<PAGE> 1
SECURITIES EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Act of
- --- 1934 for the quarterly period ended June 30, 1998.
- --- Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission file No. 333-3954
-----------
IMC MORTGAGE COMPANY
(Exact name of issuer as specified in its Charter)
Florida 59-3350574
---------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
5901 E. FOWLER AVENUE
TAMPA, FLORIDA 33617
(Address of Principal Executive Offices)
Issuer's telephone number, including area code: (813) 984-8801
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing for the past 90 days. Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Title of each Class: Outstanding at August 7, 1998
- -------------------------------------- -----------------------------
Common Stock, par value $.01 per share 30,835,496
<PAGE> 2
IMC MORTGAGE COMPANY AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1998 and December 31, 1997 1
Consolidated Statements of Operations
for the three months and the six months
ended June 30, 1998 and June 30, 1997 2
Consolidated Statements of Cash Flows
for the six months ended June 30, 1998
and June 30, 1997 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 26
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
<PAGE> 4
IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 8,690 $ 26,750
Securities purchased under agreements to resell 995,483 772,586
Accrued interest receivable 23,681 29,272
Accounts receivable 27,465 21,349
Mortgage loans held for sale, net 1,717,727 1,673,144
Interest-only and residual certificates 445,577 223,306
Warehouse financing due from correspondents 15,879 25,913
Property, furniture, fixtures and equipment, net 16,586 14,884
Capitalized mortgage servicing rights 51,863 34,954
Goodwill 91,151 91,963
Other assets 47,320 31,811
---------- ----------
Total assets $3,441,422 $2,945,932
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Warehouse finance facilities $1,813,870 $1,732,609
Term debt 279,390 130,480
Accrued and other liabilities 32,115 31,665
Accrued interest payable 12,506 10,857
Securities sold but not yet purchased 997,986 775,324
Deferred tax liability 19,200 10,933
---------- ----------
Total liabilities 3,155,067 2,691,868
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share; 10,000,000
shares authorized; none issued and outstanding 0 0
Common stock, par value $.01 per share; 50,000,000
authorized; 30,825,934 and 30,710,790 shares
issued and outstanding 308 307
Additional paid-in capital 194,035 193,178
Retained earnings 92,012 60,579
---------- ----------
Total stockholders' equity 286,355 254,064
---------- ----------
Total liabilities and stockholders' equity $3,441,422 $2,945,932
========== ==========
</TABLE>
See accompanying notes to Consolidated Financial Statements
1
<PAGE> 5
IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------------- ------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Gain on sales of loans $ 71,159 $ 32,232 $ 131,139 $ 59,951
------------ ------------ ---------- ----------
Warehouse interest income 38,985 32,309 80,220 53,018
Warehouse interest expense (32,944) (23,107) (66,438) (37,863)
------------ ------------ ---------- ----------
Net warehouse interest income 6,041 9,202 13,782 15,155
------------ ------------ ---------- ----------
Servicing fees 10,666 3,808 19,677 6,849
Other 9,436 4,531 16,575 6,239
------------ ------------ ---------- ----------
Total servicing fees and other 20,102 8,339 36,252 13,088
------------ ------------ ---------- ----------
Total revenues 97,302 49,773 181,173 88,194
------------ ------------ ---------- ----------
Expenses:
Compensation and benefits 33,421 16,258 61,859 28,585
Selling, general and administrative 30,870 13,184 55,809 22,776
Other interest expense 5,283 3,119 10,173 4,982
------------ ------------ ---------- ----------
Total expenses 69,574 32,561 127,841 56,343
------------ ------------ ---------- ----------
Income before provision for income taxes 27,728 17,212 53,332 31,851
Provision for income taxes 11,400 6,500 21,900 12,200
------------ ------------ ---------- ----------
Net income $ 16,328 $ 10,712 $ 31,432 $ 19,651
============ ============ ========== ==========
Net income per common share:
Basic $ 0.53 $ 0.41 $ 1.02 $ 0.82
============ ============ ========== ==========
Diluted $ 0.47 $ 0.36 $ 0.90 $ 0.70
============ ============ ========== ==========
Weighted average number of shares outstanding:
Basic 30,799,173 26,202,855 30,775,154 24,087,750
Diluted 35,043,008 29,804,982 34,828,065 27,996,771
</TABLE>
See accompanying notes to Consolidated Financial Statements
2
<PAGE> 6
IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 31,432 $ 19,651
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 11,344 2,909
Deferred taxes 8,267 (280)
Capitalized mortgage servicing rights (24,591) (10,513)
Net loss on joint venture 1,512 667
Net change in operating assets and liabilities, net of effects of
acquisitions of businesses:
Increase in mortgage loans held for sale (44,583) (614,806)
(Increase) descrease in securities purchased under agreement
to resell and securities sold but not yet purchased (235) 1,243
Decrease (increase) in accrued interest receivable 5,591 (6,837)
Decrease (increase) in warehousing financing due
from correspondents 10,034 (13,706)
Increase in interest-only and residual certificates (222,271) (120,325)
Increase in other assets (14,741) (1,589)
Increase in accounts receivable (6,116) (6,712)
Increase in accrued interest payable 1,649 3,074
Increase in accounts payable and accrued liabilities 528 6,985
--------- ---------
Net cash used in operating activities (242,180) (740,239)
--------- ---------
Investing activities:
Investment in joint venture (2,280) (565)
Purchase of property, furniture, fixtures, and equipment (3,362) (6,531)
Acquisitions of businesses --- (10,337)
Other (415) ---
--------- ---------
Net cash used in investing activities (6,057) (17,433)
--------- ---------
Financing activities:
Issuance of common stock 6 58,709
Warehouse finance facilities borrowings, net 81,261 625,651
Term debt and notes payable borrowings 306,016 99,651
Term debt and notes payable repayments (157,106) (19,901)
--------- ---------
Net cash provided by financing activities 230,177 764,110
--------- ---------
Net (decrease) increase in cash and cash equivalents (18,060) 6,438
Cash and cash equivalents, beginning of period 26,750 13,289
--------- ---------
Cash and cash equivalents, end of period $ 8,690 $ 19,727
========= =========
Supplemental disclosure cash flow information:
Cash paid during the period for interest $ 74,961 $ 41,028
========= =========
Cash paid during the period for taxes $ 3,210 $ 14,625
========= =========
</TABLE>
See accompanying notes to Consolidated Financial Statements
3
<PAGE> 7
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION:
IMC Mortgage Company and its wholly-owned subsidiaries (the "Company")
purchase and originate mortgage loans made to borrowers who may not
otherwise qualify for conventional loans for the purpose of
securitization and sale. The Company typically securitizes these
mortgages into the form of a Real Estate Mortgage Investment Conduit
("REMIC") or an owner trust. A significant portion of the mortgages are
sold on a servicing retained basis.
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All intercompany
transactions have been eliminated in the accompanying consolidated
financial statements.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the interim periods are not necessarily
indicative of financial results for the full year. These unaudited
condensed consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997. The year-end balance sheet data was derived from
audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
Certain reclassifications have been made to the presentations to
conform to current period presentations.
2. RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133")
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
is effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999 (January 1, 2000 for the Company). SFAS 133 requires that
all derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period
in current earnings or other comprehensive income, depending on whether a
derivative was designated as part of a hedge transaction and, if it is,
the type of hedge transaction. For fair-value hedge transactions in which
the Company is hedging changes in an asset's, liability's, or firm
commitment's fair value, changes in the fair value of the derivative
instrument will generally be offset in the income statement by changes in
the hedged item's fair value. The ineffective portion of hedges will be
recognized in current-period earnings.
4
<PAGE> 8
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
SFAS 133 precludes designation of a nonderivative financial instrument as
a hedge of an asset or liability. The Company currently hedges its
interest rate risk on loan purchases by selling short United States
Treasury securities which match the duration of the fixed rate mortgage
loans held for sale and borrows the securities under agreements to resell.
The unrealized gain or loss resulting from the change in fair value of
these instruments is deferred and recognized upon securitization as an
adjustment to the carrying value of the hedged mortgage loans. SFAS 133
requires the gain or loss on these nonderivative financial instruments to
be recognized in earnings in the period of change in fair value without a
corresponding adjustment of the carrying amount of mortgage loans held for
sale. Management anticipates that it may change the financial instruments
used to hedge the Company's interest rate risk on loan purchases to
include derivative financial instruments which will qualify for hedge
accounting under the provisions of SFAS 133 and thus more appropriately
reflect the economics of its hedging and risk management activities in the
financial statements of the Company.
The actual effect implementation of SFAS 133 will have on the Company's
financial condition and results of operations will depend on various
factors determined at the period of adoption, including the type of
financial instrument used to hedge the Company's interest rate risk on
loan purchases, whether such instruments qualify for hedge accounting
treatment, the effectiveness of the hedging instrument, the amount of
mortgage loans held for sale which the Company intends to hedge, and the
level of interest rates. Accordingly, the Company can not determine at the
present time the impact adoption of SFAS 133 will have on its statement of
operations or balance sheet.
3. EARNINGS PER SHARE:
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128 "Earnings per Share" ("SFAS 128"), which became effective for the
Company for reporting periods ending after December 15, 1997. Under the
provisions of SFAS 128, basic earnings per share is determined by
dividing net income, adjusted for preferred stock dividends, by weighted
average shares outstanding. Diluted earnings per share, as defined by
SFAS No. 128, is computed assuming all dilutive potential common shares
were issued. All prior period earnings per share data has been restated
in accordance with the provisions of SFAS 128.
