conditions set forth
below.
Your obligations as bailee with respect to the Collateral shall
terminate without further action by any party at such time as when you have
either (a) purchased the Collateral by remitting in full the purchase price
specified in the Purchase Contract (the "Purchase Price") by wire transfer in
immediately available funds to our account specified below and such funds have
been received in such account; or (b) delivered and returned the Collateral to
us at the address set forth below opposite our signature or such other address
notified by us to you in writing (the "Lender's Address).
<PAGE>
<PAGE>
Schedule II
Page 2
INSTRUCTIONS FOR WIRE TRANSFER OF FUNDS:
To: [INSERT NAME OF BANK]
Credit No.:__________________
Acct. No.:___________________
Attention:___________________
Until the Collateral has been purchased by you in accordance with the
Purchase Agreement and the Purchase Price has been remitted or credited and
received in full by us, as set forth above, (a) the Collateral shall remain
subject to the liens and security interests granted by the Borrower to us as
Lender and (b) the Collateral shall be held by you only for your inspection and
shall not be delivered or released to any party (including, without limitation,
the Borrower) other than us or our designee identified by us to you in writing.
Upon receipt by us of the Purchase Price in full in immediately
available funds in the account specified above, our security interest in the
Collateral so purchased shall automatically terminate and be cancelled and
released without notice or demand. Upon your written request to us, we shall
provide you with appropriate filings, registrations or recordings necessary to
effect such termination, cancellation and release.
Until such time as you have paid the Purchase Price, we shall have the
right to require you at any time, by written notice to you, to immediately
deliver and return the Collateral to us at the Lender's Address. Notwithstanding
the foregoing, unless the Purchase Price shall have been received by us, you
agree to deliver and return the Collateral to us for our receipt at the Lender's
Address by no later than the date which is [20] calendar days after the date of
this letter without any notice, demand or other action by us.
Purchaser agrees that the Purchase Price paid to the Lender with respect
to any particular Collateral shall not be reduced due to any adjustments without
the prior written approval of the Lender.
If you are in agreement with the foregoing, please have the enclosed
copy of this letter duly executed by your authorized officer and return it to us
at the Lender's Address. In the event that the foregoing is not acceptable to
you please deliver and return to
<PAGE>
<PAGE>
Schedule II
Page 3
us immediately the Collateral at the Lender's Address by same-day or overnight
courier delivery. In the event we do not receive a copy of this letter duly
executed by you, then you shall be deemed to have accepted possession of the
Collateral as bailee for us, effective the date first written above, subject to
the security interest described above and upon the terms described above.
This letter shall be governed and construed in accordance with the laws
of the State of New York.
Three Executive Campus GE CAPITAL MORTGAGE SERVICES,
Cherry Hill, N.J. 08002 INC., as Lender
Attention: _______________ By___________________________
Name:
Title:
Agreed to and accepted as of the
date first written above:
[INSERT NAME OF INVESTOR]
By____________________________
Name:
Title:
Enclosures
<PAGE>
<PAGE>
$15,000,000
WAREHOUSE CREDIT AGREEMENT
among
IMC MORTGAGE COMPANY and
INDUSTRY MORTGAGE COMPANY, L.P.,
as Borrowers,
and
GE CAPITAL MORTGAGE SERVICES, INC., as Lender
----------------------------------
Dated as of January 30, 1997
----------------------------------
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
Section 1. Definitions and Principles of Construction...........................................1
1.01 Defined Terms............................................................................1
1.02 Principles of Construction..............................................................12
Section 2. Amount and Terms of Credit..........................................................13
2.01 Commitment..............................................................................13
2.02 Minimum Borrowing Amount................................................................13
2.03 Pledge of Collateral....................................................................13
2.04 Request for Advance.....................................................................13
2.05 Disbursement of Funds...................................................................14
2.06 Note....................................................................................14
2.07 Interest................................................................................14
2.08 Increased Costs.........................................................................15
Section 3. Fees................................................................................15
3.01 Fees....................................................................................15
Section 4. Prepayments; Payments...............................................................15
4.01 Voluntary Prepayments...................................................................16
4.02 Mandatory...............................................................................16
4.03 Release of Collateral; Substitution.....................................................18
4.04 Sale of Collateral to Investors.........................................................18
4.05 Method and Place of Payment.............................................................19
4.06 Net Payments............................................................................19
Section 5. Conditions Precedent................................................................19
5.01 Execution of Agreement; Note............................................................19
5.02 No Default; Representations and Warranties..............................................19
5.03 Request for Advance.....................................................................20
5.04 Opinion of Counsel......................................................................20
5.05 Diligence...............................................................................20
5.06 Corporate Documents; Proceedings........................................................20
5.07 Financial Statements....................................................................20
5.08 Mandatory Prepayment....................................................................21
5.09 Warehouse Security Agreement............................................................21
5.10 No Adverse Change.......................................................................21
5.11 Insurance...............................................................................21
5.12 [Intentionally Omitted].................................................................21
5.13 Delivery of the Collateral..............................................................21
5.14 Fees....................................................................................22
5.15 No Litigation...........................................................................22
Section 6. Representations, Warranties and Agreements..........................................22
6.01 Corporate Status........................................................................22
i
<PAGE>
<PAGE>
6.02 Corporate Power and Authority...........................................................22
6.03 No Violation............................................................................23
6.04 Governmental Approvals..................................................................23
6.05 Financial Statements; Financial Condition; Undisclosed Liabilities; etc.................23
6.06 Litigation..............................................................................23
6.07 True and Complete Disclosure............................................................23
6.08 Use of Proceeds; Margin Regulations.....................................................24
6.09 Tax Returns and Payments................................................................24
6.10 Compliance with ERISA...................................................................24
6.11 Capitalization..........................................................................24
6.12 Subsidiaries............................................................................25
6.13 Compliance with Statutes, etc...........................................................25
6.14 Investment Company Act..................................................................25
6.15 No Burdensome Agreement.................................................................25
6.16 [Intentionally Omitted].................................................................25
6.17 Security Interests......................................................................25
6.18 Registration............................................................................25
6.19 Representations Relating to the Mortgage Loans..........................................26
6.20 Insurance...............................................................................27
6.21 Title to Property.......................................................................27
Section 7. Affirmative Covenants...............................................................27
7.01 Information Covenants...................................................................27
7.02 Books, Records and Inspections..........................................................30
7.03 Maintenance of Property, Insurance......................................................30
7.04 Corporate Franchises....................................................................31
7.05 Compliance with Statutes, etc...........................................................31
7.06 ERISA...................................................................................31
7.07 Performance of Obligations..............................................................32
7.08 Mortgage Loans..........................................................................32
7.09 Payment of Taxes........................................................................32
7.10 Corporate Separateness..................................................................32
7.11 Collateral..............................................................................33
7.12 Portfolio Hedging Arrangements..........................................................33
Section 8. Negative Covenants..................................................................33
8.01 Liens...................................................................................33
8.02 Consolidation, Merger, Sale of Assets, etc..............................................33
8.03 Dividends...............................................................................34
8.04 [Intentionally Omitted].................................................................34
8.05 [Intentionally Omitted].................................................................34
8.06 Transactions with Affiliates............................................................34
8.07 Capital Expenditures....................................................................35
8.08 Maximum Consolidated Leverage Ratio.....................................................35
8.09 Minimum Consolidated Tangible Net Worth.................................................35
8.10 Minimum Servicing Portfolio.............................................................35
ii
<PAGE>
<PAGE>
8.11 Modifications of Certificate of Incorporation, By-Laws, Certain Other Agreements and
Collateral..............................................................................35
8.12 Limitation on Restrictions on Subsidiary Dividends and Other Distributions..............35
8.13 Limitation on Issuances of Capital Stock by Subsidiaries................................36
8.14 [Intentionally Omitted].................................................................36
8.15 Portfolio Aging.........................................................................36
Section 9. Events of Default...................................................................36
9.01 Payments................................................................................36
9.02 Representations, etc....................................................................36
9.03 Covenants...............................................................................36
9.04 Default Under Other Agreements..........................................................36
9.05 [Intentionally Omitted].................................................................37
9.06 Bankruptcy, etc.........................................................................37
9.07 ERISA...................................................................................37
9.08 Warehouse Security Agreement............................................................37
9.09 [Intentionally Omitted].................................................................37
9.10 [Intentionally Omitted].................................................................37
9.11 Judgments...............................................................................37
9.12 [Intentionally Omitted].................................................................37
9.13 Default Not a Condition of a 120-Day Demand.............................................38
Section 10. Miscellaneous......................................................................38
10.01 Payment of Expenses; Indemnity.........................................................38
10.02 Notices................................................................................39
10.03 Benefit of Agreement...................................................................40
10.04 No Waiver; Remedies Cumulative.........................................................40
10.05 Calculations; Computations.............................................................40
10.06 Governing Law; Submission to Jurisdiction; Venue.......................................40
10.07 No Proceedings.........................................................................41
10.08 Participation and Syndication..........................................................41
10.09 Obligation to Make Payments in Dollars.................................................41
10.10 Counterparts...........................................................................41
10.11 Effectiveness..........................................................................41
10.12 Headings Descriptive...................................................................42
10.13 Amendment or Waiver....................................................................42
10.14 Survival...............................................................................42
10.15 Waiver of Jury Trial...................................................................42
SCHEDULES
SCHEDULE 6.12 - List of Subsidiaries
SCHEDULE 7.01(s) - Credit Package Documents (List of
Documents to be Delivered With Respect
to a Pledged Mortgage Loan)
SCHEDULE 8.06 -List of Affiliated Appraisers or Title Agents
iii
<PAGE>
<PAGE>
EXHIBITS
EXHIBIT A-1 -Form of Pledge of Collateral
EXHIBIT A-2 -Form of Request for Advance
EXHIBIT B-1 -Form of Wet Advance Disbursement Instruction
EXHIBIT B-2 -Form of Borrower's Wet Advance Disbursement
Instruction
EXHIBIT C -Form of Borrowing Base Certificate
EXHIBIT D -Form of Note
EXHIBIT E -Form of Opinion of Special Counsel for the
Borrowers
EXHIBIT F-1 -Form of Officers' Certificate for IMC Mortgage
Company
EXHIBIT F-2 -Form of General Partner's Certificate for
Industry Mortgage Company, L.P.
EXHIBIT G -Form of Warehouse Security Agreement
</TABLE>
iv
<PAGE>
<PAGE>
WAREHOUSE CREDIT AGREEMENT, dated as of January 30, 1997, among IMC
MORTGAGE COMPANY, a Florida corporation ("IMC Company"), INDUSTRY MORTGAGE
COMPANY, L.P., a Delaware limited partnership ("IMC Partnership") (IMC Company
and IMC Partnership each being referred to individually as a "Borrower" or the
"Borrower" and collectively as the "Borrowers"), and GE CAPITAL MORTGAGE
SERVICES, INC., a New Jersey corporation (the "Lender").
W I T N E S S E T H :
WHEREAS, the Borrowers originate and acquire Mortgage Loans;
WHEREAS, the Borrowers have jointly and severally requested the Lender
to provide financing for the Borrowers' mortgage lending business; and
WHEREAS, subject to and upon the terms and conditions herein set forth,
the Lender is willing to make available to the Borrowers the credit facilities
provided for herein;
NOW, THEREFORE, IT IS AGREED:
1. Definitions and Principles of Construction.
1.01 Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Advance" shall have the meaning provided in Section 2.01.
"Advance Account" shall mean the depository account of the Borrowers
designated by the Borrowers by written notice to the Lender.
"Affiliate" shall mean, as to any Person, any other Person (other than
an individual) directly or indirectly controlling, controlled by, or under
direct or indirect common control with, such Person; provided, however, that for
purposes of Section 8.06, an Affiliate of a Borrower shall include any Person
that directly or indirectly owns more than 5% of the Borrower and any officer or
director of the Borrower or any such Person. A Person shall be deemed to control
another Person if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such other
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Bankruptcy Code" shall mean Title 11 of the United States Code entitled
"Bankruptcy," as now or hereafter in effect, or any successor thereto.
<PAGE>
<PAGE>
"Borrower's Wet Advance Disbursement Instruction" shall have the meaning
provided in Section 2.05.
"Borrowing Base" shall mean, as of any date, an amount that is the sum
of the following, with respect to all Eligible Mortgage Loans and Liquid Assets
pledged to the Lender as of such date: (1) the sum for all Conforming Loans that
are Committed Mortgage Loans of the product of (x) the Mortgage Loan Aging
Percentage with respect to such Mortgage Loan and (y) 99% of the Market Value of
such Mortgage Loan, (2) the sum for all Jumbo Loans of the product of (x) the
Mortgage Loan Aging Percentage with respect to such Mortgage Loan and (y) 99% of
the Market Value of such Mortgage Loan, (3) the sum for all Mortgage Loans that
are FHA Loans, VA Loans or State Loans of the product of (x) the Mortgage Loan
Aging Percentage with respect to such Mortgage Loan and (y) 98% of the Market
Value of such Mortgage Loan, (4) the sum for all Credit A- Loans of the product
of (x) the Mortgage Loan Aging Percentage with respect to such Mortgage Loan and
(y) 99% of the Market Value of such Mortgage Loan, (5) the sum for all Credit B
Loans of the product of (x) the Mortgage Loan Aging Percentage with respect to
such Mortgage Loan and (y) 99% of the Market Value of such Mortgage Loan, (6)
the sum for all Credit C Loans of the product of (x) the Mortgage Loan Aging
Percentage with respect to such Mortgage Loan and (y) 98% of the Market Value of
such Mortgage Loan, (7) the sum for all Credit D Loans of the product of (x) the
Mortgage Loan Aging Percentage with respect to such Mortgage Loan and (y) 97% of
the Market Value of such Mortgage Loan and (8) an amount equal to the aggregate
principal amount of the Liquid Assets.
"Borrowing Base Certificate" shall have the meaning provided in Section
2.03.
"Business Day" shall mean any day except Saturday, Sunday and any day
which shall be in New York, New York, a legal holiday or a day on which banking
institutions are authorized or required by law or other government action to
close.
"Cash Equivalents" means (i) securities with maturities of sixty days or
less from the date of acquisition issued or fully guaranteed or insured by the
United States Government or any agency thereof, (ii) certificates of deposit,
eurodollar time deposits, overnight bank deposits, bankers' acceptances and
repurchase agreements of any commercial bank whose short-term obligations are
rated "A-1" by S&P and, if rated by Moody's, "P-1" by Moody's and, if rated by
Fitch, "F-1" by Fitch, having maturities of sixty days or less from the date of
acquisition, (iii) commercial paper having maturities of sixty days or less from
the date of acquisition, rated at least "A-1" by S&P or "P-1" by Moody's and, if
rated by Fitch, "F-1" by Fitch, (iv) money market funds rated at least "AAAm" or
"AAA-G" by S&P or "P-1" by Moody's and, if rated by Fitch, "AAA" by Fitch and
(v) repurchase agreements with counterparties whose short-term obligations are
rated at least "A-1" by S&P or "P-1" by Moody's and, if rated by Fitch, "F-1"
with a term of sixty days or less.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral" shall mean all "Collateral" as defined in the Warehouse
Security Agreement.