Weighted average number of shares outstanding are as follows for the
three and six months ended June 30, 1998 and 1997:
5
<PAGE> 9
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDTED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted average common shares outstanding........... 30,799,173 26,202,855 30,775,154 24,087,750
Adjustments for dilutive securities:
Stock warrants................................... 2,160,000 2,296,484 2,160,000 2,497,127
Stock options.................................... 1,154,748 1,272,648 1,006,468 1,385,288
Contingent shares................................ 929,087 32,995 886,443 26,606
---------- ---------- ---------- -----------
Diluted common shares................................ 35,043,008 29,804,982 34,828,065 27,996,771
========== ========== ========== ===========
</TABLE>
4. WAREHOUSE FINANCE FACILITIES, TERM DEBT AND NOTES PAYABLE:
The Company has available numerous warehouse lines of credit at June
30, 1998 totaling approximately $4.03 billion ($3.04 billion at December
31, 1997) of which at June 30, 1998 approximately $1.81 billion was
outstanding ($1.73 billion at December 31, 1997). Outstanding borrowings
under warehouse finance facilities are collateralized by mortgage loans
held for sale, warehouse financing due from correspondents and servicing
rights on approximately $250 million of mortgage loans. Upon the sale of
these loans and repayment of warehouse financing due from correspondents,
the borrowings under these lines will be repaid.
The Company also has available term debt and notes payable at June
30, 1998 totaling approximately $470.6 million ($315.7 million at
December 31, 1997) of which at June 30, 1998 approximately $279.4 million
was outstanding ($130.5 million at December 31, 1997).
5. SUBSEQUENT EVENT:
On July 14, 1998, Travelers Casualty and Surety Company and Greenwich
Street Capital Partners II, L.P. (together, the "Purchasers") purchased
$50 million of the Company's Series A convertible preferred stock. The
Series A preferred stock is convertible to non-registered common stock at
$10.44 per share. The Series A preferred stock bears no dividend and is
redeemable by the Company over a three-year period commencing in ten
years if not previously converted. As part of the preferred stock
purchase agreement, the Company shall use its best efforts to cause two
persons designated by the Purchasers to be elected to the Company's board
of directors at each annual meeting of stockholders.
The Purchasers were also granted an option to purchase, within the next
three years, an additional $30 million of Series B preferred stock at par
with a conversion price into common stock of $22.50.
6
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the consolidated
financial statements and notes included in Item 1 of this Quarterly Report, and
the financial statements and the notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1997. 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 important factors such as reduced demand for
non-conforming loans, competitive forces, prepayment speeds, delinquency and
default rates, rapid fluctuations in interest rates, lower than expected
performance by acquired companies, limitations on available funds, market forces
affecting the price of the Company's shares and other risks identified in the
Company's Securities and Exchange Commission filings. In addition, it should be
noted that past financial and operational performance of the Company is not
necessarily indicative of future financial and operational performance.
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 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 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.
In 1996, the Company acquired Mortgage Central Corp., a non-conforming lender
which did business under the name "Equitystars". In 1997, the Company acquired
eight non-conforming mortgage lenders: Mortgage America, Inc., Equity Mortgage
Co., Inc., CoreWest Banc, American Mortgage Reduction, Inc., National Lending
Center, Inc. ("National Lending Center"), Central Money Mortgage Co., Inc.
("Central Money Mortgage"), Residential Mortgage Corporation, and Alternative
Capital Group, Inc. ("Alternative Capital Group"). These acquisitions were
accounted for using the purchase method of accounting and the results of
operations have been included with the Company's results of operations since the
effective acquisition dates.
7
<PAGE> 11
RESULTS OF OPERATIONS
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997.
Net income for the three months ended June 30, 1998 was $16.3 million
representing an increase of $5.6 million or 52.4% over net income of $10.7
million for the three months ended June 30, 1997. The increase in net income
resulted principally from an increase in gain on sale of loans of $38.9 million
or 120.8% to $71.2 million for the three months ended June 30, 1998 from $32.2
million for the three months ended June 30, 1997. Offsetting the increase in net
income was a $3.2 million or 34.4% decrease in net warehouse interest income to
$6.0 million for the three months ended June 30, 1998 from $9.2 million for the
three months ended June 30, 1997. Contributing to the increase in net income was
a $6.9 million or 180.1% increase in servicing fees to $10.7 million for the
three months ended June 30, 1998 from $3.8 million for the three months ended
June 30, 1997, and a $4.9 million or 108.3% increase in other revenues to $9.4
million for the three months ended June 30, 1998 from $4.5 million for the three
months ended June 30, 1997.
The increase in income was partially offset by a $17.2 million or 105.6%
increase in compensation and benefits to $33.4 million for the three months
ended June 30, 1998 from $16.3 million for the three months ended June 30, 1997,
of which increase $6.7 million related to the compensation and benefits related
to the acquisitions of National Lending Center, Central Money Mortgage,
Residential Mortgage Corporation and Alternative Capital Group (which occurred
during the six months ended December 31, 1997) and the remainder related
primarily to the growth of the Company. The increase in income was also
partially offset by a $17.7 million or 134.1% increase in selling, general and
administrative expenses to $30.9 million for the three months ended June 30,
1998 from $13.2 million for the three months ended June 30, 1997, of which
increase of $3.0 million related to the acquisitions of National Lending Center,
Central Money Mortgage, Residential Mortgage Corporation and Alternative Capital
Group, which occurred during the six months ended December 31, 1997 and the
remainder related primarily to the growth of the Company. The increase in income
was further offset by a $2.2 million or 69.4% increase in other interest expense
to $5.3 million for the three months ended June 30, 1998, from $3.1 million for
the three months ended June 30, 1997.
Income before taxes was reduced by a provision for income taxes of $11.4 million
for the three months ended June 30, 1998 compared to a provision for income
taxes of $6.5 million for the three months ended June 30, 1997, representing an
effective tax rate of approximately 41%.
REVENUES
The following table sets forth information regarding components of the Company's
revenues for the three months ended June 30, 1998 and 1997:
8
<PAGE> 12
<TABLE>
<CAPTION>
For the Three Months
Ended June 30,
-------------------------------
1998 (in thousands) 1997
---- ----
<S> <C> <C>
Gain on sales of loans $ 71,159 $ 32,232
---------- ----------
Warehouse interest income 38,985 32,309
Warehouse interest expense (32,944) (23,107)
---------- ----------
Net warehouse interest income 6,041 9,202
---------- ----------
Servicing fees 10,666 3,808
Other 9,436 4,531
---------- ----------
Total revenues $ 97,302 $ 49,773
========== ==========
</TABLE>
Gain on Sales of Loans. For the three months ended June 30, 1998, gain on sales
of loans increased to $71.2 million from $32.2 million for the three months
ended June 30, 1997, an increase of 120.8%, reflecting increased loan production
and securitizations for the three months ended June 30, 1998. The total volume
of loans produced increased to approximately $1.9 billion for the three months
ended June 30, 1998 as compared with a total volume of approximately $1.4
billion for the three months ended June 30, 1997. Originations by the Company's
correspondent network increased to approximately $1.3 billion for the three
months ended June 30, 1998 from approximately $1.1 billion for the three months
ended June 30, 1997, while production from the Company's broker network and
direct lending operations increased to approximately $620 million for the three
months ended June 30, 1998 from approximately $290 million for the three months
ended June 30, 1997. Production volume increased during the 1998 period due to:
(i) the Company's expansion program; (ii) the increase of its securitization
activity; (iii) the growth of its loan servicing capability; and (iv) the
acquisitions of National Lending Center, Central Money Mortgage, Residential
Mortgage Corporation and Alternative Capital Group during the last six months of
1997, which accounted for approximately $260 million in residential mortgage
loans originated during the three months ended June 30, 1998. Mortgage loans
sold and delivered to securitization trusts increased by $800.0 million, an
increase of 100.0%, to $1.6 billion for the three months ended June 30, 1998
from $800.0 million for the three months ended June 30, 1997.
For securitizations of mortgage loans, the gain on the sale of loans represents
the present value of the differential (spread) between (i) interest earned on
the portion of the loans sold and (ii) interest paid to investors with related
costs over the expected life of the loans, including expected losses,
foreclosure expenses and a normal servicing fee. The spread is adjusted for
estimated prepayments. The Company utilizes assumed prepayment and loss curves
which the Company believes will approximate the timing of prepayments and losses
over the life of the securitized loans. During the three months ended June 30,
1998, prepayment assumptions used to calculate the gain on sales of securitized
loans reflect the Company's expectation that prepayments on fixed rate loans
will gradually increase from a constant prepayment rate ("CPR") of 4% to 28% in
the first year of the loan and remain at 28% thereafter and expected prepayments
on adjustable rate loans will gradually increase from a CPR of 4% to 35% in the
first year of the loan and remain at 35% thereafter. During the three months
ended June 30, 1997, the maximum CPR used to compute gain on sales of fixed
9
<PAGE> 13
and adjustable rate securitized loans was 27% and 30%, respectively. The CPR
measures the annualized percentage of mortgage loans which prepay during a given
period. The CPR represents the annual prepayment rate such that, in the absence
of regular amortization, the total prepayment over the year would equal that
percent of the original principal balance of the mortgage loan.
During the three months ended June 30, 1998, the loss assumption used to
calculate the gain on sales of securitized loans reflects the Company's
expectations that losses from defaults will gradually increase from zero in the
first six months of securitization to 100 basis points after 36 months. During
the three months ended June 30, 1997, the assumed loss rate used to calculate
gain on sales of securitized loans was 50 basis points per year. The loss curve
utilized by the Company during the three months ended June 30, 1998 approximates
a loss rate of approximately 65 basis points per year at inception of the
securitization.
The gain on sales of loans as a percentage of loans sold and securitized
approximated 3.7% for the three months ended June 30, 1998 compared to 3.8% for
the three months ended June 30, 1997. Upfront points and origination fees
related to retail loan production recognized as gain on sale at the time the
loan is sold approximated $2.2 million for the three months ended June 30, 1997
and $8.2 million for the three months ended June 30, 1998.
Net Warehouse Interest Income. Net warehouse interest income decreased to $6.0
million for the three months ended June 30, 1998 from $9.2 million for the three
months ended June 30, 1997, a decrease of 34.4%. The decrease in the three month
period ended June 30, 1998 reflected an increase in the securitization of
adjustable rate mortgage loans and the subsequent delivery of mortgage loans
into securitization trusts. In a fixed rate mortgage loan securitization
transaction, the Company receives the pass-through rate of interest on the loans
conveyed to the securitization trust for the period between the cut-off date
(generally the first day of the month a securitization transaction occurs) and
the closing date of the securitization transaction (typically during the third
or fourth week of the month). The cut-off date represents the date when interest
on the mortgage loans accrues to the securitization trust rather than the
Company. The pass-through rate, which is less than the weighted average interest
rate on the mortgage loans, represents the interest rate to be received by
investors who purchase pass-through certificates in the securitization trust on
the closing date. The Company continues to incur interest expense on its
warehouse financings related to loans conveyed to the trust until the closing
date, at which time the warehouse line is repaid. In an adjustable rate mortgage
loan securitization, the Company receives no interest on mortgage loans conveyed
to the securitization trust for the period between the cut-off date and the
closing date of the securitization. For the three months ended June 30, 1998 and
1997, the Company incurred warehouse interest expense of approximately $2.4
million and $0, respectively, related to the period between the cut-off date and
the closing date of adjustable rate mortgage rate mortgage loan securitizations
for which no corresponding interest income was recognized.
The Company from time to time will elect not to deliver the entire amount of
mortgage loans to a securitization trust at the closing date. The remaining
mortgage loans (the "subsequent loans") are delivered at a later date, usually
within 90 days of the closing date. The Company continues to incur interest on
warehouse financings related to subsequent loans until the loans are delivered
to the
10
<PAGE> 14
securitization trust. However, the Company receives no interest income from the
subsequent loans generally from the first day of the month the subsequent loans
are delivered until the date the subsequent loans are conveyed to the
securitization trust. Subsequent loans delivered into securitization trusts
approximated $270 million and $94 million for the three months ended June 30,
1998 and 1997. The Company incurred approximately $1.3 million and $195,000 of
warehouse interest expense related to these loans for the three months ended
June 30, 1998 and 1997.
The decrease in net warehouse interest income was partially offset by a decrease
in the cost of funds and increased mortgage loan production.
Servicing Fees. Servicing fees increased to $10.7 million for the three months
ended June 30, 1998 from $3.8 million for the three months ended June 30, 1997,
an increase of 180.1%. Servicing fees for the three months ended June 30, 1998
were positively affected by an increase in mortgage loans serviced over the
prior period. The Company increased its servicing portfolio by $5.4 billion or
132.7% to $9.4 billion as of June 30, 1998 from $4.0 billion as of June 30,
1997.
Other. Other revenues, consisting principally of the recognition of the increase
or accretion of the discounted value of interest-only and residual certificates
over time, increased to $9.4 million or 108.3% for the three months ended June
30, 1998 from $4.5 million in three months ended June 30, 1997 as a result of
increased securitization volume and increased investment in interest-only and
residual certificates.
EXPENSES
The following table sets forth information regarding components of the Company's
expenses for the three months ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
For the Three Months
Ended June 30,
-------------------------------
1998 (in thousands) 1997
---- ----
<S> <C> <C>
Compensation and benefits $ 33,421 $ 16,258
Selling, general and administrative 30,870 13,184
Other interest expense 5,283 3,119
----------- ------------
Total expenses $ 69,574 $ 32,561
=========== ============
</TABLE>
Compensation and benefits increased by $17.2 million or 105.6% to $33.4 million
for the three months ended June 30, 1998 from $16.3 million for the three months
ended June 30, 1997, principally due to an increase in the number of employees
related to the Company's increased mortgage loan production, including $6.7
million of compensation and benefits relating to the acquisitions of National
Lending Center, Central Money Mortgage, Residential Mortgage Corporation and
Alternative Capital Group (which occurred during the six months ended December
31, 1997), additions of personnel to service the Company's increased loan
servicing portfolio and a $1.1 million increase in executive and management
incentive compensation from $0.75 million for the three months ended June 30,
1997 to $1.8 million for the three months ended June 30, 1998. It is anticipated
that the Company's
11
<PAGE> 15
compensation and benefits will increase as the Company expands; however, the
amount of executive bonuses is directly related to increases in the Company's
earnings per share.
Selling, general and administrative expenses increased by $17.7 million or
134.1% to $30.9 million for the three months ended June 30, 1998 from $13.2
million for the three months ended June 30, 1997 principally due to an increase
in underwriting, originating and servicing costs as a result of an increase in
the volume of mortgage loan production, including $3.0 million relating to the
acquisitions of National Lending Center, Central Money Mortgage, Residential
Mortgage Corporation and Alternative Capital Group (which occurred during the
six months ended December 31, 1997), an increase in the provision for loan
losses of $6.4 million and an increase in amortization expense related to
capitalized mortgage servicing rights of $3.3 million.
Other interest expense increased by $2.2 million or 69.4% to $5.3 million for
the three months ended June 30, 1998 from $3.1 million for the three months
ended June 30, 1997 principally as a result of increased term debt and notes
payable borrowings.
Income Taxes. The effective income tax rate for the three months ended June 30,
1998 was approximately 41%, which differed from the federal tax rate of 35%
primarily due to state income taxes and the non-deductibility for tax purposes
of amortization expense related to goodwill recognized for certain acquisitions.
The increase in the provision for income taxes of $4.9 million or 75.4% to $11.4
million for the three months ended June 30, 1998 from the provision for income
taxes of $6.5 million for the three months ended June 30, 1997 was proportionate
to the increase in pre-tax income and amortization expense related to goodwill.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997.
Net income for the six months ended June 30, 1998 was $31.4 million representing
an increase of $11.8 million or 60.0% over net income of $19.7 million for the
six months ended June 30, 1997. The increase in net income resulted principally
from an increase in gain on sale of loans of $71.2 million or 118.7% to $131.1
million for the six months ended June 30, 1998 from $60.0 million for the six
months ended June 30, 1997. Offsetting the increase in net income was a $1.4
million or 9.1% decrease in net warehouse interest income to $13.8 million for
the six months ended June 30, 1998 from $15.2 million for the six months ended
June 30, 1997. Contributing to the increase in net income was a $12.8 million or
187.3% increase in servicing fees to $19.7 million for the six months ended June
30, 1998 from $6.8 million for the six months ended June 30, 1997, and a $10.3
million or 165.7% increase in other revenues to $16.6 million for the six months
ended June 30, 1998 from $6.2 million for the six months ended June 30, 1997.
The increase in income was partially offset by a $33.3 million or 116.4%
increase in compensation and benefits to $61.9 million for the six months ended
June 30, 1998 from $28.6 million for the six months ended June 30, 1997, of
which increase $12.5 million related to the compensation and benefits related to
the acquisitions of National Lending Center, Central Money Mortgage, Residential
Mortgage Corporation and Alternative Capital Group (which occurred during the
six months ended December 31, 1997) and the remainder related primarily to the
growth of the Company. The increase in income
12
<PAGE> 16
was also partially offset by a $33.0 million or 145.0% increase in selling,
general and administrative expenses to $55.8 million for the six months ended
June 30, 1998 from $22.8 million for the six months ended June 30, 1997, of
which increase of $5.0 million related to the acquisitions of National Lending
Center, Central Money Mortgage, Residential Mortgage Corporation and Alternative
Capital Group, which occurred during the six months ended December 31, 1997 and
the remainder related primarily to the growth of the Company. The increase in
income was further offset by a $5.2 million or 104.2% increase in other interest
expense to $10.2 million for the six months ended June 30, 1998, from $5.0
million for the six months ended June 30, 1997.
Income before taxes was reduced by a provision for income taxes of $21.9 million
for the six months ended June 30, 1998 compared to a provision for income taxes
of $12.2 million for the six months ended June 30, 1997, representing an
effective tax rate of approximately 41%.
REVENUES
The following table sets forth information regarding components of the Company's
revenues for the six months ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
------------------------------
1998 (in thousands) 1997
---- ----
<S> <C> <C>
Gain on sales of loans $ 131,139 $ 59,951
---------- ----------
Warehouse interest income 80,220 53,018
Warehouse interest expense (66,438) (37,863)
---------- ----------
Net warehouse interest income 13,782 15,155
---------- ----------
Servicing fees 19,677 6,849
Other 16,575 6,239
---------- ----------
Total revenues $ 181,173 $ 88,194
========== ==========
</TABLE>
Gain on Sales of Loans. For the six months ended June 30, 1998, gain on sales of
loans increased to $131.1 million from $60.0 million for the six months ended
June 30, 1997, an increase of 118.7%, reflecting increased loan production and
securitizations for the six months ended June 30, 1998. The total volume of
loans produced increased to approximately $3.6 billion for the six months ended
June 30, 1998 as compared with a total volume of approximately $2.2 billion for
the six months ended June 30, 1997. Originations by the Company's correspondent
network increased to approximately $2.5 billion for the six months ended June
30, 1998 from approximately $1.7 billion for the six months ended June 30, 1997,
while production from the Company's broker network and direct lending operations
increased to approximately $1.2 billion for the six months ended June 30, 1998
from approximately $480 million for the six months ended June 30, 1997.