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"Collateral Documents" shall mean, as to a Mortgage Loan which has been
or is to be pledged to the Lender as Collateral, the following documents and
instruments:
(i) The original Mortgage Note executed with respect to such
Mortgage Loan by a third party in favor of a Borrower (or
properly endorsed to a Borrower if purchased or acquired by such
Borrower) and endorsed in blank by such Borrower;
(ii) The original recorded Mortgage securing such Mortgage Note or a
copy of the original Mortgage securing such Mortgage Note,
certified by the Borrower or a title company or escrow company
reasonably satisfactory to the Lender to be a true copy of the
original instrument submitted for recording;
(iii) If the Mortgage Note was purchased by the Borrower, an original
properly recorded assignment of the related Mortgage to the
Borrower or a copy of such assignment certified by the Borrower
or a title or escrow company reasonably satisfactory to the
Lender to be a true copy of the original instrument submitted
for recording and a certified copy of each intervening
assignment of such Mortgage, if any;
(iv) An assignment of the Mortgage by the Borrower to the Lender
fully completed and in recordable form. If appropriate filing
and recording information regarding the Mortgage has not been
inserted into the assignment, the Borrowers hereby authorize the
Lender to insert such information, when available. Such
assignment shall not be filed for recordation unless the Lender
shall in good faith deem such action necessary to further secure
any Advances, in which case the Lender may file of record any or
all such assignments. The Borrowers shall immediately reimburse
the Lender for any and all reasonable costs and expenses
incurred by the Lender in connection with such recordation;
(v) Such other documents as the Lender may reasonably require from
time to time.
"Collateral Value" shall mean, at any time, with respect to a Mortgage
Loan, the amount resulting from that part of the calculation of the Borrowing
Base at such time that relates to such Mortgage Loan.
"Combined Loan-to-Value Ratio" shall mean, as to any Mortgage Loan, the
ratio expressed as a percentage that the sum of the original principal balance
of such Mortgage Loan and the then current principal balance of any related
first priority mortgage bears to the appraised value of the related mortgaged
property at the time such Mortgage Loan was originated.
"Commercial Paper" shall mean the short-term promissory notes of General
Electric Capital Corporation.
"Commercial Paper Rate" shall mean, with respect to any calendar month,
a rate per annum determined by annualizing the aggregate interest expense of
General Electric Capital Corporation
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(determined on an accrual basis) for such calendar month in respect of
Commercial Paper outstanding during such calendar month.
"Commitment" shall mean, the obligation of the Lender to make Advances
in an aggregate principal amount outstanding at any time not to exceed
$15,000,000.
"Committed Mortgage Loans" shall mean all Mortgage Loans pledged to the
Lender pursuant to the terms of this Agreement and of the Warehouse Security
Agreement (i) which satisfy all of the requirements of any Purchase Commitment
or are covered by a Hedging Contract, (ii) which could be delivered under such
Purchase Commitment, and (iii) which, in respect of all Mortgage Loans of a
particular type and yield, do not in the aggregate have a principal amount in
excess of the sum of (A) the aggregate then remaining amount of all Purchase
Commitments the requirements of which are satisfied by Mortgage Loans of such
type and yield owned by the Borrowers plus (B) the aggregate amount of all
Hedging Contracts that cover Mortgage Loans of such type and yield owned by the
Borrowers.
"Conforming Loan" shall mean a Mortgage Loan (other than a VA Loan, an
FHA Loan or a State Loan) that is underwritten in conformity with FHLMC or FNMA
underwriting standards and is otherwise eligible for purchase by FNMA or FHLMC.
"Consolidated Leverage Ratio" shall mean, as to any Person, the ratio of
the Consolidated Liabilities of such Person to the Consolidated Tangible Net
Worth of such Person.
"Consolidated Liabilities" shall mean, as to any Person, the liabilities
of such Person and its Subsidiaries determined on a consolidated basis and in
accordance with generally accepted accounting principles in the United States,
applied on a consistent basis, and shall include in any event the Contingent
Obligations of such Person and its Subsidiaries.
"Consolidated Net Worth" shall mean, as to any Person, the Net Worth of
such Person and its Subsidiaries determined on a consolidated basis after
appropriate deduction for any minority interests in Subsidiaries and in
accordance with generally accepted accounting principles in the United States,
applied on a consistent basis.
"Consolidated Subsidiaries" shall mean, as to any Person, all
Subsidiaries of such Person which are or are required to be consolidated with
such Person for financial reporting purposes in accordance with generally
accepted accounting principles in the United States.
"Consolidated Tangible Net Worth" shall mean, as to any Person, (x) the
sum of, without duplication, the Consolidated Net Worth of such Person and its
Subsidiaries, as determined on a consolidated basis in accordance with generally
accepted accounting principles in the United States plus the principal amount of
any Indebtedness that is subordinated to the payment of the Obligations on such
terms as are acceptable to the Lender and that does not permit or require any
principal payment in respect thereof prior to the Expiry Date in effect from
time to time, less (y) the sum of (i) the amount of all intangible items,
including, without limitation, goodwill, franchises, licenses, patents,
trademarks, trade names, copyrights, service marks, brand names and write-ups of
assets, (ii)
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all receivables from any officer, director or Affiliate of a Borrower, (iii) all
unpaid stock subscriptions and (iv) the Contingent Obligations of such Person as
determined by the Lender.
"Contingent Obligation" shall mean, as to any Person, any obligation of
such Person arising from an existing condition or situation that involves
uncertainty as to outcome and that will be resolved by the occurrence or
nonoccurrence of some future event, including but not limited to any obligation
of such Person guaranteeing or intended to guarantee any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly; provided,
however, that the term Contingent Obligation shall not include endorsements of
instruments for deposit or collection in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such Person is
required to perform thereunder).
"Credit A- Loan" shall mean a Mortgage Loan underwritten in accordance
with the Borrowers' standards for a credit A- loan as approved by the Lender
from time to time.
"Credit B Loan" shall mean a Mortgage Loan underwritten in accordance
with the Borrowers' standards for a credit B loan as approved by the Lender from
time to time.
"Credit C Loan" shall mean a Mortgage Loan underwritten in accordance
with the Borrowers' standards for a credit C loan as approved by the Lender from
time to time.
"Credit D Loan" shall mean a Mortgage Loan underwritten in accordance
with the Borrowers' standards for a credit D loan as approved by the Lender from
time to time.
"Credit Documents" shall mean this Agreement, the Note and the
Warehouse Security Agreement.
"Credit Package Documents" shall have the meaning provided in Section
7.01(s).
"Custodian" shall mean, with respect to any Investor, any financial
institution selected by such Investor to act as a custodian for Mortgage Loans
acquired or to be acquired by such Investor; provided that such financial
institution has been approved by the Lender and meets all applicable Investor or
other requirements to act as such custodian.
"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Dollars" and the sign "$" shall each mean freely transferable lawful
money of the United States.
"Effective Date" shall have the meaning provided in Section 10.11.
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"Eligible Mortgage Loan" shall mean at the time of the determination
thereof a Mortgage Loan, which at such time (i) is pledged as Collateral
pursuant to the terms of this Agreement and of the Warehouse Security Agreement;
(ii) is (x) subject to a Purchase Commitment, (y) covered by a Hedging Contract,
or (z) underwritten in accordance with standards approved by the Lender so that
such Mortgage Loan is readily salable to an Investor or is eligible for
securitization, (iii) is, without duplication, a First Mortgage Loan or a Second
Mortgage Loan; (iv) no payment due thereunder is or has been delinquent; (v) no
deficiencies exist in respect of the documentation therefor; (vi) is, without
duplication, a Conforming Loan, a Jumbo Loan, an FHA Loan, a VA Loan, a State
Loan, a Credit A- Loan, a Credit B Loan, a Credit C Loan or a Credit D Loan;
(vii) in the case of a Mortgage Loan that is not subject to a Wet Advance, has
an Origination Date that is less than 20 calendar days prior to such time;
(viii) in the case of a Mortgage Loan that is subject to a Wet Advance, has an
Origination Date that is not more than seven days prior to such time and (ix)
has a Combined Loan-to-Value Ratio of 100% or less, excluding in all such cases,
however, (1) any Mortgage Loan in respect of which a title insurance policy or
appraisal has been underwritten or issued by any entity controlled by a
mortgagor or a real estate broker involved in the transaction resulting in the
creation of such Mortgage Loan and (2) any Mortgage Loan about which any of the
representations, warranties and agreements contained in Section 6.19 is not true
and correct; provided that the interest rate on such Mortgage Loan was, as of
the date on which such interest rate was set or established, at least equal to
the then current market rate of interest for mortgage loans of the same type as
determined by the Lender.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"ERISA Affiliate" shall mean any person (as defined in Section 3(9) of
ERISA) which together with a Borrower or any of its Subsidiaries would be a
member of the same "controlled group" within the meaning of Section 414(b), (m),
(c) and (o) of the Code.
"Event of Default" shall have the meaning provided in Section 9.
"Expiry Date" shall mean the earlier of (i) January 31, 1998 as such
date may be extended upon mutual agreement among the Borrowers and the Lender
from time to time and (ii) the date that is 120 days after the date on which the
Lender shall have given the Borrowers the notice referred to in Section 9.13
hereof.
"Fees" shall mean all fees and expenses required to be paid by the
Borrowers pursuant to Section 3.01.
"FHA" shall mean the Federal Housing Administration or any successor
thereto.
"FHA Loan" shall mean a Mortgage Loan which (i) is eligible for
insurance by FHA and (ii) is so insured or is subject to a current binding and
enforceable commitment for such insurance pursuant to the provisions of the
National Housing Act, as now in effect and as may be hereafter amended from time
to time, and is otherwise eligible for inclusion in a GNMA mortgage-backed
security pool.
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"FHLMC" shall mean the Federal Home Loan Mortgage Corporation or any
successor thereto.
"First Mortgage Loan" shall mean a Mortgage Loan that is underwritten in
conformity with underwriting standards approved by the applicable Investor and
is secured by a first priority Mortgage.
"Fitch" shall mean Fitch Investors Service, L.P.
"FNMA" shall mean the Federal National Mortgage Association or any
successor thereto.
"GNMA" shall mean the Government National Mortgage Association, or any
successor thereto.
"Hedging Contract" shall mean a written contractual arrangement designed
to provide protection against fluctuations in interest rates with respect to
Mortgage Loans and commitments made to prospective Mortgage Loan obligors to
extend Mortgage Loans at specified rates of interest, in each case in accordance
with guidelines reasonably acceptable to the Lender.
"HUD" shall mean the Department of Housing and Urban Development or any
successor thereto.
"Indebtedness" shall mean, as to any Person, without duplication, (i)
all indebtedness (including principal, interest, fees and charges) of such
Person for borrowed money or for the deferred purchase price of property or
services, (ii) the face amount of all letters of credit issued for the account
of such Person and all drafts drawn thereunder, (iii) all liabilities secured by
any Lien on any property owned by such Person, whether or not such liabilities
have been assumed by such Person, (iv) the aggregate amount required in
accordance with generally accepted accounting principles to be capitalized under
leases under which such Person is the lessee and (v) all Contingent Obligations
of such Person.
"Initial Borrowing Date" shall mean the date on which the initial
incurrence of Advances occurs.
"Insolvency Event" shall mean, with respect to any Person, the
occurrence of any of the following events: (i) such Person shall become
insolvent or generally fail to pay, or admit in writing its inability to pay,
its debts as they become due, or shall voluntarily commence any proceeding or
file any petition under any bankruptcy, insolvency or similar law or seeking
dissolution, liquidation or reorganization or the appointment of a receiver,
trustee, custodian, conservator or liquidator for itself or a substantial
portion of its property, assets or business or to effect a plan or other
arrangement with its creditors, or shall file any answer admitting the
jurisdiction of the court and the material allegations of an involuntary
petition filed against it in any bankruptcy, insolvency or similar proceeding,
or shall be adjudicated bankrupt, or shall make a general assignment for the
benefit of creditors, or such Person, or a substantial part of its property,
assets or business, shall be subject to,
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consent to or acquiesce in the appointment of a receiver, trustee, custodian,
conservator or liquidator for itself or a substantial portion of its property,
assets or business; (ii) corporate or partnership action shall be taken by such
Person for the purpose of effectuating any of the foregoing; (iii) an order for
relief shall be entered in a case under the Bankruptcy Code in which such Person
is a debtor; or (iv) involuntary proceedings or an involuntary petition shall be
commenced or filed against such Person under any bankruptcy, insolvency or
similar law or seeking the dissolution, liquidation or reorganization of such
Person or the appointment of a receiver, trustee, custodian, conservator or
liquidator for such Person or of a substantial part of the property, assets or
business of such Person, or any writ, order, judgment, warrant of attachment,
execution or similar process shall be issued or levied against a substantial
part of the property, assets or business of such Person, and such proceeding or
petition shall not be dismissed, or such execution or similar process shall not
be released, vacated or fully bonded, within sixty (60) days after commencement,
filing or levy, as the case may be.
"Investor" shall mean FHLMC, FNMA, GNMA or any financial institution,
broker, dealer, institutional investor or state agency or instrumentality
approved by the Lender.
"Jumbo Loan" shall mean a Mortgage Loan (other than a FHA Loan, a VA
Loan, or a State Loan) that is underwritten in accordance with standards
approved by the Lender that are generally comparable to the standards
established by FNMA or FHLMC in all respects other than the original principal
amount of the Mortgage Loan and that were established by an Investor (other than
FHLMC, FNMA or GNMA).
"Lender" shall have the meaning provided in the first paragraph of this
Agreement.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), preference,
priority or other security agreement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing or similar statement or notice filed under the UCC or
any other similar recording or notice statute, and any lease having
substantially the same effect as any of the foregoing).
"Liquid Assets" shall mean (i) certificates of deposit of any commercial
bank whose short-term obligations are rated "A-1+" by S&P, and, if rated by
Moody's, "P-1" by Moody's and, if rated by Fitch, "F-1+" by Fitch having
maturities of 60 days or less from the date of acquisition and (ii) securities
issued or fully guaranteed or insured by the United States Government or any
agency thereof having maturities of 60 days or less from the date of
acquisition.
"Margin Stock" shall have the meaning provided in Regulation U of the
Board of Governors of the Federal Reserve System.
"Market Value" shall mean as of any date at which the amount thereof is
to be determined, as to any Mortgage Loan an amount equal to the lower of (A) an
amount equal to (1) with respect to a Mortgage Loan that was funded directly by
a Borrower to the obligor thereunder, the outstanding principal amount of such
Mortgage Loan or (2) with respect to a Mortgage Loan that was purchased
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by a Borrower, the lesser of (x) the purchase price paid by the Borrower
therefor (exclusive of any accrued interest or servicing release premium
included in such purchase price) and (y) 103% of the outstanding principal
amount of such Mortgage Loan, as applicable, (B) the amount determined by the
Lender, in its sole discretion, as the price (exclusive of any accrued interest
that would be included in such price) at which such Mortgage Loan could on the
date of such determination be sold in the secondary market to a bona fide
investor in an arm's-length transaction and (C) the price at which an Investor
has committed to purchase such Mortgage Loan.