Production volume increased during the 1998 period due to: (i) the Company's
expansion program; (ii) the increase of its securitization activity; (iii) the
growth of its loan servicing capability; and (iv) the acquisitions of National
Lending Center, Central Money Mortgage, Residential Mortgage Corporation and
Alternative Capital Group during the last six months of 1997, which accounted
for approximately $475 million in
13
<PAGE> 17
residential mortgage loans originated during the six months ended June 30, 1998.
Mortgage loans sold and delivered to securitization trusts increased to $3.1
billion for the six months ended June 30, 1998 from $1.53 billion for the six
months ended June 30, 1997.
For securitizations of mortgage loans, the gain on the sale of loans represents
the present value of the differential (spread) between (i) interest earned on
the portion of the loans sold and (ii) interest paid to investors with related
costs over the expected life of the loans, including expected losses,
foreclosure expenses and a normal servicing fee. The spread is adjusted for
estimated prepayments. The Company utilizes assumed prepayment and loss curves
which the Company believes will approximate the timing of prepayments and losses
over the life of the securitized loans. During the six months ended June 30,
1998, prepayment assumptions used to calculate the gain on sales of securitized
loans reflect the Company's expectation that prepayments on fixed rate loans
will gradually increase from a constant prepayment rate ("CPR") of 4% to 28% in
the first year of the loan and remain at 28% thereafter and expected prepayments
on adjustable rate loans will gradually increase from a CPR of 4% to 35% in the
first year of the loan and remain at 35% thereafter. During the six months ended
June 30, 1997, the maximum CPR used to compute gain on sales of fixed and
adjustable rate securitized loans was 27% and 30%, respectively. The CPR
measures the annualized percentage of mortgage loans which prepay during a given
period. The CPR represents the annual prepayment rate such that, in the absence
of regular amortization, the total prepayment over the year would equal that
percent of the original principal balance of the mortgage loan.
During the six months ended June 30, 1998, the loss assumption used to calculate
the gain on sales of securitized loans reflects the Company's expectations that
losses from defaults will gradually increase from zero in the first six months
of securitization to 100 basis points after 36 months. During the six months
ended June 30, 1997, the assumed loss rate used to calculate gain on sales of
securitized loans was 50 basis points per year. The loss curve utilized by the
Company during the six months ended June 30, 1998 approximates a loss rate of 65
basis points per year at inception of the securitization.
The gain on sales as a percentage of loans sold and securitized approximated
3.8% for the six months ended June 30, 1998 compared to 3.7% for the six months
ended June 30, 1997. Upfront points and origination fees related to retail loan
production recognized as gain on sale at the time the loan is sold approximated
$3.2 million for the six months ended June 30, 1997 and $12.1 million for the
six months ended June 30, 1998.
Net Warehouse Interest Income. Net warehouse interest income decreased to $13.8
million for the six months ended June 30, 1998 from $15.2 million for the six
months ended June 30, 1997, a decrease of 9.1%. The decrease in the six month
period ended June 30, 1998 reflected an increase in the securitization of
adjustable rate mortgage loans and subsequent delivery of mortgage loans to
securitization trusts. In a fixed rate mortgage loan securitization transaction,
the Company receives the pass-through rate of interest on the loans conveyed to
the securitization trust for the period between the cut-off date (generally the
first day of the month a securitization transaction occurs) and the closing date
of the securitization transaction (typically during the third or fourth week of
the month). The cut-off date represents the date when interest on the mortgage
loans accrues to the securitization trust rather
14
<PAGE> 18
than the Company. The pass-through rate, which is less than the weighted average
interest rate on the mortgage loans, represents the interest rate to be received
by investors who purchase pass-through certificates in the securitization trust
on the closing date. The Company continues to incur interest expense on its
warehouse financings related to loans conveyed to the trust until the closing
date, at which time the warehouse line is repaid. In an adjustable rate mortgage
loan securitization, the Company receives no interest on mortgage loans conveyed
to the securitization trust for the period between the cut-off date and the
closing date of the securitization. For the six months ended June 30, 1998 and
1997, the Company incurred warehouse interest expense of approximately $5.3
million and $550,000, respectively, related to the period between the cut-off
date and the closing date of adjustable rate mortgage rate mortgage loan
securitizations for which no corresponding interest income was recognized.
The Company from time to time will elect not to deliver the entire amount of
mortgage loans to a securitization trust at the closing date. The remaining
mortgage loans (the "subsequent loans") are delivered at a later date, usually
within 60 days of the closing date. The Company continues to incur interest on
warehouse financings related to subsequent loans until the loans are delivered
to the securitization trust. However, the Company receives no interest income
from the subsequent loans generally from the first day of the month the
subsequent loans are delivered until the date the subsequent loans are conveyed
to the securitization trust. Subsequent loans delivered into securitization
trusts approximated $270 million and $94 million for the six months ended June
30, 1998 and 1997. The Company incurred approximately $1.3 million and $195,000
of warehouse interest expense related to these loans for the six months ended
June 30, 1998 and 1997.
The decrease in net warehouse interest income was partially offset by a decrease
in the cost of funds and increased mortgage loan production.
Servicing Fees. Servicing fees increased to $19.7 million for the six months
ended June 30, 1998 from $6.8 million for the six months ended June 30, 1997, an
increase of 187.3%. Servicing fees for the six months ended June 30, 1998 were
positively affected by an increase in mortgage loans serviced over the prior
period. The Company increased its servicing portfolio by $5.4 billion or 135.0%
to $9.4 billion as of June 30, 1998 from $4.0 billion as of June 30, 1997.
Other. Other revenues, consisting principally of the recognition of the increase
or accretion of the discounted value of interest-only and residual certificates
over time, increased to $16.6 million or 165.7% for the six months ended June
30, 1998 from $6.2 million in six months ended June 30, 1997 as a result of
increased securitization volume and increased investment in interest-only and
residual certificates.
EXPENSES
The following table sets forth information regarding components of the Company's
expenses for the six months ended June 30, 1998 and 1997:
15
<PAGE> 19
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-------------------------------
1998 (in thousands) 1997
---- ----
<S> <C> <C>
Compensation and benefits $ 61,859 $ 28,585
Selling, general and administrative 55,809 22,776
Other interest expense 10,173 4,982
----------- ------------
Total expenses $ 127,841 $ 56,343
=========== ============
</TABLE>
Compensation and benefits increased by $33.3 million or 116.4% to $61.9 million
for the six months ended June 30, 1998 from $28.6 million for the six months
ended June 30, 1997, principally due to an increase in the number of employees
related to the Company's increased mortgage loan production, including $12.5
million of compensation and benefits relating to the acquisitions of National
Lending Center, Central Money Mortgage, Residential Mortgage Corporation and
Alternative Capital Group (which occurred during the six months ended December
31, 1997), additions of personnel to service the Company's increased loan
servicing portfolio and a $1.2 million increase in executive and management
incentive compensation from $2.0 million for the six months ended June 30, 1997
to $3.2 million for the six months ended June 30, 1998. It is anticipated that
the Company's compensation and benefits will increase as the Company expands;
however, the amount of executive bonuses is directly related to increases in the
Company's earnings per share.
Selling, general and administrative expenses increased by $33.0 million or
145.0% to $55.8 million for the six months ended June 30, 1998 from $22.8
million for the six months ended June 30, 1997 principally due to an increase in
underwriting, originating and servicing costs as a result of an increase in the
volume of mortgage loan production, including $5.0 million relating to the
acquisitions of National Lending Center, Central Money Mortgage, Residential
Mortgage Corporation and Alternative Capital Group (which occurred during the
six months ended December 31, 1997), an increase in the provision for loan
losses of $15.8 million and an increase in amortization expense related to
capitalized mortgage servicing rights of $4.8 million.
Other interest expense increased by $5.2 million or 104.2% to $10.2 million for
the six months ended June 30, 1998 from $5.0 million for the six months ended
June 30, 1997 principally as a result of increased term debt and notes payable
borrowings.
Income Taxes. The effective income tax rate for the six months ended June 30,
1998 was approximately 41%, which differed from the federal tax rate of 35%
primarily due to state income taxes and the non-deductibility for tax purposes
of amortization expense related to goodwill recognized for certain acquisitions.
The increase in the provision for income taxes of $9.7 million or 79.5% to $21.9
million for the six months ended June 30, 1998 from the provision for income
taxes of $12.2 million for the six months ended June 30, 1997 was proportionate
to the increase in pre-tax income and amortization expense related to goodwill.
FINANCIAL CONDITION
June 30, 1998 Compared to December 31, 1997
16
<PAGE> 20
The Company hedges, in part, its interest rate exposure on fixed-rate mortgage
loans held for sale through the use of securities sold but not yet purchased and
securities purchased under agreements to resell. Securities purchased under
agreements to resell increased $222.9 million or 28.9% from $772.6 million at
December 31, 1997 to $995.5 million at June 30, 1998 and securities sold but not
yet purchased increased $222.7 million or 28.7% from $775.3 million at December
31, 1997 to $998.0 million at June 30, 1998 due primarily to an increase in
fixed-rate mortgage loans held for sale at June 30, 1998 as compared to December
31, 1997.
Mortgage loans held for sale at June 30, 1998 were $1.72 billion, representing
an increase of $44.6 million or 2.7% over mortgage loans held for sale of $1.67
billion at December 31, 1997. This increase was a result of the Company's
strategy to increase its financial flexibility by maintaining a sufficient
balance of mortgage loans held for sale. Included in mortgages held for sale at
June 30, 1998 and December 31, 1997 were $81.3 million and $53.9 million,
respectively, of mortgage loans which were not eligible for securitization due
to delinquency and other factors (loans under review). The amount by which cost
exceeds market value on loans under review is accounted for as a valuation
allowance. Changes in the valuation allowance are included in the determination
of net income in the period of change. The valuation allowance at June 30, 1998
and December 31, 1997 was $17.9 million and $11.5 million, respectively.
Interest-only and residual certificates at June 30, 1998 were $445.6 million,
representing an increase of $222.3 million or 99.5% over interest-only and
residual certificates of $223.3 million at December 31, 1997 and capitalized
mortgage servicing rights increased $16.9 million or 48.4% from $35.0 million at
December 31, 1997 to $51.9 million at June 30, 1998. The increases in
interest-only and residual certificates and capitalized mortgage servicing
rights resulted primarily from the delivery of $3.1 billion in mortgage loans
into four securitizations totaling $3.3 billion during the six months ended June
30, 1998.
Borrowings under warehouse financing facilities at June 30, 1998 were $1.8
billion, representing an increase of $81.3 million or 4.7% over warehouse
financing facilities of $1.7 billion at December 31, 1997. This increase was a
result of increased mortgage loans held for sale.
Term debt and notes payable at June 30, 1998 was $279.4 million, representing an
increase of $148.9 million or 114.1% over term debt and notes payable of $130.5
million at December 31, 1997. This increase was primarily a result of financing
the increase in interest-only and residual certificates and an increase of $19.0
million in outstanding borrowings under the Company's working capital line of
credit. At June 30, 1998, the Company's working capital line of credit had an
outstanding balance of $19.0 million.
Stockholders' equity as of June 30, 1998 was $286.4 million, representing an
increase of $32.3 million over stockholders' equity of $254.1 million at
December 31, 1997. This increase was a result of net income for the six months
ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
17
<PAGE> 21
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 term debt to
meet its working capital needs. The Company's cash requirements include the
funding of loan purchases and originations, payment of interest costs, funding
of over-collateralization requirements for securitizations, operating expenses,
income taxes, acquisitions when acquired for cash and capital expenditures.
The Company has an ongoing need for substantial amounts of capital. Adequate
credit facilities and other sources of funding 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 six months ended June 30, 1998, the Company
used cash flows in operating activities of $242.2 million, a decrease of $498.0
million, or 67.3%, over cash flows used in operating activities of $740.2
million during the six months ended June 30, 1997. During the six months ended
June 30, 1998, the Company received cash flows from financing activities of
$230.2 million, a decrease of $533.9 million or 69.9% over cash flows received
from financing activities of $764.1 million during the six months ended June 30,
1997. The cash flows used in operating activities related primarily to
securitization activities and the funding of mortgage loan purchases or
originations and cash flows received from financing activities related primarily
to the funding of the mortgage loan purchases or originations.
The increasing amount of loans sold through securitizations has resulted in an
increase in the amount of gain on sales recognized by the Company. Significant
cash outflows are incurred upon the closing of a securitization transaction;
however, the Company does not receive a significant portion of the cash
representing the gain until later periods when the related loans are repaid or
otherwise collected. 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 June 30, 1998, the Company had a $1.25 billion uncommitted warehouse and
residual financing facility with Paine Webber Real Estate Securities, Inc. This
warehouse facility bears interest at rates ranging from LIBOR plus 0.65% to
LIBOR plus .90%. Approximately $871.4 million was outstanding under this
warehouse facility as of June 30, 1998.
At June 30, 1998, the Company also had a $1.0 billion uncommitted warehouse
facility with Bear Stearns Home Equity Trust 1996-1. This facility bears
interest at LIBOR plus 0.75%. Approximately $516.2 million was outstanding under
this facility at June 30, 1998.
In March 1998, the Company entered into a $1.0 billion committed warehouse and
residual financing facility with German American Capital Corporation, a
subsidiary of Deutsche Bank North American Holding Corp. The facility provides
for $1.0 billion in committed warehousing for mortgage loans held for sale
including a $100.0 million credit facility to be collateralized by interest-only
and residual certificates. Approximately $199.7 million was outstanding under
this warehouse and residual financing facility at June 30, 1998.
18
<PAGE> 22
Additionally, at June 30, 1998, the Company had approximately $910 million
available under numerous other warehouse lines of credit. As of June 30, 1998,
approximately $226.5 million was outstanding under these lines of credit.
Interest rates ranged from LIBOR plus 0.65% to LIBOR plus 1.50% as of June 30,
1998, and all borrowings mature within one year.
19
<PAGE> 23
Outstanding borrowings on the Company's warehouse financing facilities are
collateralized by mortgage loans held for sale, warehouse financing due from
correspondents and servicing rights on approximately $250 million of mortgage
loans. Upon the sale of these loans and the repayment of warehouse financing due
from correspondents, the borrowings under these lines will be repaid.
At June 30, 1998, the Company had borrowed $125.2 million under its residual
financing credit facility with Paine Webber Real Estate Securities, Inc.
Outstanding borrowings bear interest at LIBOR plus 2.0% and are collateralized
by the Company's interest in certain interest-only and residual certificates.
Bear, Stearns & Co. Inc. and its affiliates, Bear, Stearns Mortgage Capital
Corporation and Bear, Stearns International Limited, provide the Company with a
residual financing credit facility which is collateralized by certain
interest-only and residual certificates owned by the Company. At June 30, 1998,
$107.1 million was outstanding under this credit facility, which bears interest
at 1.75% per annum in excess of LIBOR.
At June 30, 1998, the Company had borrowed $3.6 million under an agreement which
matures August 1998, bears interest at 2.0% per annum in excess of LIBOR and is
collateralized by certain interest-only and residual certificates.
The Company also has available a $7 million credit facility which matures July
31, 1999 and bears interest at 10% per annum from an affiliate of a stockholder.
At June 30, 1998, $6.8 million was outstanding under this credit facility.
The Bank of Boston provides the Company a revolving credit facility which
provides for borrowings up to $50 million subject to the following terms: (i) 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 October 1998 of three years; or (ii) for acquisitions or bridge
financing. The Bank of Boston, with participation from another financial
institution, also provides the company with a $45 million working capital
facility. At June 30, 1998, $19.0 million was outstanding under this credit
facility. The Company's $50 million revolving credit facility and $45 million
working capital facility bear interest at (i) the Bank of Boston "base rate",
(ii) LIBOR plus 2.50%, or (iii) the Federal Funds rate plus 2.50% and mature in
October 1998. The Company has commenced discussions with the Bank of Boston to
extend the maturity date and increase the total facility capacity to $100
million. There can be no assurance that the existing facilities will be extended
or increased or that the Company will be able to arrange or replace these
facilities on similar terms and conditions, if at all. To the extent that the
Company is not successful in extending, increasing or replacing these
facilities, the Company would have to curtail operations or attempt to increase
the volume of whole loan sales to sustain operations. There can be no assurance
the Company would be successful in increasing whole loan sales to the level
required to sustain operations.
The Company's warehouse lines and term debt 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 credit facility with Bank of
20
<PAGE> 24
Boston also contains certain financial covenants requiring the maintenance of
certain debt-to-equity or debt-to-net worth ratios, 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 lines generally are subject to one-year terms.
Certain warehouse lines have automatic renewal features subject to the absence
of defaults and permit 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.
On July 14, 1998, Travelers Casualty and Surety Company and Greenwich Street
Capital Partners II, L.P. (together, the "Purchasers") purchased $50 million of
the Company's Series A convertible preferred stock. The Series A preferred stock
is convertible to non-registered common stock at $10.44 per share. The Series A
preferred stock bears no dividend and is redeemable by the Company over a
three-year period commencing in ten years if not previously converted. As part
of the preferred stock purchase agreement, the Company shall use its best
efforts to cause two persons designated by the Purchasers to be elected to the
Company's board of directors. The Purchasers were also granted an option to
purchase, within the next three years, an additional $30 million of Series B
preferred stock at par with a conversion price into common stock of $22.50.
The Company's business requires continual access to short- and long-term sources
of capital. The Company believes that its current warehouse and other facilities
and internally generated funds will be sufficient (assuming renewal or
replacement of existing warehouse and term debt facilities as they mature, some
of which mature in August 1998 and October 1998, as described above) to fund its
liquidity requirements, including the implementation of its business strategy
through the second quarter of 1999. However, the Company has substantial capital
requirements and it anticipates that it may need to arrange for additional
external cash resources through the sale or securitization of interest-only and
residual certificates, increased credit facilities and the sale or placement of
debt, preferred stock or equity securities. There can be no assurance that
existing credit facilities can be increased, extended or refinanced, that the
Company will be able to arrange for the sale or securitization of interest-only
and residual certificates in the future on terms the Company would consider
favorable, that debt, preferred stock or equity sources will be available to the
Company at any given time or on terms the Company would consider favorable or
that funds generated from operations will be sufficient to repay its existing
debt obligations or meet its operating and capital requirements. To the extent
that the Company is not successful in increasing, maintaining or replacing
existing credit facilities, in selling or securitizing interest-only and
residual certificates or in the placement of debt, preferred stock or equity
securities, the Company would not be able to hold a large volume of loans
pending securitization and therefore would have to curtail its loan production
activities or attempt to increase the volume of whole loan sales to sustain
operations. There can be no assurance the Company would be successful in
increasing whole loans sales to the level required to sustain operations.
21
<PAGE> 25
CERTAIN ACCOUNTING CONSIDERATIONS
The Company sells loans through securitizations and retains a residual interest
in the loans and, on occasion, also retains an interest-only certificate. The
interest-only and residual certificates are recorded at fair value and changes
in fair value are recorded in the results of operations in the period of the
change in value. The Company determines fair value 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, and
insurance fee when applicable 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. In projecting cash flows, the Company uses 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.
If 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 interest-only and residual
certificates, and such adjustment could have a material adverse effect on the
Company's financial condition and results of operations. Higher than assumed
rates of loan prepayments or credit losses over a period of time would require
the Company to write down the value of the interest-only 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
accurate. To the Company's knowledge, there is a limited market for the sale of
interest-only 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.