"Master Commitment" shall mean a written master commitment or any other
written commitment, on general terms and conditions approved by the Lender, from
an Investor to purchase from a Borrower from time to time up to a specified
dollar amount of Mortgage Loans without specification of the yield or purchase
price of each such Mortgage Loan.
"Material Adverse Change" shall mean (i) a material adverse effect on
(a) the business, assets, operations, financial or other condition of Borrowers
(on a consolidated basis) or Borrowers and their Subsidiaries considered as a
whole, (b) the Borrowers' ability to pay or perform the Obligations in
accordance with the terms herein, (c) the Collateral or Lender's liens on the
Collateral or the priority of any such lien, (d) Lender's rights and remedies
under this Agreement or any Credit Documents; or (ii) the incurrence by the
Borrowers of any liability, contingent or liquidated, which has an actual or
estimated incurrence of exposure or loss, to Borrowers greater than $5,000,000.
"Moody's" shall mean Moody's Investors Service, Inc.
"Mortgage" shall mean a first or second mortgage, first or second deed
of trust, first or second deed to secure debt or other first or second security
device which is customary and serves the same function as a mortgage under the
law and practice in the jurisdiction in which the premises subject to the
mortgage are located. For all Mortgage Loans secured by premises located in
states in which it is customary to use deeds of trust or security deeds as the
security device, a deed of trust or security deed, as the case may be, shall be
used as the security device. Mortgages shall be on forms acceptable to the
applicable Investor.
"Mortgage Bankers' Reporting Form" shall mean Mortgage Bankers'
Financial Reporting Form Statement of Condition (designated as FHLMC Form 1055
and FNMA Form 1002, respectively, and any successor thereto or replacement
thereof).
"Mortgage Loan" shall mean a loan evidenced by a Mortgage Note and
secured by a Mortgage encumbering a completed one to four family residential
property (including, without limitation, condominium units and excluding
cooperative ownership interests).
"Mortgage Loan Aging Percentage" shall mean, as of any date, with
respect to any Eligible Mortgage Loan, (i) 100% if such Mortgage Loan has a
Pledge Date that is less than 90 days prior to such date, (ii) 50% if such
Mortgage Loan has a Pledge Date that is less than 120 days and more than 89 days
prior to such date and (iii) 0% if such Mortgage Loan has a Pledge Date that is
120 or more days prior to such date.
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"Mortgage Note" shall mean a promissory note executed by a competent
party which is secured by a Mortgage.
"Net Worth" shall mean, as to any Person, the sum of (i) its capital
stock, capital in excess of par or stated value of shares of its capital stock,
retained earnings and any other account which, in accordance with generally
accepted accounting principles in the United States, constitutes stockholder
equity less (ii) any treasury stock, any unpaid stock subscriptions and any
subordinated or other loans from stockholders, in each case to the extent
included in clause (i).
"Note" shall have the meaning provided in Section 2.06.
"Obligations" shall mean all amounts owing to the Lender pursuant to the
terms of this Agreement and any other Credit Document.
"Office" shall mean the office of the Lender located at Three Executive
Campus, Cherry Hill, New Jersey 08002 or such other address as the Lender may
specify from time to time in a written notice to the Borrowers.
"Operating Account" shall mean the operating account number 8900026723
maintained by the Lender at Bank of New York or such other account as the Lender
may specify from time to time in a written notice to the Borrowers.
"Origination Date" shall mean, with respect to any Mortgage Loan, the
date such Mortgage Loan was funded to the obligor thereon.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA or any successor thereto.
"Person" shall mean any individual, partnership, joint venture, firm,
corporation, association, trust or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.
"Plan" shall mean any multiemployer plan or single-employer plan as
defined in Section 4001 of ERISA, which is maintained or contributed to by (or
to which there is an obligation to contribute of), or at any time during the
five calendar years preceding the date of this Agreement was maintained or
contributed to by (or to which there is an obligation to contribute of), a
Borrower or by a Subsidiary of a Borrower or an ERISA Affiliate.
"Pledge Date" shall mean, with respect to any Mortgage Loan, the date on
which such Mortgage Loan was pledged to the Lender in accordance with the
requirements of Section 2.03 hereof.
"Purchase Commitment" shall mean a current binding and enforceable
written commitment (or contract for purchase) from an Investor to purchase from
a Borrower Mortgage Loans of a particular
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type and yield owned by the Borrower at a committed price, which commitment
shall at all times be subject to approval by the Lender as to terms and
conditions.
"Reportable Event" shall mean an event described in Section 4043(b) of
ERISA with respect to a Plan as to which the 30-day notice requirement has not
been waived by the PBGC.
"Request for Advance" shall have the meaning provided in Section 2.04.
"S&P" shall mean Standard & Poor's Corporation.
"Second Mortgage Loan" shall mean a Mortgage Loan that is underwritten
in conformity with underwriting standards approved by the applicable Investor,
has a maturity of not more than 30 years, and is secured by a second priority
Mortgage.
"Servicing Portfolio" shall mean, as to any Person, all Mortgage Loans
the servicing or subservicing rights for which are owned by such Person and with
respect to which such Person functions as the servicing institution.
"State Loan" shall mean a Mortgage Loan that is (i) underwritten in
conformity with underwriting standards that are established by a state agency or
instrumentality and approved by the Lender and (ii) subject to a Purchase
Commitment from such state agency or instrumentality.
"Subsidiary" shall mean, as to any Person, (i) any corporation more than
50% of whose stock of any class or classes having by the terms thereof ordinary
voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person and (ii) any partnership, association, joint
venture or other entity in which such Person and/or one or more Subsidiaries of
such Person has (A) more than a 50% equity interest at the time or (B) an
interest satisfying the provisions of clause (i) hereof in any general partner
of any limited partnership or joint venture.
"Taxes" shall mean all present and future income, stamp and other taxes,
levies, or costs and charges whatsoever imposed, assessed, levied or collected
on or in respect of an Advance and/or the recording, registration, notarization
or other formalization of an Advance or the execution and delivery or otherwise
with respect to the Agreement or the other Credit Documents and/or any payments
of principal, interest or other amounts made on or in respect of an Advance;
provided that Taxes shall not include taxes imposed on or measured by the
overall net income or receipts of the Lender by the United States of America or
any political subdivision or taxing authority thereof or therein.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in New Jersey or any other relevant jurisdiction, as applicable.
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"Unfunded Current Liability" of any Plan means the amount, if any, by
which the present value of the accrued benefits under the Plan as of the close
of its most recent plan year, determined in accordance with Statement of
Financial Accounting Standards No. 35, based upon the actuarial assumptions used
by the Plan's actuary in the most recent annual valuation of the Plan, exceeds
the fair market value of the assets allocable thereto, determined in accordance
with Section 412 of the Code.
"United States" and "U.S." shall each mean the United States of America.
"VA" shall mean the Veterans Administration or any successor thereto.
"VA Loan" shall mean a Mortgage Loan which is eligible for guarantee by
VA and is either so guaranteed or is subject to a current binding and
enforceable commitment for such guarantee pursuant to the provisions of the
Servicemen's Readjustment Act, as now in effect and as may be hereafter amended
from time to time, and is otherwise eligible for inclusion in a GNMA
mortgage-backed security pool.
"Warehouse Security Agreement" shall have the meaning provided in
Section 5.09.
"Wet Advance" shall mean an Advance made by the Lender against the
pledge of Eligible Mortgage Loans with respect to which the Borrower has
delivered to the Lender a Request for Advance in accordance with Section 2.04 in
lieu of the delivery of the Collateral Documents related thereto; provided,
however, that from and after the date on which the Collateral Documents with
respect to any such Mortgage Loan are received by the Lender, such Advance shall
cease to be a Wet Advance.
"Wet Advance Disbursement Instruction" shall have the meaning provided
in Section 2.05.
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any
corporation 100% of whose capital stock is at the time owned by such Person
and/or one or more Wholly-Owned Subsidiaries of such Person and (ii) any
partnership, association, joint venture or other entity in which such Person
and/or one or more Wholly-Owned Subsidiaries of such Person has a 100% equity
interest at such time.
1.02 Principles of Construction. (a) All references to sections,
schedules and exhibits are to sections, schedules and exhibits in or to this
Agreement unless otherwise specified. The words "hereof," "herein," "hereto" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement.
(b) All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting principles in
conformity with those used in the preparation of the financial statements
referred to in Section 6.05(a).
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(c) With respect to a Mortgage Loan or any other Collateral to be
pledged to the Lender or an Advance to be made by the Lender, the phrase "the
Borrower" shall, unless otherwise specified, refer to the particular Borrower
that is pledging the Collateral to the Lender or the particular Borrower to
which the Advance is to be made.
Section 2. Amount and Terms of Credit.
2.01 Commitment. Subject to and upon the terms and conditions set forth
herein, the Lender agrees, at any time and from time to time prior to the Expiry
Date (or such earlier date as the Commitment shall have been terminated pursuant
to the terms hereof), to make an advance or advances (each an "Advance" and,
collectively, the "Advances") to the Borrowers, which Advance: (i) shall be made
at any time and from time to time in accordance with the terms hereof on and
after the Effective Date and prior to the Expiry Date; (ii) shall bear interest
as provided in Section 2.07; (iii) may be prepaid and reborrowed in accordance
with the provisions hereof; and (iv) shall be made against the pledge by the
Borrowers of Eligible Mortgage Loans or Liquid Assets as Collateral for such
Advance as provided herein and in the Warehouse Security Agreement; provided,
however, that (1) the aggregate principal amount of Advances outstanding at any
time shall not exceed the lesser of (x) the Commitment and (y) the Borrowing
Base, at such time, (2) the aggregate principal amount of Advances outstanding
at any time secured by Credit A- Loans shall not exceed 100% of the Commitment,
(3) the aggregate principal amount of Advances outstanding at any time secured
by Credit B Loans shall not exceed 100% of the Commitment, (4) the aggregate
principal amount of Advances outstanding at any time secured by Credit C Loans
shall not exceed 75% of the Commitment, (5) the aggregate principal amount of
Advances outstanding at any time secured by Credit D Loans shall not exceed 10%
of the Commitment, (6) the aggregate principal amount of Wet Advances
outstanding at any time shall not exceed 30% of the Commitment, (7) the
aggregate principal amount of Advances outstanding at any time secured by Jumbo
Loans shall not exceed 75% of the Commitment and (8) no Borrower shall have
outstanding aggregate Advances at any time in an amount greater than the
aggregate Collateral Value of all Mortgage Loans pledged by such Borrower to the
Lender pursuant to the provisions of this Agreement and the Warehouse Security
Agreement.
2.02 Minimum Borrowing Amount. The principal amount of each Advance
shall not be less than $10,000 and, if greater, shall be in an integral multiple
of $1,000.
2.03 Pledge of Collateral. Whenever a Borrower desires to pledge a
Mortgage Loan to the Lender, it shall deliver to the Lender at its office a
pledge of Collateral substantially in the form of Exhibit A-1 (the "Pledge of
Collateral"). Each Pledge of Collateral: (i) shall be appropriately completed by
an authorized employee of the Borrower to describe the Collateral to be pledged;
and (ii) shall have attached thereto each of the Collateral Documents required
in the Pledge of Collateral, including, without limitation, in the case of a
Mortgage Loan with respect to which a Wet Advance is being requested in
accordance with Section 2.04, an assignment by the Borrower to the Lender of the
related Mortgage fully completed and in recordable form and, if requested by the
Lender, a Borrowing Base certificate substantially in the form of Exhibit C (a
"Borrowing Base Certificate").
2.04 Request for Advance. Whenever a Borrower desires to incur an
Advance hereunder, it shall deliver to the Lender at its Office a request for
Advance substantially in the form of Exhibit A-2
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(the "Request for Advance") not later than 12:30 p.m. (New York City time) on
the Business Day prior to the proposed date of such Advance. Each Request for
Advance: (i) shall be appropriately completed to specify the aggregate principal
amount of the Advance or Wet Advance to be made and the proposed date of such
Advance (which shall be a Business Day); and (ii) shall, in the case of a Wet
Advance, include instructions with respect to the disbursement of such Wet
Advance.
2.05 Disbursement of Funds. (a) No later than 3:00 P.M. (New York City
time) on the date specified in the Request for Advance with respect to any
Advance other than a Wet Advance, the Lender shall make available to the
Borrowers the amount of such Advance requested to be made on such date in
Dollars by wire transfer of funds to the Borrowers' Advance Account. The Lender
shall disburse the amount of each Wet Advance directly to the appropriate title
company, escrow agent or closing agent by cashier's check or wire transfer in
accordance with the instructions set forth in the related Request for Advance,
the Lender's customary practice and the requirements of applicable law.
(b) In the event that a Wet Advance is disbursed by cashier's check, the
Lender shall disburse the amount of such Wet Advance under cover of an
instruction letter substantially in the form of Exhibit B-1 (a "Wet Advance
Disbursement Instruction"). In the event that a Wet Advance is to be disbursed
by wire transfer, the Borrower shall deliver to the appropriate title company,
escrow agent or closing agent an instruction letter substantially in the form of
Exhibit B-2 (a "Borrower's Wet Advance Disbursement Instruction"). Upon the
request of the Lender, the Borrowers shall deliver to the Lender a copy of any
Borrower's Wet Advance Disbursement Instruction delivered by the Borrowers.
2.06 Note. The Borrowers' obligation to pay the principal of, and
interest on, all Advances made to either of them by the Lender shall be
evidenced by a promissory note substantially in the form of Exhibit D (the
"Note"). The Note shall (i) be executed by the Borrowers and shall be a joint
and several obligation of the Borrowers, (ii) be payable to the order of the
Lender and be dated on or prior to the Initial Borrowing Date, (iii) be in a
stated principal amount equal to the Commitment and be payable in the aggregate
principal amount of the Advances evidenced thereby, (iv) mature, with respect to
each Advance evidenced thereby, on the Expiry Date, (v) bear interest as
provided in Section 2.07, (vi) be subject to mandatory prepayment as provided in
Section 4.02 and (vii) be entitled to the benefits of this Agreement and the
other Credit Documents. The Lender will note on its internal records the amount
of each Advance made by it and each payment in respect thereof and will prior to
any transfer of the Note endorse on the reverse side thereof the outstanding
principal amount of Advances evidenced thereby. Failure to make any such
notation shall not affect the Borrowers' obligations in respect of such
Advances.
2.07 Interest. (a) The Borrowers agree to pay interest in respect of the
outstanding principal amount of the Advances from the date the proceeds thereof
are made available to the Borrowers until the maturity thereof (whether by
acceleration or otherwise) at a rate per annum equal to 2.125% in excess of the
Commercial Paper Rate in effect from time to time.
(b) Overdue principal and, to the extent permitted by law, overdue
interest, and any other overdue amount payable by the Borrowers hereunder, shall
bear interest at a rate per annum equal to 4% per annum in excess of the rate
specified in clause (a) above in effect from time to time; provided,
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however, that no Advance shall bear interest at a rate in excess of the maximum
rate permitted by applicable law.
(c) Accrued (and theretofore unpaid) interest shall be payable in
respect of the Advances (i) monthly in arrears on the fifth Business Day of each
calendar month with respect to interest accrued during the preceding calendar
month, (ii) on any prepayment which reduces the outstanding Advances to zero,
(iii) at maturity (whether by acceleration, demand or otherwise) and (iv) after
such maturity, on demand. The Lender shall provide the Borrowers with a notice
setting forth the interest accrued with respect to each calendar month not later
than the third Business Day following the end of such calendar month.
(d) The Borrowers shall be jointly and severally liable for the
Obligations.
2.08 Increased Costs. If, due to either (a) the effectiveness or
introduction of, or any change in, or any change in the interpretation of, any
law or regulation by any court or administrative or governmental authority
charged with administration thereof or (b) compliance after the date hereof with
any guideline or request from any central bank or other governmental authority
or official (whether or not having the force of law), there shall be an increase
in the cost to the Lender of making, funding or maintaining any Advance or the
Commitment hereunder or the Lender shall be required to make a payment
calculated by reference to the principal of, or interest on, any Advance made by
it or the Commitment (other than any such increased cost, reduction in the
amount receivable, or payment required to be made resulting from the imposition
or an increase in the rate of any Taxes), then the Borrowers shall, from time to
time, upon demand by the Lender, pay additional amounts sufficient to compensate
the Lender for any such increased cost. A certificate of an officer of the
Lender as to the amount of such increased cost actually incurred by the Lender
(and the calculation thereof) submitted to the Borrowers shall be conclusive and
binding for all purposes, absent manifest error.
Section 3. Fees
3.01 Fees. (a) The Borrowers shall pay the Lender an administration fee
(the "Administration Fee") with respect to each calendar month during the term
of this Agreement in an amount equal to the sum of $ 25.00 for each Mortgage
Loan pledged as Collateral for the first time during such calendar month. The
Administration Fee with respect to each calendar month will be due and payable
on the fifth Business Day following the end of such calendar month. In addition,
the Borrowers shall pay all administrative costs of the Lender in connection
with the making of an Advance and the handling of Collateral, including but not
limited to, the costs of overnight and express delivery, cashier's checks and
wire transfers. Such payment shall be accomplished through direct cash payment,
due and payable at the time the monthly Administration Fee is due and payable.
(b) The Lender shall provide the Borrowers with a notice setting forth
the Administration Fee accrued and the administrative costs incurred with
respect to each calendar month not later than the third Business Day following
the end of such calendar month.
Section 4. Prepayments; Payments.
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4.01 Voluntary Prepayments. The Borrowers shall have the right to prepay
the Advances, without premium or penalty, in whole or in part from time to time
on the following terms and conditions: (i) the Borrowers shall give the Lender
at its Office notice of their intent to prepay not later than 2:00 p.m. (New
York City time) at least one Business Day prior to the date of such prepayment,
and (ii) the amount of such prepayment shall be at least $100,000 and, if
greater, in an integral multiple of $1,000.
4.02 Mandatory Prepayments. Except as set forth in Section 4.03(b), a
prepayment of Advances shall be required, without notice or demand of any
kind to the Borrowers, as follows:
(a) if on any date the aggregate principal amount of Advances
outstanding (after giving effect to all other repayments thereof on such
date) exceeds the lesser of (x) the Commitment or (y) the Borrowing
Base, as then in effect, the Borrowers shall immediately prepay the
principal of Advances in an aggregate amount equal to such excess;
(b) if on any date the aggregate principal amount outstanding of
Advances secured by Mortgage Loans exceeds 100% of the Commitment, the
Borrowers shall immediately prepay the principal of Advances secured by
Mortgage Loans in an aggregate amount equal to such excess;
(c) if on any date the aggregate principal amount outstanding of
Advances secured by Credit A- Loans exceeds 100% of the Commitment, the
Borrowers shall immediately prepay the principal of Advances secured by
Credit A- Loans in an aggregate amount equal to such excess;
(d) if on any date the aggregate principal amount outstanding of
Advances secured by Credit B Loans exceeds 100% of the Commitment, the
Borrowers shall immediately prepay the principal of advances secured by
Credit B Loans in an aggregate amount equal to such excess;
(e) if on any date the aggregate principal amount outstanding of
Advances secured by Credit C Loans exceeds 75% of the Commitment, the
Borrowers shall immediately prepay the principal of advances secured by
Credit C Loans in an aggregate amount equal to such excess;
(f) if on any date the aggregate principal amount outstanding of
Advances secured by Credit D Loans exceeds 10% of the Commitment, the
Borrowers shall immediately prepay the principal of advances secured by
Credit D Loans in an aggregate amount equal to such excess;
(g) if on any date the aggregate principal amount outstanding of
Advances secured by Jumbo Loans exceeds 75% of the Commitment, the
Borrowers shall immediately prepay the principal of Advances secured by
Jumbo Loans in an aggregate amount equal to such excess;
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(h) if on any date the aggregate principal amount outstanding of Wet
Advances exceeds 30% of the Commitment, the Borrowers shall immediately
prepay the principal of Wet Advances in an aggregate amount equal to
such excess;
(i) if the Lender shall have notified the Borrowers or a Borrower
otherwise becomes aware that any Mortgage Loan originally included as an
Eligible Mortgage Loan no longer constitutes an Eligible Mortgage Loan
pursuant to the terms and standards set forth herein and in the
Warehouse Security Agreement, the Borrowers shall immediately prepay the
principal of Advances in an aggregate amount equal to the Collateral
Value of such Mortgage Loan;
(j) if a Mortgage Loan in respect of which an Advance has been made
hereunder is sold, the Borrowers shall on the date of settlement for
such sale prepay the principal of Advances in an aggregate amount equal
to the Collateral Value of such Mortgage Loan;
(k) if 45 calendar days shall have elapsed from the date a Mortgage Loan
is sent from the Lender to an Investor or the Custodian for an Investor
as provided in Section 4.04 and in the Warehouse Security Agreement and
such Mortgage Loan has neither been redelivered to the Lender nor
purchased pursuant to the letter of transmittal delivered therewith, the
form of which shall be that customarily used by the Lender, the
Borrowers shall immediately prepay the principal of Advances in an
aggregate amount equal to the Collateral Value of such Mortgage Loan;
(l) if 10 calendar days shall have elapsed from the date on which a
Borrower is requested by the Lender to obtain a corrected or completed
copy of any document in connection with any Mortgage Loan and the same
shall not have been delivered to the Lender with the appropriate
completion or correction, the Borrowers shall immediately prepay the
principal of Advances in an aggregate amount equal to the Collateral
Value of such Mortgage Loan;
(m) [Intentionally omitted]
(n) if (1) there shall be a default in the payment of principal or
interest by the obligor under a Mortgage Loan in respect of which an
Advance has been made hereunder and such default shall be continuing for
30 days or more, (2) an Insolvency Event shall occur in respect of an
obligor on any Mortgage Loan in respect of which an Advance has been
made hereunder or (3) foreclosure or similar proceedings shall be
commenced in respect of the premises which secure any Mortgage Loan in
respect of which an Advance has been made hereunder, the Borrowers shall
immediately prepay the principal of Advances in an aggregate amount
equal to the Collateral Value of such Mortgage Loan;
(o) [Intentionally omitted]
(p) if the Mortgage Loan to be funded with the proceeds of any Wet
Advance is not funded on the date of such Wet Advance, the Borrowers
shall immediately prepay the full principal amount of such Wet Advance;
and
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(q) if the Collateral Documents in respect of any Mortgage Loan securing
a Wet Advance are not delivered to the Lender within seven days
following the date on which such Wet Advance was made, the Borrowers
shall immediately prepay the full principal amount of such Wet Advance.
4.03 Release of Collateral; Substitution. (a) So long as no Default or
Event of Default has occurred and is continuing or would result therefrom, upon
the Borrowers' request therefor accompanied by a prepayment by the Borrowers of
Advances in an amount sufficient to cause the amount of Advances outstanding to
be less than or equal to the Borrowing Base (calculated without reference to any
Collateral which the Borrowers request be released from the Lien granted
pursuant to the Warehouse Security Agreement) and a deposit by the Borrowers of
such amount as the Lender shall designate as a reserve for application to any
fees, accrued interest or breakage costs payable with respect to the calendar
month in which such prepayment occurs, the Lender shall, within one Business Day
after the later of the receipt of such request or such prepayment and deposit,
release from the Lien granted pursuant to the Warehouse Security Agreement and
deliver to the Borrowers in accordance with the terms of the Warehouse Security
Agreement (i) the Collateral corresponding to such Mortgage Loan(s) and (ii) the
Collateral Documents pertaining thereto.
(b) So long as no Default or Event of Default has occurred and is
continuing in lieu of any required pre-payment of principal pursuant to Section
4.02, the Borrowers may, subject to the terms and conditions hereof and the
prior consent of the Lender, substitute and pledge additional Eligible Mortgage
Loans having an aggregate Collateral Value in an amount such that immediately
after giving effect to such substitution or addition, such prepayment is no
longer required.
4.04 Sale of Collateral to Investors. (a) The Lender shall arrange, in
accordance with the provisions of the Warehouse Security Agreement, for the
delivery of Mortgage Loans pledged to the Lender to an Investor (or such
Investor's Custodian) pursuant to a Purchase Commitment for examination and
purchase thereof by such Investor; provided, however, that prior thereto the
Lender shall have received from the Borrowers one Business Days' prior written
notice describing the Mortgage Loan(s) to be delivered and the shipping or
wiring instructions therefor, such notice executed by an authorized employee of
the Borrowers and identifying the Investor and the price which such Investor has
agreed to pay for such Collateral.
(b) The Borrowers shall make a deposit in immediately available funds
into the Operating Account, by 4:00 p.m. on the Business Day on which the
release of the Lender's security interest in such Mortgage Loan is scheduled to
occur pursuant to the purchase by an Investor under a Purchase Commitment, in an
amount equal to the amount by which the aggregate amount of advances outstanding
exceeds the Borrowing Base (calculated without reference to such Mortgage Loan).
(c) Each delivery of Collateral pursuant to this Section 4.04 shall be
accompanied by a bailee letter in accordance with the requirements of the
Warehouse Security Agreement. All payments in respect of such Collateral so
purchased shall not be deemed received by the Lender until such funds constitute
"immediately available" funds in the Operating Account. For purposes hereof,
confirmation of receipt of wired funds shall constitute "immediately available"
funds.
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(d) The Borrowers shall deliver to the Lender, on or prior to 10:30 a.m.
on the Business Day following receipt by the Lender of payment from an Investor
for Mortgage Loans purchased, written notice designating the Mortgage Loans to
which such payment applies. An amount equal to the funds transferred to the
Lender in respect of Mortgage Loans purchased by an Investor (whether such funds
were transferred by the Borrowers pursuant to Section 4.04(b) or by the Investor
pursuant to Section 4.04(c)), shall be applied by the Lender as a prepayment of
Advances. So long as no Default or Event of Default has occurred and is
continuing, any amounts received by the Lender from the sale of any Mortgage
Loan that are in excess of the Collateral Value of such Mortgage Loan shall be
paid to the Borrowers at the Advance Account, net of any amounts reserved by the
Lender and retained in the Operating Account for application to any fees,
accrued interest or breakage costs payable with respect to the calendar month in
which such sale occurs.
4.05 Method and Place of Payment. Except as otherwise specifically
provided herein, all payments under this Agreement and the Note shall be made to
the Lender not later than 2:00 p.m. (New York City time) on the date when due
and shall be made in Dollars in immediately available funds for deposit to the
Operating Account. Any payment received after 2:00 p.m. (New York City time) on
any Business Day shall be treated as being received on the next succeeding
Business Day. Whenever any payment to be made hereunder or under the Note shall
be stated to be due on a day which is not a Business Day, the due date thereof
shall be extended to the next succeeding Business Day and, with respect to
payments of principal, interest, fees and penalties shall be payable at the rate
otherwise applicable. The Borrowers hereby authorize the Lender to deduct from
each Advance to be made hereunder, all amounts due and owing to the Lender
including interest, penalties, fees or mandatory prepayments.
4.06 Net Payments. All payments made by the Borrowers hereunder will be
made without setoff, counter-claim or other defense.
Section 5. Conditions Precedent.
The obligation of the Lender to make each Advance to the Borrowers
hereunder is subject, at the time of the making of each such Advance (except as
hereinafter indicated), to the satisfaction of the following conditions:
5.01 Execution of Agreement; Note. On or prior to the Initial Borrowing
Date, (i) the Effective Date shall have occurred and (ii) there shall have been
delivered to the Lender the Note executed by the Borrowers in the amount,
maturity and as otherwise provided herein.
5.02 No Default; Representations and Warranties. At the time of the
making of each Advance and also after giving effect thereto (i) there shall
exist no Default or Event of Default, and (ii) all representations and
warranties contained herein and in the other Credit Documents shall be true and
correct in all material respects with the same effect as though such
representations and warranties had been made on and as of the date of such
Advance.
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5.03 Request for Advance. Prior to the making of each Advance, the
Lender shall have received a Request for Advance with respect thereto meeting
the requirements of Section 2.04.
5.04 Opinion of Counsel. On the Initial Borrowing Date, the Lender shall
have received from outside counsel for the Borrowers (who shall be reasonably
satisfactory to the Lender) an opinion addressed to the Lender and dated the
Initial Borrowing Date covering the matters set forth in Exhibit E and such
other matters incident to the transactions contemplated herein as the Lender may
reasonably request.
5.05 Diligence. On or prior to the Initial Borrowing Date, the Lender
shall have satisfactorily completed its due diligence review of the Borrowers'
operations, business, financial condition and underwriting and origination of
Mortgage Loans.
5.06 Corporate or Partnership Documents; Proceedings. (a) On the Initial
Borrowing Date, the Lender shall have received a certificate of each Borrower,
dated the Initial Borrowing Date, signed by the President or any Vice President
of the Borrower or by the general partner of the Borrower, and attested to by
the Secretary or any Assistant Secretary of the Borrower or by the Secretary or
any Assistant Secretary of the general partner of the Borrower, substantially in
the forms of Exhibit F-1 and Exhibit F-2 and with appropriate insertions,
together with copies of the Certificate of Incorporation and By-Laws or
Certificate of Limited Partnership and Agreement of Limited Partnership of each
Borrower, the resolutions of the Borrowers referred to in such certificates and
a good-standing certificate from the Secretary of State of the jurisdiction of
incorporation or formation of each Borrower.