RISK MANAGEMENT
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 paid to investors (which typically is priced based
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 a portion of 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, duration and proportion of each
Treasury security to sell short so that the risk to the value of the loans is
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.
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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 interest-only and residual certificates. Conversely, if the value of
the hedges increases, 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 interest-only 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 in the area of loan originations
and can have an 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 interest-only 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 interest-only and residual
certificates which could have a material adverse effect on the Company's results
of operations and financial condition. Conversely, lower than anticipated rates
of loan prepayments or lower losses could allow the Company to increase the
value of interest-only and residual certificates which could have a favorable
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 securitization trusts are priced on the basis of
intermediate term rates.
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<PAGE> 27
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133 ("SFAS 133") "Accounting for
Derivative Instruments and Hedging Activities". SFAS 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999 (January 1,
2000 for the Company). SFAS 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative was designated as part of a hedge
transaction and, if it is, the type of hedge transaction. For fair-value hedge
transactions in which the Company is hedging changes in an asset's, liability's,
or firm commitment's fair value, changes in the fair value of the derivative
instrument will generally be offset in the income statement by changes in the
hedged item's fair value. The ineffective portion of hedges will be recognized
in current-period earnings.
SFAS 133 precludes designation of a nonderivative financial instrument as a
hedge of an asset or liability. The Company currently hedges its interest rate
risk on loan purchases by selling short United States Treasury securities which
match the duration of the fixed rate mortgage loans held for sale and borrows
the securities under agreements to resell. The unrealized gain or loss resulting
from the change in fair value of these instruments is deferred and recognized
upon securitization as an adjustment to the carrying value of the hedged
mortgage loans. SFAS 133 requires the gain or loss on these nonderivative
financial instruments to be recognized in earnings in the period of change in
fair value without a corresponding adjustment of the carrying amount of mortgage
loans held for sale. Management anticipates that it may change the financial
instruments used to hedge the Company's interest rate risk on loan purchases to
include derivative financial instruments which will qualify for hedge accounting
under the provisions of SFAS 133 and thus more appropriately reflect the
economics of its hedging and risk management activities in the financial
statements of the Company.
The actual effect implementation of SFAS 133 will have on the Company's
financial condition and results of operations will depend on various factors
determined at the period of adoption, including the type of financial instrument
used to hedge the Company's interest rate risk on loan purchases, whether such
instruments qualify for hedge accounting treatment, the effectiveness of the
hedging instrument, the amount of mortgage loans held for sale which the Company
intends to hedge, and the level of interest rates. Accordingly, the Company can
not determine at the present time the impact adoption of SFAS 133 will have on
its statement of operation or balance sheet.
YEAR 2000
The Company utilizes a number of software systems to originate, securitize and
service its various loan products. The Company has and will continue to make
certain investments in its software systems and applications to ensure the
Company is Year 2000 compliant. The financial impact of becoming year 2000
compliant has not been completely evaluated, but is not expected to be material
to the Company, to its financial position or results of operations in a given
year.
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PART II. OTHER INFORMATION
<PAGE> 29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is party to various 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 the
Company.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders was held on June 5, 1998.
Election of Directors - Joseph P. Goryeb was reelected to the
Board for a term of three years. There were 21,896,605 votes cast in
favor of the resolution and 551,607 votes cast against the resolution.
Mr. Mark W. Lorimer was elected to the Board for a term of three years.
There were 21,896,605 votes cast in favor of the resolution and 551,607
votes cast against the resolution.
Approval of a Resolution to Adopt the IMC Mortgage Company
Employee Stock Purchase Plan - The IMC Mortgage Company Employee Stock
Purchase Plan was approved. There were 22,116,407 votes cast in favor
of the resolution to approve the adoption of the plan, 321,872 votes
cast against the resolution and 9,933 votes abstained.
Ratification of the Appointment of Coopers & Lybrand L.L.P. as
Independent Accountants for the Company for the fiscal year ending
December 31, 1998 - The appointment of Coopers & Lybrand L.L.P. as
independent accountants for the Company for the fiscal year ending
December 31, 1998 was ratified. There were 22,431,537 votes cast in
favor of the ratification, 11,850 votes cast against the ratification
and 4,825 votes abstained.
Item 5. Other Information - None
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<PAGE> 30
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
3.1 Articles of Incorporation of the Registrant, as
amended
10.53 First Amendment and Restatement of Contingency Fee
Compensation Arrangement between the Registrant and
Mitchell W. Legler
10.54 Second Amendment to Employment Agreement dated August
1, 1996 between the Registrant and Stuart D. Marvin
10.55 Preferred Stock Purchase and Option Agreement
27 Financial Data Schedule (for SEC use only)
B. Reports on Form 8-K
None
26
<PAGE> 31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 13, 1998 IMC MORTGAGE COMPANY
By: /s/ Thomas G. Middleton
Thomas G. Middleton, President, Chief Operating Officer, Assistant
Secretary and Director
By: /s/ Stuart D. Marvin
Stuart D. Marvin, Chief Financial Officer
27
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
IMC MORTGAGE COMPANY
The undersigned, for the purpose of forming a corporation for profit
under the laws of Florida, adopts the following Articles of Incorporation.
ARTICLE I
NAME AND ADDRESS
Section 1.1 NAME. The name of the corporation is IMC Mortgage Company.
Section 1.2 ADDRESS OF PRINCIPAL OFFICE. The address of the principal
office of the corporation is 3450 West Busch Boulevard, Suite 250, Tampa,
Florida 33618.
ARTICLE II
DURATION
Section 2.1 DURATION. This corporation shall exist perpetually.
ARTICLE III
PURPOSES
Section 3.1 PURPOSES. This corporation is organized for the purposes
of transacting any or all lawful business permitted under the laws of the United
States and of the State of Florida.
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<PAGE> 2
ARTICLE IV
CAPITAL
Section A. AUTHORIZED CAPITAL. The maximum number of shares of stock
which the Corporation is authorized to have outstanding at any one time is
sixty million (60,000,000) shares (the "Capital Stock") divided into classes as
follows:
1. Ten million (10,000,000) shares of preferred stock having a
par value of $0.01 per share (the "Preferred Stock"), and which may be
issued in one or more classes or series as further described in Section
B; and
2. Fifty million (50,000,000) shares of common stock having a
par value of $0.001 per share (the "Common Stock").
All such shares shall be issued fully paid and nonassessable.
Section B. PREFERRED STOCK. The Board of Directors is authorized to
provide for the issuance of the Preferred Stock in one or more classes and in
one or more series within a class and, by filing the appropriate Articles of
Amendment with the Secretary of State of Florida which shall be effective
without shareholder action, is authorized to establish the number of shares to
be included in each class and each series and the preferences, limitations and
relative rights of each class and each series. Such preferences must include
the preferential right to receive distributions of dividends or the
preferential right to receive distributions of assets upon the dissolution of
the corporation before shares of Common Stock are entitled to receive such
distributions. Shares of a class of Preferred Stock may have preference over
shares of other classes of Preferred Stock to the extent determined by the
Board of Directors at the time of establishing such class.
Section C. COMMON STOCK. Holders of Common Stock are entitled to one
vote per share on all matters required by Florida law to be approved by the
shareholders. Subject to the rights of any outstanding classes or series of
Preferred Stock having preferential dividend rights, holders of Common Stock
are entitled to such dividends as may be declared by the Board of Directors out
of funds lawfully available therefor. Upon the dissolution of the Corporation,
holders of Common Stock are entitled to receive, pro rata in accordance with
the number of shares owned by each, the net assets of the Corporation remaining
after the holders of any outstanding classes or series of Preferred Stock
having preferential rights to such assets have received the distributions to
which they are entitled.
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<PAGE> 3
ARTICLE V
INITIAL REGISTERED OFFICE AND AGENT
Section 5.1 NAME AND ADDRESS. The street address of the initial
registered office of this corporation is One Independent Drive, Suite 3104,
Jacksonville, Florida 32202, and the name of the initial registered agent of
this corporation at that address is Mitchell W. Legler.
ARTICLE VI
DIRECTORS
Section 6.1 NUMBER. The number of directors shall be established by the
bylaws and may be increased or diminished from time to time by the bylaws, but
shall never be less than one.
Section 6.2 CLASSIFICATION. The directors shall be classified into
three (3) classes, as nearly equal in number as possible: one class to be
originally elected for a term expiring at the annual meeting of shareholders to
be held in 1996; another class to be originally elected for a term expiring at
the annual meeting of shareholders to be held in 1997; and a third class to be
originally elected for a term expiring at the annual meeting of shareholders to
be held in 1998, with each class to hold office until its successors are
elected and qualified. At each annual meeting of the shareholders of the
corporation, the date of which shall be fixed by or pursuant to the bylaws of
the corporation, the successors of the class of directors whose terms expire at
that meeting shall be elected to hold office for a term expiring at the annual
meeting of shareholders held in the third year following the year of election.
ARTICLE VII
MEETINGS OF SHAREHOLDERS
Section 7.1 SPECIAL MEETINGS. Special meetings of shareholders may be
called at any time, but only by (a) the Chairman of the Board of the
Corporation, (b) a majority of the directors in office, although less than a
quorum, and (c) the holders of not less than [FIFTY PERCENT (50%)] of the total
number of votes of the then outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class.
Section 7.2 SHAREHOLDER ACTION BY WRITTEN CONSENT. Any action
required or permitted to be taken by the shareholders of the Corporation must
be effected at a duly called annual or special meeting of the shareholders, and
may not be effected by any consent in writing by such shareholders, unless such
written consent is by the holders of ninety percent (90%) of the outstanding
shares of capital stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class (unless separate
voting by classes is required by law, in which case, the written consent by the
holders of ninety percent (90%) of the outstanding shares of each class or
series entitled to vote as a class shall be required).