(b) All corporate or partnership proceedings and all legal proceedings
and all instruments and agreements in connection with the transactions
contemplated in this Agreement and the other Credit Documents shall be
reasonably satisfactory in form and substance to the Lender, and the Lender
shall have received all information and copies of all documents and papers,
including records of corporate or partnership proceedings and governmental
approvals, if any, which the Lender reasonably may have requested in connection
therewith, such documents and papers where appropriate to be certified by proper
corporate or partnership or governmental authorities.
5.07 Financial Statements. On or prior to the Initial Borrowing Date,
the Lender shall have received (i) the consolidated balance sheets of the
Borrowers and their Consolidated Subsidiaries for each of the two fiscal years
most recently ended and the related statements of income and retained earnings
and statements of cash flows of the Borrowers and their Consolidated
Subsidiaries for such two fiscal years, in each case certified by an independent
certified public accountant of recognized national standing reasonably
acceptable to the Lender and prepared in accordance with generally accepted
accounting principles in the United States consistently applied, together with
"management letters" prepared by such accountants for such period and (ii)
copies of any uniform single audit reports in respect of the Borrowers, any
audits or financial reports in respect of the Borrowers completed or requested
by HUD, GNMA, FNMA, FHLMC or any other governmental agency or Investor and any
Mortgage Bankers' Reporting Forms prepared by the Borrowers, in each case during
the two years preceding the date hereof.
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5.08 Mandatory Prepayment. After giving effect to the proposed Advance,
no prepayment would be required pursuant to Section 4.02.
5.09 Warehouse Security Agreement. The Borrowers shall have duly
authorized, executed and delivered a Warehouse Security Agreement substantially
in the form of Exhibit G (as modified, supplemented or amended from time to
time, the "Warehouse Security Agreement") covering all of the Borrowers' present
and future Collateral, together with:
(a) acknowledgment copies of proper financing statements (Form UCC-1)
duly filed under the UCC of each jurisdiction as may be necessary or, in
the opinion of the Lender, desirable to perfect the security interests
purported to be created by the Warehouse Security Agreement;
(b) certified copies of "Requests for Information or Copies" (Form
UCC-11), or equivalent reports, listing the financing statements
referred to in clause (a) above and all other effective financing
statements that name any Borrower as debtor and that are filed in the
jurisdictions referred to in said clause (a), together with copies of
such other financing statements (none of which shall cover the
Collateral, except to the extent evidencing Liens permitted pursuant to
Section 8.01);
(c) evidence of the completion of all other recordings and filings of,
or with respect to, the Warehouse Security Agreement as may be necessary
or, in the opinion of the Lender, desirable to perfect the security
interests purported to be created by the Warehouse Security Agreement;
and
(d) evidence that all other actions necessary or, in the opinion of the
Lender, desirable to perfect and protect the security interests created
by the Warehouse Security Agreement have been taken.
5.10 No Adverse Change. Since June 30, 1996, there shall have occurred
no Material Adverse Change.
5.11 Insurance. On or prior to the Initial Borrowing Date, the Lender
shall have received from the Borrowers, a copy of a fidelity bond and policy of
insurance containing errors and omissions coverage and such other insurance as
the Lender shall reasonably require, each of which policies, where applicable,
shall be in such form, with such companies and in such amounts as are in
accordance with the Lender's requirements.
5.12 [Intentionally Omitted]
5.13 Delivery of the Collateral. Prior to the making of an Advance, the
Lender shall have received (a) if such Advance is to be made in respect of
Mortgage Loans and is not to be a Wet Advance, the Collateral Documents relating
to the Mortgage Loans pledged to secure such Advance; or (b) if such Advance is
to be a Wet Advance, a duly executed assignment by the Borrower to the Lender of
the related Mortgage fully completed and in recordable form, a copy of the
Purchase
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Commitment or the Master Commitment, if applicable, and satisfactory
confirmation that the Collateral Documents relating thereto are to be delivered
to an escrow agent, closing agent or title company acceptable to the Lender with
instructions that such Collateral Documents are to be delivered directly to the
Lender.
5.14 Fees. Prior to the making of an Advance, the Borrowers shall have
paid all Fees then due and payable to the Lender.
5.15 No Litigation. There shall be no judgment, order, injunction or
other restraint which shall prohibit or impose, and no litigation pending or
threatened against or affecting the Borrowers or any of their Subsidiaries
which, in the opinion of the Lender, would prohibit or result in the imposition
of materially adverse conditions upon, the financing contemplated hereby, or
otherwise have a material adverse effect on the business, operations, properties
or assets, or on the condition, financial or otherwise, of the Borrowers or any
of their Subsidiaries.
The acceptance of the benefits of each Advance shall constitute a
representation and warranty by the Borrowers to the Lender that all the
conditions specified in Sections 5.02, 5.08, 5.10 and 5.15 exist as of that
time. All of the Note, certificates, legal opinions and other documents and
papers referred to in this Section 5, unless otherwise specified, shall be
delivered to the Lender at the Office and shall be reasonably satisfactory in
form and substance to the Lender.
Section 6. Representations, Warranties and Agreements.
In order to induce the Lender to enter into this Agreement and to make
the Advances, each Borrower makes the following representations, warranties and
agreements as of the Effective Date, all of which shall survive the execution
and delivery of this Agreement and the Note and the making of the Advances (with
the execution and delivery of this Agreement and the making of each Advance
thereafter being deemed to constitute a representation and warranty that the
matters as specified in this Section 6 are true and correct in all respects on
and as of the date hereof and as of the date of such Advance, unless stated to
relate to a specific earlier date):
6.01 Corporate and Partnership Status. Each of the Borrower and its
Subsidiaries (i) is a duly organized and validly existing entity in good
standing under the laws of the jurisdiction of its incorporation or formation,
(ii) has the power and authority to own its property and assets and to
transact the business in which it is engaged and (iii) is duly qualified as a
foreign corporation or foreign limited partnership and in good standing in
each jurisdiction where the ownership, leasing or operation of property or
the conduct of its business requires such qualification.
6.02 Corporate or Partnership Power and Authority. The Borrower has the
corporate or partnership power to execute, deliver and perform the terms and
provisions of each of the Credit Documents and has taken all necessary
corporate or partnership action to authorize the execution, delivery and
performance by it of each of such Credit Documents. The Borrower has duly
executed and delivered each of the Credit Documents, and each of such Credit
Documents constitutes its legal, valid and binding obligation enforceable in
accordance with its terms.
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6.03 No Violation. Neither the execution, delivery or performance by the
Borrower of the Credit Documents, nor compliance by it with the terms and
provisions thereof, (i) will contravene any provision of any law, statute, rule
or regulation or any order, writ, injunction or decree of any court or
governmental instrumentality, (ii) will conflict or be inconsistent with or
result in any breach of any of the material terms, covenants, conditions or
provisions of, or constitute a default under, or result in the creation or
imposition of (or the obligation to create or impose) any Lien other than a Lien
permitted pursuant to Section 8.01 upon any of the property or assets of the
Borrower pursuant to the terms of any indenture, mortgage, deed of trust, credit
agreement, loan agreement or any other agreement, contract or instrument to
which the Borrower is a party or by which it or any of its property or assets is
bound or to which it may be subject or (iii) will violate any provision of the
certificate of incorporation or by-laws (or certificate of limited partnership
or agreement of limited partnership) of the Borrower.
6.04 Governmental Approvals. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with
(except as have been obtained or made prior to the Effective Date), or exemption
by, any governmental or public body or authority, or any subdivision thereof, is
required to authorize, or is required in connection with, (i) the execution,
delivery and performance of any Credit Document or (ii) the legality, validity,
binding effect or enforceability of any such Credit Document.
6.05 Financial Statements; Financial Condition; Undisclosed Liabilities;
etc. (a) The consolidated balance sheet of the Borrowers and their Consolidated
Subsidiaries and the related consolidated statements of income and retained
earnings and statements of cash flows of the Borrowers and their Consolidated
Subsidiaries furnished to the Lender in accordance with Section 5.07 hereof
present fairly the consolidated financial condition of the Borrowers and their
Consolidated Subsidiaries at the dates of such balance sheets and the
consolidated results of the operations of the Borrowers and their Consolidated
Subsidiaries for the fiscal periods covered by such statements of income and
retained earnings and statements of cash flow. All such financial statements
have been prepared in accordance with generally accepted accounting principles
and practices in the United States consistently applied. Since June 30, 1996
there has not been any Material Adverse Change.
(b) Except as fully reflected on the financial statements referred to in
Section 6.05(a), there will be as of the Effective Date no liabilities or
obligations with respect to the Borrowers or any of their Subsidiaries of any
nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether or not due) which, either individually or in the aggregate, would be
material to the Borrowers or to the Borrowers and their Subsidiaries taken as a
whole.
6.06 Litigation. There are no actions, suits or proceedings pending or
threatened (i) with respect to any Credit Document or (ii) that could materially
and adversely affect the business, operations, property, assets, condition
(financial or otherwise) or prospects of the Borrower.
6.07 True and Complete Disclosure. All factual information (taken as a
whole) heretofore or contemporaneously furnished by or on behalf of the Borrower
in writing to the Lender (including, without limitation, all information
contained in the Credit Documents) for purposes of or in
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connection with this Agreement, the Warehouse Security Agreement or any
transaction contemplated herein or therein is, and all other such factual
information (taken as a whole) hereafter furnished by or on behalf of the
Borrower in writing to the Lender will be, true and accurate in all material
respects on the date as of which such information is dated or certified and not
incomplete by omitting to state any fact necessary to make such information
(taken as a whole) not misleading in any material respect at such time in light
of the circumstances under which such information was provided.
6.08 Use of Proceeds; Margin Regulations. All proceeds of each Advance
will be used by the Borrower for the financing of the Borrower's mortgage
lending business; provided that no part of the proceeds of any Advance will be
used by the Borrower to purchase or carry any Margin Stock or to extend credit
to others for the purpose of purchasing or carrying any Margin Stock. Neither
the making of any Advance nor the use of the proceeds thereof will violate or be
inconsistent with the provisions of Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System.
6.09 Tax Returns and Payments. The Borrower and each of its Subsidiaries
has filed all tax returns required to be filed by it and has paid all income
taxes payable by it which have become due pursuant to such tax returns and all
other taxes and assessments payable by it which have become due, other than
those not yet delinquent and except for those contested in good faith and for
which adequate reserves have been established. The Borrower and each of its
Subsidiaries has paid, or has provided adequate reserves (in the good faith
judgment of the management of the Borrower or such Subsidiary, as the case may
be) for the payment of, all federal, state and foreign income taxes applicable
for all prior fiscal years and for the current fiscal year to the date hereof.
6.10 Compliance with ERISA. Each Plan is in substantial compliance with
ERISA and the Code; no Reportable Event has occurred with respect to a Plan; no
Plan is insolvent or in reorganization, no Plan has an Unfunded Current
Liability, and no Plan has an accumulated or waived funding deficiency or
permitted decreases in its funding standard account within the meaning of
Section 412 of the Code; neither the Borrower nor any ERISA Affiliate of the
Borrower has incurred any material liability to or on account of a Plan pursuant
to Section 409, 502(i), 502(1), 515, 4062, 4063, 4064, 4069, 4201 or 4204 of
ERISA or Section 4971 or 4975 of the Code or expects to incur any liability
under any of the foregoing sections on account of the termination of,
participation in or contributions to any such Plan; no proceedings have been
instituted to terminate any Plan; no condition exists which presents a material
risk to the Borrower or any ERISA Affiliate of incurring a liability to or on
account of a Plan pursuant to the foregoing provisions of ERISA and the Code; no
Lien imposed under the Code or ERISA on the assets of the Borrower exists or is
likely to arise on account of any Plan; and the Borrower may terminate
contributions to any other employee benefit plans maintained by it without
incurring any material liability to any Person interested therein.
6.11 Capitalization. On the Effective Date, the authorized capital stock
of IMC Company consists of (a) 50,000,000 shares of common stock, $.01 par value
per share, of which 9,834,833 shares are issued and outstanding, and (b)
10,000,000 shares of preferred stock, $.01 par value per share, of which 0
shares are issued and outstanding. All such outstanding shares have been duly
and validly issued, are fully paid and non-assessable. The Borrower does not
have outstanding any securities convertible into or exchangeable for its capital
stock or outstanding any rights to subscribe for or to purchase, or any options
for the purchase of, or any agreements providing for the issuance
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(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, its capital stock other than as disclosed in the
consolidated financial statements.
6.12 Subsidiaries. Set forth on Schedule 6.12 is an accurate and
complete list of all Subsidiaries of each Borrower and the percentage ownership
by the Borrower in each such Subsidiary on the Effective Date, together with a
brief description of the business of each such Subsidiary.
6.13 Compliance with Statutes, etc. The Borrower and each of its
Subsidiaries is in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property, except such noncompliances as would not (i) in the aggregate,
have a material adverse effect on the business, operations, property, assets,
condition (financial or otherwise) or prospects of the Borrower and (ii) affect
in any respect the validity or enforceability of any Credit Document or the
Lender's rights in the Collateral.
6.14 Investment Company Act. Neither the Borrower nor any Subsidiary of
the Borrower is an "investment acompany" within the meaning of the Investment
Company Act of 1940, as amended.
6.15 No Burdensome Agreement. Neither of the Borrower nor any Subsidiary
is a party to any indenture, loan or credit agreement or any lease or other
agreement or instrument or subject to any charter or corporate or partnership
restriction which by its terms would have a material adverse effect on the
business, condition (financial or otherwise), operations or properties of the
Borrower or such Subsidiary or on the ability of the Borrower to carry out its
obligations under the Note or the other Credit Documents to which it is a party.
6.16 [Intentionally Omitted].
6.17 Security Interests. The Warehouse Security Agreement creates, as
security for the Obligations, valid and enforceable security interests in and
Liens on all of the Collateral in favor of the Lender which are perfected and
superior and prior to the rights of all third Persons and subject to no other
Liens (other than Liens permitted pursuant to Section 8.01). The Borrowers have,
or will have at the time of pledge thereof, good and marketable title to all of
the Collateral, free and clear of all Liens except those described in the
preceding sentence.
6.18 Registration. The Borrower currently is, and will be at all times
at which any Advance is outstanding hereunder, licensed, registered, approved,
qualified or otherwise authorized in good standing to the extent required under
applicable law, as a mortgage banker, mortgage broker, real estate broker,
servicer of mortgage loans or otherwise in each jurisdiction in which the
conduct of its business requires such licensing, registration, approval,
qualification or other authorization, including, without limitation, as a
licensed mortgage banker in each state in which it originates Mortgage Loans.
All appraisers providing services in connection with the origination of Mortgage
Loans by the Borrower have all licenses, registrations, approvals and
qualifications required by all applicable laws or regulations.
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6.19 Representations Relating to the Mortgage Loans. (a) At all times
during which a Mortgage Loan is pledged as Collateral for Advances hereunder,
such Mortgage Loan will (i) be an FHA Loan, a VA Loan, a Conforming Loan, a
Jumbo Loan, a State Loan, a Credit A- Loan, a Credit B Loan, a Credit C Loan or
a Credit D Loan; (ii) be an Eligible Mortgage Loan and be free of any default
and the Borrowers will have had no notice of any event which has occurred which
may, with the passage of time or the giving of notice, or both, become a
default; (iii) comply with the terms of this Agreement and with the relevant
Purchase Commitment and/or Master Commitment, if any; (iv) be a legal, valid and
binding obligation of the mortgagor and the mortgagee thereunder enforceable in
accordance with its terms and subject to no offset, defense or counterclaim,
obligating such mortgagor to make the payments specified therein, and each FHA
Loan and each VA Loan will be fully eligible for, and the Borrower will have
complied with all applicable requirements of law, rule or regulation in respect
of, FHA insurance or VA guaranty, respectively; (v) be underwritten in
accordance with standards approved by the Lender so that such Mortgage Loan is
(x) readily salable to an Investor or (y) eligible for securitization; (vi) be
owned by the Borrower and be subject to no Lien or claim whatsoever, either
legal or equitable, other than that granted to the Lender; (vii) be fully
disbursed, the final disbursement to the mortgagor in connection therewith
having been made no more than 90 days prior to the date of pledge if such
disbursement was made by the Borrower (unless such Mortgage Loan is delivered as
Collateral securing the initial Advance made to the Borrowers hereunder); (viii)
not be modified (except as to correction of clerical or scrivener errors),
amended, superseded or otherwise subject to any other agreement or contract of
any kind with the relevant mortgagor under such Mortgage Loan except to the
extent such amendment, modification or other agreement or contract has been
disclosed in writing to the Lender by the Borrowers at the time of the pledge
and does not affect the salability of such Mortgage Loan pursuant to any
applicable Master Commitment or Purchase Commitment; (ix) be a valid first or
second lien on the mortgaged premises subject thereto; (x) if required by the
Investor, have a title insurance policy or binder, in ALTA form satisfactory to
the Lender insuring the priority of the Borrower's first or second lien therein
subject only to (1) the lien of the related first mortgage, if any, (2) the lien
of current real property taxes and assessments, (3) covenants, conditions and
restrictions, rights of way, easements and other matters of public record as of
the date of recording of the related mortgage or deed of trust, such exceptions
appearing of record being acceptable to mortgage lending institutions generally
in the area wherein the property subject thereto is located and (4) other
matters to which like properties are commonly subject which do not materially
interfere with the benefits of the security intended to be provided by the
related mortgage or deed of trust and (xi) not have been selected for pledge
hereunder utilizing procedures, other than those necessary to comply with the
representations and warranties set forth herein, which are adverse to the
interests of the Lender.
(b) At the time of the pledge of each Mortgage Loan, the Borrower will
have received with respect to each such Mortgage Loan (i) evidence of a hazard
insurance policy with a standard mortgagee clause in a form satisfactory to the
Lender and with extended coverage in an amount which is at least equal to the
maximum insurable value of the improvements securing such Mortgage Loan from
time to time or the principal balance owing on such Mortgage Loan, whichever is
less and (ii) a policy, or other satisfactory evidence, of flood insurance or
satisfactory documentation to demonstrate that the mortgaged premises are not
located in a special flood hazard area. Such documentation will be retained in
the Borrower's files relating to such Mortgage Loan.
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(c) With respect to each Mortgage Loan pledged to the Lender, the
Borrower has fully complied with, and will fully comply with, or the original
mortgagee thereof has fully complied with and will fully comply with, (A) all
applicable state and federal laws, including but not limited to (i) the Real
Estate Settlement Procedures Act of 1974, (ii) the Equal Credit Opportunity Act,
(iii) the Federal Truth in Lending Act and Regulation Z of the Board of
Governors of the Federal Reserve System, (iv) any laws requiring persons
providing appraisals of property values to be properly licensed, and (v) all
other usury, disclosure, consumer credit protection or truth-in-lending laws
which may apply, and in each such case with all regulations promulgated in
connection therewith as the same may be from time to time amended and will
maintain sufficient documentary evidence in its file to substantiate such
compliance (including, without limitation, delivery of all necessary disclosure
statements) and (B) all of the terms and provisions of such Mortgage Loan and of
any contractual escrow arrangements applicable thereto.
(d) The Borrower has complied with and is not in violation of, and will
comply with and will not be in violation of, any law or regulation relating to
any Mortgage Loan pledged hereunder.
6.20 Insurance. The Borrower has blanket fidelity bond coverage and
errors and omissions, mortgage impairment or mortgage interest insurance
coverage in such form, with such companies and in such amounts as are in
accordance with all applicable standards and requirements.
6.21 Title to Property. The Borrower has good and marketable title to
all of its property, the value of which is included in the financial statements
delivered pursuant hereto, subject to no Liens, encumbrances or claims other
than those disclosed on such financial statements.
Section 7. Affirmative Covenants.
Each Borrower covenants and agrees that as of the Effective Date, and
thereafter for so long as this Agreement is in effect and until the Commitment
has terminated, the Note is no longer outstanding and the Advances, together
with interest, Fees and all other Obligations, are paid in full:
7.01 Information Covenants. The Borrower will furnish to the Lender
(unless otherwise indicated):
(a) Quarterly Financial Statements. Within 45 days after the close of
each quarterly accounting period of the Borrower, the consolidated
statements of financial condition of the Borrowers and their
Consolidated Subsidiaries as at the end of such period, and the related
consolidated statements of income and retained earnings and statements
of cash flows for such period and for the elapsed portion of the fiscal
year ended with the last day of such period, setting forth comparative
figures for the related periods in the prior fiscal year, all of which
shall be in form and substance satisfactory to the Lender and certified
as to fairness of presentation by the Chief Financial Officer or VP
Finance of IMC Company, subject to normal year-end audit adjustments and
accompanied by a certificate from such financial officer to the effect
that no Default or Event of Default has occurred and is continuing.
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(b) Annual Financial Statements. Within 90 days after the close of each
fiscal year of the Borrower, the consolidated statements of financial
condition of the Borrowers and their Consolidated Subsidiaries as at the
end of such fiscal year, and the related consolidated and consolidating
statements of income and retained earnings and statements of cash flows
for such fiscal year, in form and substance satisfactory to the Lender
and setting forth comparative figures for the preceding fiscal year and
certified, in the case of the consolidated financial statements, by
independent certified public accountants reasonably acceptable to the
Lender, together with a report of such accounting firm stating that its
regular audit of the financial statements of the Borrowers was conducted
in accordance with generally accepted auditing standards.
(c) Management Letters. Promptly, and in no event later than five days,
after receipt by the Borrowers thereof, a copy of any "management
letter" received by the Borrowers from its certified public accountants.
(d) Officer's Certificates. At the time of the delivery of the financial
statements provided for in Section 7.01(a) and (b), a certificate of the
Chief Financial Officer or VP Finance of IMC Company to the effect that,
to the best of his knowledge, no Default or Event of Default has
occurred and is continuing or, if any Default or Event of Default has
occurred and is continuing, specifying the nature and extent thereof and
any actions taken or proposed to be taken to cure any such Default or
Event of Default, which certificate shall set forth the calculations
required to establish whether the Borrowers were in compliance with the
provisions of Sections 8.08 and 8.09, at the end of such quarter or
fiscal year, as the case may be.
(e) Notice of Default. Promptly (and in no event later than five (5)
Business Days following the occurrence thereof), notice of (i) the
occurrence of any event which constitutes a Default or Event of Default,
detailing the nature of such Default or Event of Default and any actions
taken or proposed to be taken to cure such Default or Event of Default,
(ii) the commencement of any action, suit or proceeding against the
Borrower or any of its Subsidiaries before any court, arbitrator or
governmental department, commission, board, bureau, agency or
instrumentality which (A) could result in liability or loss of
$5,000,000 or more, in excess of any applicable insurance coverage to
the Borrower or such Subsidiary, as the case may be, or (B) would
otherwise materially adversely affect the management or the condition or
operations (financial or otherwise) of the Borrower or any of its
Subsidiaries, (iii) any change in any executive or financial officer of
the Borrower, (iv) any threatened loss of any authorization,
qualification, license or permit issued by any governmental or
regulatory authority to the Borrower or any of its Subsidiaries the loss
of which could have a material adverse effect upon the financial
condition or business of the Borrower or any of its Subsidiaries.
(f) Reports Relating to Collateral. In respect of the Collateral,
bi-weekly or more frequently as the Lender may, from time to time,
request, a position valuation report from the Borrowers, in a form
satisfactory to the Lender.
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(g) Borrowing Base Certificate. Weekly, or more frequently as the Lender
may from time to time request in its sole discretion, a Borrowing Base
Certificate, properly completed and certified by an authorized officer
of the Borrowers.
(h) Monthly Servicing Reports. Within 10 days after the close of each
calendar month, a consolidated report of the Borrowers (A) detailing, as
to all Mortgage Loans pledged to the Lender, (1) the loan numbers for
such Mortgage Loans, (2) the original terms of such Mortgage Loans and
whether such Mortgage Loans bear interest at a fixed rate or an
adjustable rate, (3) the weighted average interest rate and the weighted
average net servicing fee with respect to such Mortgage Loans, and (4)
which of such Mortgage Loans (a) are current and in good standing, (b)
are more than 30, 60 or 90 days past due, respectively, (c) are the
subject of pending litigation, bankruptcy or foreclosure proceedings,
and (d) have been converted (through foreclosure or other proceedings in
lieu thereof) by the Borrower into real estate owned by the Borrower and
(B) providing a summary, for all Mortgage Loans the servicing rights to
which are owned by the Borrower, regardless of whether such Mortgage
Loans are pledged to the Lender, of (1) the entities that own such
Mortgage Loans, (2) the original terms of such Mortgage Loans and
whether such Mortgage Loans bear interest at a fixed rate or an
adjustable rate, (3) the weighted average interest rate and the weighted
average net servicing fee with respect to such Mortgage Loans, (4)
whether any such Mortgage Loans were sold by the Borrower with recourse
and the nature of such recourse, (5) which of such Mortgage Loans (a)
are current and in good standing, (b) are more than 30, 60 or 90 days
past due, respectively, (c) are the subject of pending litigation,
bankruptcy or foreclosure proceedings, and (d) have been converted
(through foreclosure or other proceedings in lieu thereof) by the
Borrower into real estate owned by the Borrower, and (6) any reserves
established by the Borrower for losses in respect of delinquent Mortgage
Loans or real estate owned by the Borrower.
(i) [Intentionally Omitted]
(j) Other Reports and Filings. Promptly, and in any event within 10 days
following the filing thereof, copies of all financial information, proxy
materials and other information and reports, if any, which the Borrower
shall file with the Securities and Exchange Commission or any
governmental agencies substituted therefor.
(k) [Intentionally Omitted]
(l) [Intentionally Omitted]
(m) [Intentionally Omitted]
(n) [Intentionally Omitted]
(o) [Intentionally Omitted]
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(p) Commitment Default. Notice within 2 Business Days of any default
under, or of the termination, invalidation or cancellation of, any
Purchase Commitment or Master Commitment relating to any Mortgage Loan
constituting Collateral.
(q) Collateral Servicing Report. Within five (5) Business Days after the
end of each calendar quarter, a report detailing the identities of the
entities other than the Borrower, if any, servicing any Mortgage Loans
pledged as Collateral hereunder.
(r) Other Information. Promptly, and in any event within five (5)
Business Days after the Borrower's receipt or filing thereof, (i) copies
of any notices or information given to or received from the holders of
any Indebtedness of the Borrower relating to any actual or alleged
default, demand for payment or acceleration of payment, or from the PBGC
or the United States Department of Labor in connection with any matter
arising with respect to ERISA, and (ii) such other information or
documents (financial or otherwise) as the Lender may reasonably request.
(s) Credit Package Documents. Promptly upon the written request by the
Lender, to the extent available, and in any event within 40 days
following the pledge of a Mortgage Loan as Collateral pursuant to the
terms of this Agreement and the Warehouse Security Agreement, each of
the documents listed in Schedule 7.01(s) (collectively, the "Credit
Package Documents"), as applicable.
7.02 Books, Records and Inspections. The Borrower will, and will cause
each of its Subsidiaries to, keep proper books of record and account in which
full, true and correct entries in conformity with generally accepted accounting
principles in the United States and all requirements of law shall be made of all
dealings and transactions in relation to its business and activities. The
Borrower will, and will cause each of its Subsidiaries to, permit officers and
designated representatives of the Lender to visit and inspect any of the
properties of the Borrower or such Subsidiary, and to examine the books of
record and account of the Borrower or such Subsidiary and discuss the affairs,
finances and accounts of the Borrower or such Subsidiary with, and be advised as
to the same by, its and their officers, employees and independent accountants,
all at such reasonable times and intervals and to such extent as the Lender may
request. Any such inspection and/or examination may include an audit by the
Lender of the servicing of the Collateral and the Borrower's Servicing Portfolio
and such procedures as the Lender deems appropriate to confirm the reporting of
Mortgage Loan balances.
7.03 Maintenance of Property, Insurance. The Borrower will, and will
cause each of its Subsidiaries to, (i) keep all property necessary for the
operation of its business in good working order and condition, (ii) except as
otherwise provided in clause (iii) below, maintain with financially sound and
reputable insurance companies insurance (including such insurance as the Lender
shall require) in at least such amounts and against at least such risks as are
customarily insured against by companies in the same or similar business, (iii)
maintain fidelity bond coverage and errors and omissions, mortgage impairment or
mortgagee interest insurance coverage in accordance with standards and
requirements satisfactory to the applicable Investor and the Lender and (iv)
furnish to the Lender, upon written request, full information as to the
insurance carried. The provisions of this Section 7.03
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shall be deemed to be supplemental to, but not duplicative of, the provisions of
any of the security documents that require the maintenance of insurance.
7.04 Corporate or Partnership Franchises. The Borrower will, and will
cause each of its Subsidiaries to, do or cause to be done, all things necessary
to preserve and keep in full force and effect its existence and its material
rights, franchises, qualifications, licenses, permits and patents; provided,
however, that nothing in this Section 7.04 shall prevent the withdrawal by the
Borrower or any of its Subsidiaries of its qualification as a foreign
corporation or foreign limited partnership in any jurisdiction where such
withdrawal could not have a material adverse effect on the business,
operations, property, assets, condition (financial or otherwise) or prospects of
the Borrower or such Subsidiary.
7.05 Compliance with Statutes, etc. The Borrower will, and will cause
each of its Subsidiaries and each appraiser, correspondent, broker or other
service provider that participates with the Borrower in the origination or
servicing of Mortgage Loans to, comply with all applicable statutes, regulations
and orders of, and all applicable restrictions imposed by, all governmental
bodies, domestic or foreign, in respect of the conduct of its business and the
ownership of its property (including applicable statutes, regulations, orders
and restrictions relating to (1) licensing or registration (as described in
Section 6.18 hereof) and (2) environmental standards and controls), except such
noncompliances as could not (i) adversely affect in any manner the legality,
validity or enforceability of any Mortgage Loan, Hedging Contract or Purchase
Commitment or (ii) in the aggregate, have a material adverse effect on the
business, operations, property, assets, condition (financial or otherwise) or
prospects of the Borrower or the Borrower and its Subsidiaries taken as a whole.