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<PAGE> 4
ARTICLE VIII
BYLAWS
Section 8.1 BYLAWS. The initial bylaws of this corporation shall be
adopted by the board of directors. Bylaws may be amended or repealed from time
to time by either the board of directors or the shareholders, but the board of
directors shall not alter, amend or repeal any bylaw adopted by the
shareholders if the shareholders specifically provide that such bylaw is not
subject to amendment or repeal by the board of directors.
ARTICLE IX
INDEMNIFICATION
Section 9.1 INDEMNIFICATION. The board of directors is hereby
specifically authorized to make provision for indemnification of directors,
officers, employees and agents to the full extent permitted by law.
ARTICLE X
AMENDMENT
Section 10.1 AMENDMENT. This corporation reserves the right to amend or
repeal any provision contained in these Articles of Incorporation, and any
right conferred upon the shareholders is subject to this reservation.
Section 10.2 REQUIRED VOTE. The affirmative vote of the holders of a
majority of the outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class, shall be required (unless separate voting by classes is required by law,
in which case, the affirmative vote of the holders of a majority of the
outstanding shares of each class or series entitled to vote as a class shall be
required) in order to amend or repeal, or to adopt any provision inconsistent
with the purpose of intent of Article VI ("Directors"), Article VII ("Action by
Shareholders") or this Article X ("Amendment"). The affirmative vote of the
holders of ninety percent (90%) of the outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required (unless separate voting by
classes is required by law, in which case, the affirmative vote of the holders
of ninety percent (90%) of the outstanding shares of each class or series
entitled to vote as a class shall be required) in order to amend or repeal, or
to adopt any provision inconsistent with the purpose or intent of Article VII
("Action by Shareholders").
IN WITNESS WHEREOF, the President of the Corporation has executed these
Amended and Restated Articles the 1 day of April, 1996.
/s/ Thomas Middleton
-----------------------------------
Thomas Middleton, President
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ARTICLES OF AMENDMENT
DESIGNATING THE PREFERENCES, RIGHTS AND LIMITATIONS
OF THE CLASS A CONVERTIBLE PREFERRED STOCK
OF
IMC MORTGAGE COMPANY
Pursuant to Section 607.0602 of the Florida Business Corporation
Act, IMC Mortgage Company, a Florida corporation (the "Company"), hereby
certifies that the following amendments were duly adopted by the Board of
Directors of the Company (the "Board") on May 19, 1998, pursuant to authority
conferred upon the Board by the provisions of the Articles of Incorporation of
the Company (the "Articles of Incorporation").
DESIGNATION OF CLASS A CONVERTIBLE PREFERRED STOCK. The Class,
designated as Class A Convertible Preferred Stock will have the designations,
preferences, voting powers, relative, participating, optional or other special
rights and privileges, and the qualifications, limitations and restrictions as
follows:
SECTION 1. Designation, Rank. This series of preferred stock
shall be designated the "Class A Convertible Preferred Stock," with a par value
of $0.01 per share (the "Convertible Preferred Stock"). The Convertible
Preferred Stock will rank, with respect to rights on liquidation, winding-up
and dissolution, (i) senior to all classes of common stock of the Company, as
they exist on the date hereof or as such stock may be constituted from time to
time (the "Common Stock"), and each other class of capital stock or class or
series of preferred stock established by the Board to the extent the terms of
such stock do not expressly provide that it ranks on a parity with the
Convertible Preferred Stock as to rights on liquidation, winding-up and
dissolution (collectively, together with the Common Stock, the "Junior
Securities"); (ii) on a parity with each class of capital stock or class or
series of preferred stock established by the Board to the extent the terms of
such stock expressly provide that it will rank on a parity with the Convertible
Preferred Stock as to rights on liquidation, winding-up and dissolution
(collectively, the "Parity Securities"); and (iii) junior to each other class
of capital stock or class or series of preferred stock established by the Board
to the extent the terms of such stock expressly provide that it will rank
senior to the Convertible Preferred Stock as to rights on liquidation,
winding-up and dissolution (collectively, the "Senior Securities").
SECTION 2. Authorized Number. The authorized number of shares
constituting the Convertible Preferred Stock shall be 500,000 shares.
<PAGE> 6
SECTION 3. Dividends. Holders of Convertible Preferred Stock will not
be entitled to any dividends.
SECTION 4. Liquidation Rights. The liquidation value of each share of
Convertible Preferred Stock shall be $100.00 (the "Liquidation Value"). In the
event of any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, after satisfaction of the claims of creditors and before any
payment or distribution of assets is made on any Junior Securities, including,
without limitation, the Common Stock but after any payment or distribution of
assets to holders of Senior Securities, if any, (i) the holders of Convertible
Preferred Stock shall receive a liquidation preference equal to the Liquidation
Value of their shares and (ii) the holders of any Parity Securities shall be
entitled to receive an amount equal to the full respective liquidation
preferences (including any premium) to which they are entitled and shall
receive an amount equal to all accrued and unpaid dividends with respect to
their respective shares through and including the date of distribution (whether
or not declared). If, upon such a voluntary or involuntary liquidation,
dissolution or winding-up of the Company, the assets of the Company are
insufficient to pay in full the amounts described above as payable with respect
to the Convertible Preferred Stock and any Parity Securities, the holders of
the Convertible Preferred Stock and such Parity Securities will share ratably
in any distribution of assets of the Company in proportion to their respective
liquidation preferences. After payment of the Liquidation Value, the
Convertible Preferred Stock will not be entitled to any further participation
in any distribution of assets by the Company. Neither the sale or transfer of
all or any part of the assets of the Company, nor the merger or consolidation
of the Company into or with any other corporation or a merger of any other
corporation with or into the Company, will be deemed to be a liquidation,
dissolution or winding-up of the Company.
SECTION 5. Voting Rights.
Except as provided below or as may be required by the law of the
State of Florida or provided by the resolution creating any other series of
preferred stock, the holders of Convertible Preferred Stock will not be
entitled to vote. So long as any shares of Convertible Preferred Stock are
outstanding, the vote or consent of the holders of 66 2/3% of the outstanding
shares of Convertible Preferred Stock, voting together as a single class, shall
be necessary to (i) increase or decrease the par value of the shares of
Convertible Preferred Stock or (ii) amend Article IV of the Articles of
Incorporation, except with respect to changes in the par value of, or the
number of authorized shares of Common Stock, or alter or change the powers,
preferences, or special rights of the shares of Convertible Preferred Stock, so
as to affect them adversely, either directly or indirectly, or through a merger
or consolidation with any person, or (iii) authorize or issue any additional
class or series of Parity Securities or
2
<PAGE> 7
Senior Securities, or any security convertible into Parity Securities or Senior
Securities; provided, however, that the Company may amend such Article IV to
authorize Parity Securities not to exceed, in the aggregate, $100 million in
liquidation value without the consent of holders of 66 2/3% of the outstanding
shares of Convertible Preferred Stock.
SECTION 6. Conversion.
(a) Right to Convert. Each share of Convertible Preferred Stock will
be convertible (the rights to convert described in this subsection (a) are
referred to as the "Conversion Rights") at any time at the option of the holder
thereof, into such number of fully paid and non-assessable shares of Common
Stock (together with any Rights (as defined in subsection (b)(iii) below)
associated therewith) as is equal to (A) the sum of the Liquidation Value of
the Convertible Preferred Stock, divided by (B) the Conversion Price then in
effect. The initial "Conversion Price" for the Convertible Preferred Stock
shall be $10.44 and shall be subject to adjustment as described below. Shares of
Convertible Preferred Stock to be redeemed in accordance with Section 7 hereof
will not be convertible after the close of business on the day preceding the
date fixed for redemption, unless the Company defaults in payment of the
redemption price.
(b) Anti-dilution Provisions. The Conversion Price is subject to
adjustment after the issuance of the Convertible Preferred Stock from time to
time as follows:
(i) In case the Company shall (1) pay a dividend or make a
distribution on Common Stock in shares of Common Stock, (2) subdivide its
outstanding shares of Common Stock into a greater number of shares or (3)
combine its outstanding shares of Common Stock into a smaller number of
shares, the Conversion Price in effect immediately prior to such action
shall be adjusted so that the holder of any Convertible Preferred Stock
thereafter surrendered for conversion shall be entitled to receive the
number of shares of Common Stock which such holder would have been entitled
to receive immediately following such action had the holder's Convertible
Preferred Stock been converted immediately prior thereto. An adjustment
made pursuant to this subsection (i) shall become effective immediately
(except as provided in subsection (vi) below) after the record date in the
case of a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision or combination.
(ii) In case the Company shall issue rights, options or warrants to
holders of its outstanding shares of Common Stock entitling them to
subscribe for or purchase shares of Common Stock at a price per share less
than the
3
<PAGE> 8
Current Market Price per share (as defined in subsection (v) below) of the
Common Stock on the record date mentioned below, then the Conversion Price
in effect immediately prior thereto shall be adjusted so that it shall
equal the price determined by multiplying the Conversion Price in effect
immediately prior to the date of issuance of such rights, options or
warrants by a fraction of which
(1) the numerator shall be the sum of (A) the number of shares
of Common Stock outstanding on the date of issuance of such rights, options
or warrants immediately prior to such issuance plus (B) the number of
shares of Common Stock which the aggregate offering price of the total
number of shares so offered would purchase at such Current Market Price
(determined by multiplying such total number of shares offered for
subscription or purchase by the sum of the exercise price of such rights,
options or warrants plus the value of any consideration per share paid to
the Company for such rights, options or warrants and dividing the product
so obtained by such Current Market Price), and
(2) the denominator shall be the sum of (A) the number of
shares of Common Stock outstanding on the date of issuance of such rights,
options or warrants immediately prior to such issuance plus (B) the number
of additional shares of Common Stock which are so offered for subscription
or purchase.