7.06 ERISA. As soon as possible and, in any event, within 10 days after
the Borrower or any of its Subsidiaries or ERISA Affiliates knows or has reason
to know any of the following, the Borrower will deliver to the Lender a
certificate of the Chief Financial Officer or VP Finance of the Borrower setting
forth details as to such occurrence and such action, if any, which the Borrower,
such Subsidiary or such ERISA Affiliate is required or proposes to take,
together with any notices required or proposed to be given to or filed with or
by the Borrower, such Subsidiary, such ERISA Affiliate, the PBGC, a Plan
participant or the Plan administrator with respect thereto: that a Reportable
Event has occurred; that an accumulated funding deficiency has been incurred or
an application may be or has been made to the Secretary of the Treasury for a
waiver or modification of the minimum funding standard (including any required
installment payments) or an extension of any amortization period under Section
412 of the Code with respect to a Plan; that a Plan has been or may be
terminated, reorganized, partitioned or declared insolvent under Title IV of
ERISA; that a Plan has an Unfunded Current Liability giving rise to a Lien under
ERISA; that proceedings may be or have been instituted to terminate a Plan; that
a proceeding has been instituted pursuant to Section 515 of ERISA to collect a
delinquent contribution to a Plan; or that the Borrower, any of its Subsidiaries
or ERISA Affiliates will or may incur any liability (including any contingent or
secondary liability) to or on account of the termination of or withdrawal from a
Plan under Section 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or with respect
to a Plan under Section 4971 or 4975 of the Code or Section 409, 502(i) or
502(1) of ERISA. The Borrower will deliver to the Lender a complete copy of the
annual report (Form 5500) of each Plan required to be filed with the Internal
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Revenue Service. In addition to any certificates or notices delivered to the
Lender pursuant to the first sentence hereof, copies of annual reports and any
other notices received by the Borrower or any of its Subsidiaries required to be
delivered to the Lender hereunder shall be delivered to the Lender no later than
10 days after the later of the date such report or notice has been filed with
the Internal Revenue Service or the PBGC, given to Plan participants or received
by the Borrower or such Subsidiary.
7.07 Performance of Obligations. The Borrower will, and will cause each
of its Subsidiaries to, perform all of its obligations under the terms of each
mortgage, indenture, security agreement and other debt instrument by which it is
bound, except such non-performances as could not in the aggregate, have a
material adverse effect on the business, operations, property, assets, condition
(financial or otherwise) or prospects of the Borrower or of the Borrower and its
Subsidiaries taken as a whole.
7.08 Mortgage Loans. (a) The Borrower will not modify or waive any term
of any pledged Mortgage Loan or release any security or obligor, if as a result
thereof such Mortgage Loan would become, nor cause, through any activity or
inactivity, a Mortgage Loan to become ineligible for FHA insurance or VA
guarantee, if applicable, or for purchase in accordance with any applicable
Master Commitment or Purchase Commitment. The Borrower will notify the Lender of
(i) any payment default in respect of any pledged Collateral which has continued
for 30 days, 60 days, or 90 days respectively, (ii) the occurrence of an
Insolvency Event in respect of an obligor on any Mortgage Loan pledged as
Collateral, (iii) the commencement of foreclosure or similar proceedings in
respect of the premises which secure any Mortgage Loan pledged as Collateral and
(iv) any other material default in any other term of any pledged Collateral,
such notice to be delivered not later than three (3) Business Days following the
occurrence thereof in the case of an event specified in clauses (i) or (iii) and
promptly upon the Borrower's receiving notice or otherwise becoming aware
thereof in the case of an event specified in clauses (ii) or (iv).
(b) All Eligible Mortgage Loans will comply in all respects with all
applicable requirements for purchase under any applicable Purchase Commitment.
All Mortgage Loans will be serviced and administered in accordance with all
requirements of any Investor that has issued a Purchase Commitment or a Master
Commitment applicable thereto.
7.09 Payment of Taxes. The Borrower will pay and discharge all taxes,
assessments and governmental charges or liens imposed upon the Borrower or upon
the Borrower's income or profits, or upon any properties belonging to the
Borrower, prior to the date on which any penalties attach thereto, and all
lawful claims which, if unpaid, might become a Lien upon any such property.
7.10 Corporate or Partnership Separateness. The Borrower will, and will
cause each of its Subsidiaries to, take such actions as are necessary to keep
its operations and the operations of each of its Subsidiaries separate and
apart from each of the other's, including, without limitation, insuring that all
customary formalities regarding the corporate or partnership existence of the
Borrower and each such Subsidiary, including holding regular meetings and
maintenance of its current minute books, are followed. Such actions will not
preclude the Borrower from merging or consolidating any of its Subsidiaries
in its normal course of business.
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l7.11 Collateral. The Borrower will (a) warrant and defend the right,
title and interest of the Lender in and to the Collateral against the claims and
demands of all persons whomsoever; (b) service, or cause to be serviced, all
Mortgage Loans in accordance with the requirements of the issuers of Master
Commitments and Purchase Commitments covering the same and all applicable FHA
and VA requirements (including without limitation taking all actions necessary
to enforce the obligations of the obligors under such Mortgage Loans); (c) hold
all escrow funds collected in respect of Mortgage Loans in trust, without
commingling the same with non-custodial funds, and apply the same for the
purposes for which such funds were collected; (d) comply in all respects with
the terms and conditions of all Master Commitments and Purchase Commitments, and
all extensions, renewals and modifications or substitutions thereof or thereto,
and deliver or cause to be delivered to the applicable Investor the Mortgage
Loans to be sold under each Purchase Commitment not later than three (3)
Business Days prior to the expiration thereof; and (e) maintain, and, upon
request, shall make available to the Lender the originals, or copies in any case
where the original has been delivered to the Lender or to an Investor, of its
Mortgage Notes, Mortgages, Purchase Commitments, Hedging Contracts, Master
Commitments, and all related Mortgage Loan documents and instruments, and all
files, surveys, certificates, correspondence, appraisals, computer programs,
tapes, discs, cards, accounting records and other information and data relating
to the Collateral.
7.12 Portfolio Hedging Arrangements. The Borrower will enter into and
maintain from time to time Hedging Contracts with respect to Mortgage Loans held
by it and commitments made by it to prospective Mortgage Loan obligors to extend
Mortgage Loans at specified rates of interest.
Section 8. Negative Covenants.
Each Borrower covenants and agrees that as of the Effective Date, and
thereafter for so long as this Agreement is in effect and until the Commitment
has terminated, the Note is no longer outstanding and the Advances, together
with interest, Fees and all other Obligations, are paid in full, without the
prior written consent of the Lender:
8.01 Liens. The Borrower will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any Collateral; provided that the provisions of this Section 8.01
shall not prevent the creation, incurrence, assumption or existence of:
(a) Liens for taxes not yet due, or Liens for taxes being contested in
good faith and by appropriate proceedings for which adequate reserves
have been established;
(b) Liens created pursuant to the Warehouse Security Agreement; and
(c) Liens in favor of FNMA, GNMA or FHLMC on the right of the Borrower
to service Mortgage Loans sold to such agencies.
8.02 Liquidation, Dissolution. The Borrower will not wind up, liquidate
or dissolve its affairs without the prior approval of the Lender.
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8.03 Dividends. (a) Upon the occurrence and during the continuance of
any Default or Event of Default (determined after giving effect to any proposed
action of the Borrower), the Borrower will not declare or pay any dividends, or
return any capital, to its stockholders or partners or authorize or make any
other distribution, payment or delivery of property or cash to its stockholders
or partners as such, or redeem, retire, purchase or otherwise acquire, directly
or indirectly, for a consideration, any shares of any class of its capital stock
or partnership interests now or hereafter outstanding (or any options or
warrants issued by the Borrower with respect to its capital stock or partnership
interests), or set aside any funds for any of the foregoing purposes, or permit
any of its Subsidiaries to purchase or otherwise acquire for a consideration any
shares of any class of the capital stock or partnership interests of the
Borrower now or hereafter outstanding (or any options or warrants issued by the
Borrower with respect to its capital stock or partnership interests).
(b) Upon the occurrence and during the continuance of any Default or
Event of Default (determined after giving effect to any proposed action of the
Borrower), the Borrower will not permit any of its Subsidiaries to declare or
pay any dividends, or return any capital, to its stockholders or authorize or
make any other distribution, payment or delivery of property or cash to its
stockholders as such, or redeem, retire, purchase or otherwise acquire, directly
or indirectly, for a consideration, any shares of any class of its capital stock
now or hereafter outstanding (or any options or warrants issued by such
Subsidiary with respect to its capital stock), or set aside any funds for any of
the foregoing purposes, or permit any of its Subsidiaries to purchase or
otherwise acquire for a consideration any shares of any class of the capital
stock of such Subsidiary now or hereafter outstanding (or any options or
warrants issued by such Subsidiary with respect to its capital stock), except
that any Subsidiary may pay dividends to the Borrower or to any Wholly-Owned
Subsidiary of the Borrower.
(c) IMC Company will not at any time declare or pay any dividends, or
return any capital, to its stockholders or authorize or make any other
distribution, payment or delivery of property or cash to its stockholders as
such, or redeem, retire, purchase or otherwise acquire, directly or indirectly,
for a consideration, any shares of any class of its capital stock now or
hereafter outstanding (or any options or warrants issued by IMC Company with
respect to its capital stock), or set aside any funds for any of the foregoing
purposes, or permit any of its Subsidiaries to purchase or otherwise acquire for
a consideration any shares of any class of the capital stock of IMC Company now
or hereafter outstanding (or any options or warrants issued by IMC Company with
respect to its capital stock), or pay any special distributions or bonuses not
in the ordinary course of business to any officer or employee that owns capital
stock of IMC Company, if after giving effect thereto the Consolidated Tangible
Net Worth of IMC Company would be less than the amount required by Section 8.09
hereof.
8.04 [Intentionally Omitted]
8.05 [Intentionally Omitted]
8.06 Transactions with Affiliates. The Borrower will not, and will not
permit any of its Subsidiaries to, enter into any transaction or series of
related transactions, whether or not in the ordinary course of business, with
any Affiliate of the Borrower, other than on terms and conditions
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substantially as favorable to the Borrower or such Subsidiary as would be
obtainable by the Borrower or such Subsidiary at the time in a comparable
arm's-length transaction with a Person other than an Affiliate; provided,
however, that the Borrower will not, and will not permit any of its Subsidiaries
to:
(a) use, furnish, or rely upon an insurance policy (including but not
limited to title insurance and hazard insurance) underwritten by or
issued by any Affiliate of the Borrower (other than any such Affiliate
listed on Schedule 8.06 hereof);
(b) use, furnish, or rely upon an appraisal issued by any Affiliate or
by any Person controlled by any Affiliate of the Borrower (other than
any such Affiliate or Person listed on Schedule 8.06 hereof) except with
respect to FHA Loans, VA Loans or State Loans; or
(c) pledge any Mortgage Loan to the Lender under which the Borrower or
any Affiliate thereof is a mortgagor or guarantor for such Mortgage
Loan.
8.07 Capital Expenditures. The Borrower will not, and will not permit
any of its Subsidiaries to, without the prior written approval of the Lender,
make any expenditure for fixed or capital assets (including, without limitation,
expenditures for maintenance and repairs which should be capitalized in
accordance with generally accepted accounting principles and including
capitalized lease obligations) other than such expenditures made in the ordinary
course of such Person's business in an amount not in excess of $5,000,000;
provided, however, that the Lender shall not unreasonably withhold its approval
of a capital expenditure by the Borrower for the purpose of purchasing an office
building to be utilized as corporate office space.
8.08 Maximum Consolidated Leverage Ratio. IMC Company will not permit
its Consolidated Leverage Ratio at any time during any fiscal year to be greater
than 20 to 1.
8.09 Minimum Consolidated Tangible Net Worth. IMC Company will not
permit its Consolidated Tangible Net Worth at any time during any fiscal year to
be less than $50,000,000.
8.10 Minimum Servicing Portfolio. The Borrower will not permit the
aggregate amount of its Servicing Portfolio at any time to be less than $0.
8.11 Modifications of Certain Agreements and Collateral. The Borrower
will not, without the prior written consent of the Lender, amend, modify or
waive any of the terms of, or settle or compromise any claim with respect to,
any Collateral or any Collateral Document.
8.12 Limitation on Restrictions on Subsidiary Dividends and Other
Distributions. The Borrower will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
such Subsidiary to (a) pay dividends or make any other distributions on its
capital stock or any other interest or participation in its profits owned by the
Borrower or any Subsidiary of the Borrower, or pay any Indebtedness owed to the
Borrower or any Subsidiary of the Borrower, (b) make loans or advances to the
Borrower or (c) transfer any of its properties or assets to the Borrower, except
for such encumbrances or restrictions existing under or by reasons of (i)
applicable law, (ii) this
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Agreement and (iii) customary provisions restricting subletting or assignment of
any lease governing a leasehold interest of the Borrower or any Subsidiary of
the Borrower.
8.13 Limitation on Issuances of Capital Stock by Subsidiaries. The
Borrower will not permit any of its Subsidiaries to issue any capital stock
(including by way of sales of treasury stock) or any options or warrants to
purchase, or securities convertible into, capital stock, except for (i)
transfers and replacements of then outstanding shares of capital stock and (ii)
stock splits, stock dividends and similar issuances which do not decrease the
percentage ownership of the Borrower or any of its Subsidiaries in any class of
the capital stock of such Subsidiary.
8.14 [Intentionally Omitted]
8.15 Portfolio Aging. The Borrower will not at any time permit (x) the
aggregate principal amount of the Mortgage Loans then pledged as Collateral that
have an Origination Date that is more than 180 days prior to such time, to
exceed (y) 10% of the aggregate principal amount of all Mortgage Loans that are
pledged as Collateral at such time.
Section 9. Events of Default.
Upon the occurrence of any of the following specified events (each an
"Event of Default"):
9.01 Payments. The Borrowers shall (i) default in the payment when due
of any principal of any Advance or (ii) default, and such default shall continue
unremedied for 3 or more days, in the payment when due of any interest on any
Advance or any Fees or any other amount owing hereunder or under any Credit
Document; or
9.02 Representations, etc. Any representation, warranty or statement
made or deemed made by a Borrower herein or in any other Credit Document or in
any certificate delivered pursuant hereto or thereto shall prove to be untrue in
any material respect on the date as of which made or deemed made; or
9.03 Covenants. A Borrower shall (i) default in the due performance or
observance by it of any term, covenant or agreement contained in Sections
7.01(e), 7.04, 7.05, 7.06, 7.07, 7.08 or 8 or (ii) default in the due
performance or observance by it of any term, covenant or agreement contained in
this Agreement (other than those referred to in Sections 9.01 and 9.02 and
clause (i) of this Section 9.03) and such default shall continue unremedied for
a period of 15 days; or
9.04 Default Under Other Agreements. The Borrowers or any of their
Subsidiaries shall (i) default in any payment of any Indebtedness in an
aggregate amount exceeding $5,000,000 pursuant to which the Borrowers are
obligated in any manner (other than the Obligations) beyond the period of grace
(not to exceed 30 days), if any, provided in the instrument or agreement under
which such Indebtedness was created and such default shall be declared by the
obligee or (ii) default in the observance or performance of any agreement or
condition relating to any Indebtedness, in an aggregate amount exceeding
$5,000,000 (other than the Obligations), or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall
occur or condition
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exist, the effect of which default or other event or condition is to cause, such
Indebtedness to become due prior to its stated maturity; or
9.05 [Intentionally Omitted]
9.06 Bankruptcy, etc. An Insolvency Event shall occur with respect to a
Borrower or any of its Subsidiaries; or
9.07 ERISA. Any Plan shall fail to satisfy the minimum funding standard
required for any plan year or part thereof or a waiver of such standard or
extension of any amortization period is sought or granted under Section 412 of
the Code, any Plan is, shall have been or is likely to be terminated or the
subject of termination proceeding under ERISA, any Plan shall have an Unfunded
Current Liability, or a Borrower or any of its Subsidiaries or ERISA Affiliates
has incurred or is likely to incur a liability to or on account of a Plan under
Section 409, 501(i), 501(1), 515, 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA
or Section 4971 or 4975 of the Code, and there shall result from any such event
or events the imposition of a Lien upon the assets of a Borrower or any of its
Subsidiaries, the granting of a security interest, or a liability or a material
risk of incurring a liability to the PBGC or a Plan or a trustee appointed under
ERISA or a penalty under Section 4971 of the Code, which lien, security
interest, liability or penalty, singly or in the aggregate exceeds $1,000,000;
or
9.08 Warehouse Security Agreement. The Warehouse Security Agreement or
any provision thereof shall cease to be in full force and effect, or shall cease
to give the Lender the Liens, rights, powers and privileges purported to be
created thereby, or a Borrower shall default in the due performance or
observance of any term, covenant or agreement on its part to be performed or
observed pursuant to the Warehouse Security Agreement; or
9.09 [Intentionally Omitted]
9.10 [Intentionally Omitted]
9.11 Judgments. One or more judgments or decrees shall be entered
against the Borrower or any of its Subsidiaries involving in the aggregate for
the Borrower and its Subsidiaries a liability (not paid or fully covered by
insurance) of $5,000,000 or more, and all such judgments or decrees shall not
have been vacated, discharged or stayed or bonded pending appeal within 30 days
after the entry thereof; or
9.12 [Intentionally Omitted]
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Lender may, by written notice to the Borrowers,
take any or all of the following actions, without prejudice to the rights of the
Lender or the holder of the Note to enforce its claims against the Borrowers
(provided, that, if an Event of Default specified in Section 9.06 shall occur
with respect to a Borrower, the result which would occur upon the giving of
written notice by the Lender to the Borrower as specified in clauses (i) and
(ii) below shall occur automatically without the
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giving of any such notice): (i) declare the Commitment terminated, whereupon the
Commitment of the Lender shall forthwith terminate immediately and any Fees
shall forthwith become due and payable without any other notice of any kind; and
(ii) declare the principal of and any accrued interest in respect of all
Advances and all Obligations to be, whereupon the same shall become, forthwith
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrowers.
9.13 Default Not a Condition of a 120-Day Demand. Notwithstanding any of
the other terms of this Agreement, including, without limitation, the preceding
provisions of this Section 9, the Lender shall have the right to demand payment
of the outstanding Advances at any time, upon 120 days' prior written notice to
the Borrowers, whether or not any Default or Event of Default exists or the
Expiry Date has occurred.
Section 10. Miscellaneous.
10.01 Payment of Expenses; Indemnity. (a) Whether or not the
transactions contemplated hereby are consummated, the Borrowers agree to pay on
demand all reasonable costs and expenses in connection with the preparation,
execution, delivery, modification, amendment, administration and monitoring of
the Credit Documents and the other documents to be delivered thereunder
(including the costs in respect of the perfection and maintenance of the
security interests created by the Credit Documents and conducting due diligence
with respect to the Borrowers and their business) including, without limitation,
the fees and out-of-pocket expenses of counsel for the Lender, and of local
counsel who may be retained by the Lender, with respect thereto and with respect
to advising the Lender as to its rights and remedies under the Credit Documents,
and including all reasonable costs and expenses in connection with the servicing
and liquidation of the Collateral. The Borrowers further agree to pay on demand
all costs and expenses, if any (including, without limitation, reasonable
counsel fees and expenses), in connection with the enforcement (whether through
negotiations, workout, legal proceedings or otherwise) of the Credit Documents
and the other documents to be delivered thereunder, including, without
limitation, reasonable counsel fees and expenses in connection with the
enforcement of rights under this Section 10.01(a).
(b) Without limiting any other rights which the Lender, or any Affiliate
thereof, as well as their respective directors, officers, employees and agents
(each, an "Indemnified Party") may have hereunder or under applicable law, the
Borrowers hereby agree to indemnify each Indemnified Party from and against any
and all claims, losses, damages, expenses and liabilities (including reasonable
attorneys' fees) (all of the foregoing being collectively referred to as
"Indemnified Amounts") arising out of, relating to or resulting from this
Agreement, any other Credit Document, any Mortgage Loan or other Collateral or
the use of any proceeds of Advances, excluding, however, Indemnified Amounts to
the extent resulting from gross negligence or willful misconduct (as determined
by a final judgment of a court of competent jurisdiction) on the part of such
Indemnified Party or any Affiliate of such Indemnified Party which directly or
indirectly controls, is controlled by or is under common control with such
Indemnified Party or is a director or officer of such Indemnified Party or of an
Affiliate of such Indemnified Party. Without limiting or being limited by the
foregoing, the Borrowers shall pay on demand to each Indemnified Party any and
all amounts necessary to indemnify such Indemnified Party from and against any
and all Indemnified Amounts relating to or resulting from:
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(i) the making of an Advance secured by a pledge of a
Mortgage Loan which is not at the date of the creation of such
security interest an Eligible Mortgage Loan or which thereafter
ceases to be an Eligible Mortgage Loan;
(ii) reliance on any representation or warranty or
statement made or deemed made by a Borrower (or any of its
officers) under or in connection with any Credit Document which
shall have been incorrect when made;
(iii) the failure by a Borrower to comply with any
applicable law, rule or regulation with respect to any
Collateral, or the nonconformity of any Collateral with any such
applicable law, rule or regulation;
(iv) the failure to vest in the Lender under the Warehouse
Security Agreement a valid first priority security interest in
the Mortgage Loans and the other Collateral, except as otherwise
permitted by this Agreement;
(v) the failure to have filed, or any delay in filing,
financing statements or other similar instruments or documents
under the UCC of any applicable jurisdiction or other applicable
laws with respect to any Collateral, whether at the time of any
Advance or at any subsequent time;
(vi) any investigation, litigation or proceeding related
to this Agreement or any other Credit Document or the use of
proceeds of Advances or in respect of any Mortgage Loan or other
Collateral;
(vii) the loss, misplacement or destruction of any
cashier's check issued by the Lender in respect of any Advance
after receipt of such check by the closing agent, escrow agent,
title company, attorney or any other authorized party identified
in the Request for Advance relating to such Advance, it being
understood and agreed that, notwithstanding the indemnity under
this Section 10.01(b)(vii) or any such loss, misplacement or
destruction, the funds represented by any such lost, misplaced or
destroyed cashier's check shall constitute an Advance hereunder;
(viii) the making of any wire transfer to an incorrect
account or in an incorrect amount in accordance with instructions
received from a Borrower, it being understood and agreed that,
notwithstanding the indemnity under this Section 10.01(b)(viii),
the funds represented by any such wire shall constitute an
Advance hereunder.
10.02 Notices. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, telecopier or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered: if to a Borrower or the
Lender, at its address specified opposite its signature below, or at such other
address as shall be designated by such party in a written notice to the other
party hereto. All such notices and communications shall, when mailed,
telegraphed, telecopied or sent by overnight courier, be effective
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when deposited in the mails, delivered to the telegraph company or overnight
courier, as the case may be, or sent by telecopier, except that notices and
communications given to the Lender pursuant to Section 2 and Section 4 shall not
be effective until received by the Lender.
10.03 Benefit of Agreement. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided, however, that no Borrower may assign or
transfer any of its rights or obligations hereunder without the prior written
consent of the Lender. The Lender may at any time assign any of its rights and
obligations hereunder or under the Note.
10.04 No Waiver; Remedies Cumulative. No failure or delay on the part of
the Lender or the holder of the Note in exercising any right, power or privilege
hereunder or under any other Credit Document and no course of dealing between
the Borrowers and the Lender or the holder of the Note shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or under any other Credit Document preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder. The rights, powers and remedies herein or in any other
Credit Document expressly provided are cumulative and not exclusive of any
rights, powers or remedies which the Lender or the holder of the Note would
otherwise have. No notice to or demand on the Borrowers in any case shall
entitle the Borrowers to any other or further notice or demand in similar or
other circumstances or constitute a waiver of the rights of the Lender or the
holder of the Note to any other or further action in any circumstances without
notice or demand.
10.05 Calculations; Computations. (a) The financial statements to be
furnished to the Lender pursuant hereto shall be made and prepared in accordance
with generally accepted accounting principles in the United States consistently
applied throughout the periods involved (except as set forth in the notes
thereto or as otherwise disclosed in writing by the Borrowers to the Lender);
provided that, except as otherwise specifically provided herein, all
computations determining compliance with Section 8 shall utilize accounting
principles and policies in conformity with those used to prepare the historical
financial statements referred to in Section 6.05(a).
(b) All computations of interest and the Fees hereunder shall be made on
the basis of a year of 360 days for the actual number of days occurring in the
period for which such interest or fees are payable.
10.06 Governing Law; Submission to Jurisdiction; Venue. (a) This
Agreement and the other Credit Documents and the rights and obligations of the
parties hereunder and thereunder shall be construed in accordance with and be
governed by the law of the State of New York without regard to principles of
conflicts of laws. Any legal action or proceeding against the Borrowers with
respect to this Agreement or any other Credit Document may be brought in the
courts of the State of New Jersey located in Camden County or in the United
States Federal courts located in Camden County, and, by execution and delivery
of this Agreement, each Borrower hereby irrevocably accepts for itself and in
respect of its property, generally and unconditionally, the jurisdiction of the
aforesaid courts.
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(b) Each Borrower hereby irrevocably waives any objection which it may
now or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement or any other
Credit Document brought in the courts referred to in clause (a) above and hereby
further irrevocably waives and agrees not to plead or claim in any such court
that any such action or proceeding brought in any such court has been brought in
an inconvenient forum.
10.07 No Proceedings. Each Borrower hereby covenants and agrees that,
prior to the date which is one year and one day after the payment in full of all
outstanding indebtedness hereunder, it will not institute against, or join any
other Person in instituting against the Lender, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceeding or other similar proceeding
under the laws of the United States or any state of the United States.
10.08 Participation and Syndication. Notwithstanding any other provision
of this Agreement, the Lender may at any time and from time to time enter into
participation agreements or syndication agreements with one or more
participating financial institutions whereby the Lender will allocate certain
percentages of the Commitment to them. Each Borrower acknowledges that, for the
convenience of all parties, this Agreement is being entered into with the Lender
only and that its obligations under this Agreement are undertaken for the
benefit of, and as an inducement to, any such financial institution as well as
the Lender. Each Borrower agrees to cooperate with the Lender and any such
participating financial institution in effectuating such a participation or
syndication and shall, upon the request of the Lender, execute a replacement
note or notes and such other documents or instruments as may be reasonably
necessary to evidence the debtor-creditor relationship between the Borrower and
such participating financial institution. Each Borrower hereby grants to each
participating financial institution, to the extent of its participation in the
Commitment, the right to set off deposit accounts maintained by the Borrower
with such financial institution. The Borrowers shall pay all costs and expenses
(including, without limitation, reasonable counsel fees and expenses incurred by
the Lender and the participating financial institutions) in connection with
effectuating such a participation or syndication.
10.09 Obligation to Make Payments in Dollars. All payments of the
principal and interest on the Note and any other amounts due hereunder or under
any other Credit Document shall be made in Dollars.
10.10 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrowers and the
Lender.
10.11 Effectiveness. This Agreement shall become effective on the date
(the "Effective Date") on which the Borrowers and the Lender shall have signed a
copy hereof (whether the same or different copies) and shall have delivered the
same to the Lender at its Office.
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10.12 Headings Descriptive. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
10.13 Amendment or Waiver. Neither this Agreement nor any other Credit
Document nor any terms hereof or thereof may be changed, waived, discharged or
terminated unless such change, waiver, discharge or termination is in writing
signed by the Lender.
10.14 Survival. All indemnities set forth herein including, without
limitation, in Sections 2.08, 4.06 and 10.01 shall survive the execution and
delivery of this Agreement and the Note and the making and repayment of the
Advances.
10.15 Waiver of Jury Trial. THE LENDER AND EACH BORROWER EACH HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT EACH OF THEM MAY HAVE
TO A TRIAL BY JURY OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE NOTE AND
ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS
OF ANY PARTY RELATING HERETO OR THERETO. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR THE LENDER TO ENTER INTO THIS AGREEMENT.
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IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Agreement as of the date first above
written.
Address: IMC MORTGAGE COMPANY
3450 Buschwood Park Drive, Suite 250
Tampa, FL 33618
Facsimile No.: (813) 933-6023 By________________________
Title:
Address: INDUSTRY MORTGAGE COMPANY, L.P.
3450 Buschwood Park Drive, Suite 250
Tampa, FL 33618 By: INDUSTRY MORTGAGE CORPORATION,
Facsimile No.: (813) 933-6023 GENERAL PARTNER
By________________________
Title:
Three Executive Campus GE CAPITAL MORTGAGE SERVICES, INC.
Cherry Hill, New Jersey 08002
Attn.: James C. Zollo
Facsimile No.: 609-661-7528 By________________________
Title:
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CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated May 21, 1996, except for Note 1 and the 24th and 25th
paragraphs of Note 4, as to which the date is June 24, 1996, and except for
the last paragraph of Note 15, as to which the date is February 13, 1997, on our
audit of the consolidated financial statements of IMC Mortgage Company and
Subsidiaries. We also consent to the reference to our firm under the captions
'Summary Consolidated Financial Data,' 'Selected Consolidated Financial Data,'
and 'Experts.'
/s/ Coopers & Lybrand L.L.P.
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COOPERS & LYBRAND L.L.P.
Tampa, Florida
February 13, 1997
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