Such adjustment shall be made successively whenever any rights,
options or warrants are issued, and shall become effective immediately
(except as provided in subsection (vi) below) after the record date for the
determination of stockholders entitled to receive such rights, options or
warrants; provided, however, in the event that all the shares of Common
Stock offered for subscription or purchase are not delivered upon the
exercise of such rights, options or warrants, upon the expiration of such
rights, options or warrants the Conversion Price shall be readjusted to the
Conversion Price which would have been in effect had the numerator and the
denominator of the foregoing fraction and the resulting adjustment been
made based upon the number of shares of Common Stock actually delivered
upon the exercise of such rights, options or warrants rather than upon the
number of shares of Common Stock offered for subscription or purchase. In
determining the value of any consideration received by the Company for such
rights, options or warrants, the determination of the Board in good faith
shall be conclusive and shall be described in a Board resolution.
4
<PAGE> 9
(iii) Notwithstanding subsection (ii) above, any adjustments to the
Conversion Price to account for the issuance of "Rights" under a Shareholder
Rights Plan or Agreement (a "Rights Agreement") adopted subsequent to the date
hereof shall be made when such Rights are exercised or exchanged by the Company
for Common Stock (Common Stock issued pursuant to the exercise of, or exchange
by the Company for, such Rights are referred to as "Rights Stock") pursuant to
a Rights Agreement or like arrangement at a price per share less than the
Current Market Price per share of Common Stock on the date of such exercise or
exchange. The Conversion Price in effect immediately prior to such exercise or
exchange shall be adjusted so that it shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the date of
such exercise or exchange by a fraction of which
(1) the numerator shall be the sum of (A) the number of shares
of Common Stock outstanding on the date of issuance of such Rights Stock
immediately prior to such issuance plus (B) the number of shares of Common
Stock which the aggregate consideration received for the total number of
shares of Rights Stock so issued would purchase at such Current Market
Price (determined by multiplying such total number of shares of Rights
Stock by the consideration received per share of such Rights Stock and
dividing the product so obtained by such Current Market Price), and
(2) the denominator shall be the sum of (A) the number of shares
of Common Stock outstanding on the date of issuance of such Rights Stock
immediately prior to such issuance plus (B) the number of additional
shares of Rights Stock which are so issued.
Such adjustment shall be made successively whenever any Rights Stock is
issued, and shall become effective immediately (except as provided in
subsection (vi) below) after the issuance of Rights Stock. If after the
"Distribution Date" or a similar date (as defined in a Rights Agreement),
holders converting shares of Convertible Preferred Stock are, for any reason,
not entitled to receive the Rights or similar rights, options or warrants which
would otherwise be attributable (but for the date of conversion) to the shares
of Common Stock received upon such conversion, then a reducing adjustment shall
be made in the Conversion Price to reflect the fair market value of the Rights
or similar rights, options or warrants. If such an adjustment is made and the
Rights or similar rights, options or warrants are later exchanged, redeemed,
invalidated or terminated, then a corresponding reversing adjustment shall be
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<PAGE> 10
made to the Conversion Price, on an equitable basis, to take account of such
event.
(iv) In case the Company shall distribute to holders of Common Stock
evidences of indebtedness, equity securities (including equity interests in the
Company's subsidiaries) other than Common Stock or other assets (other than
cash dividends paid out of earned surplus of the Company or, if there shall be
no earned surplus, out of net profits for the fiscal year in which the dividend
is made and/or the preceding fiscal year), or shall distribute to holders of
Common Stock rights, options or warrants to subscribe to securities (other than
any Rights, rights, options or warrants referred to in subsection (ii) or
subsection (iii) above), then in each such case the Conversion Price shall be
adjusted so that it shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the date of such distribution
by a fraction of which the numerator shall be the Current Market Price per
share of the Common Stock on the record date mentioned below less the then fair
market value of the portion of the assets, evidence of indebtedness and equity
securities so distributed, or of such subscription rights, warrants or options,
applicable to one share of Common Stock, and of which the denominator shall be
such Current Market Price. For the purposes of this subsection (iv), in the
event of a distribution of shares of capital stock or other securities of any
subsidiary of the Company as a dividend on shares of Common Stock, the "then
fair market value" of the shares or other securities so distributed shall be
the value of such shares or other securities on the record date mentioned below
as determined by the Board, whose good faith determination shall be conclusive
evidence of such value, and shall be described in a Board resolution. Such
adjustment shall become effective immediately (except as provided in subsection
(vi) below) after the record date for the determination of stockholders
entitled to receive such distribution.
(v) For the purpose of any computation under subsection (ii), subsection
(iii) or subsection (iv) above, the "Current Market Price" per share of stock
on any date shall be deemed to be the average of the last sale prices of a
share of such stock for the 15 consecutive trading days commencing 20 trading
days before the earliest of the date in question and the date before the "ex
date" with respect to the issuance or distribution requiring such computation,
or, if there shall have been no sales of such stock on any such trading day,
the average of the closing bid and asked prices at the end of such trading
day. For purposes of this subsection (v), the term "ex date", when used with
respect to any issuance or distribution, means the first date on which the stock
trades regular way on the principal national securities exchange on which the
stock is listed or admitted to
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<PAGE> 11
trading (or if not so listed or admitted, on NASDAQ, or a similar organization
if NASDAQ is no longer reporting trading information) without the right to
receive such issuance or distribution.
(vi) In any case in which this Section shall require that an adjustment be
made immediately following a record date or immediately following the exercise
of, or exchange of Rights Stock for, a Right, the Company may elect to defer
the effectiveness or such adjustment (but in no event until a date later than
the later of the "ex date" as defined above and the effective date of the event
giving rise to such adjustment), in which case the Company shall, with respect
to any Convertible Preferred Stock converted after the date of such exercise or
exchange or such record date, as the case may be, and before such adjustment
shall have become effective (1) defer making any cash payment or issuing to the
holder of such Convertible Preferred Stock the number of shares of Common Stock
and other capital stock of the Company issuable upon such conversion in excess
of the number of shares of Common Stock and other capital stock of the Company
issuable thereupon only on the basis of the Conversion Price prior to
adjustment, and (2) not later than five business days after such adjustment
shall have become effective, pay to such holder the appropriate cash payment
and issue to such holder the additional shares of Common Stock and other
capital stock of the Company issuable on such conversion.
(vii) Whenever the Conversion Price is adjusted as provided above:
(1) the Company shall compute the adjusted Conversion Price and shall
promptly file with the stock transfer or conversion agent, as appropriate,
for the Convertible Preferred Stock, a certificate signed by a principal
financial officer of the Company setting forth the adjusted Conversion
Price and showing in reasonable detail the facts upon which such adjustment
is based and the computation thereof; and
(2) a notice stating that the Conversion Price has been adjusted and
setting forth the adjusted Conversion Price shall, as soon as practicable,
be sent by first-class mail to the holders of record of the Convertible
Preferred Stock.
In case:
(A) the Company shall take any action which would require an
adjustment to the Conversion Price pursuant to subsection (iv) above;
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<PAGE> 12
(B) the Company shall authorize the granting to the holders of its
Common Stock of rights, options or warrants entitling them to subscribe for
or purchase any shares of capital stock of any class or of any other
rights;
(C) of any reorganization or reclassification of the Common Stock
(other than a change in par value, or from par value to no par value, or
from no par value to par value, or a subdivision or combination of its
outstanding Common Stock), or of any consolidation or merger to which the
Company is a party and for which approval of any stockholders of the
Company is required, or of the sale, lease or transfer of all or
substantially all the assets of the Company; or
(D) of the voluntary or involuntary liquidation, dissolution or
winding-up of the Company;
then the Company shall cause to be mailed to the stock transfer or conversion
agent, as appropriate, for the Convertible Preferred Stock and to the holders
of record of Convertible Preferred Stock, at least 20 days (or 10 days in any
case described in subsections (A) or (B) above) prior to the applicable record
date or effective date specified below, a notice stating (x) the date as of
which the holders of record of Common Stock to be entitled in such dividend,
distribution, rights, options or warrants are to be determined, or (y) the date
on which such reorganization, reclassification, consolidation, merger, sale,
lease, transfer, liquidation, dissolution or winding-up is expected to become
effective, and the date as of which it is expected that holders of record of
Common Stock shall be entitled to exchange their shares for securities or other
property, if any, deliverable upon such reorganization, reclassification,
consolidation, merger, sale, lease, transfer, liquidation, dissolution or
winding-up. Neither the failure to give the notice required by this
subsection (vii), nor any defect therein, to any particular holder shall affect
the sufficiency of the notice or the legality or validity of any such dividend,
distribution, right, option, warrant, reorganization, reclassification,
consolidation, merger, sale, lease, transfer, liquidation, dissolution or
winding-up, or the vote authorizing any such action with respect to the other
holders.
(viii) To the extent permitted by law, the Company from time to time may
reduce the Conversion Price by any amount for any period of at least 20 days
(or such other period as may then be required by applicable law) if the Board
has made a determination in good faith that such reduction would be in the best
interests of the Company, which determination shall be conclusive. No
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<PAGE> 13
reduction in the Conversion Price pursuant to this subsection (viii) shall
become effective unless the Company shall have mailed a notice, at least 15
days prior to the date on which such reduction is scheduled to become
effective, to each holder of Convertible Preferred Stock. Such notice shall
be given by first-class mail, postage prepaid, at such holder's address as
it appears on the books of the Company. Such notice shall state the amount
per share by which the Conversion Price will be reduced and the period for
which such reduction will be in effect. Neither the failure to give the
notice required by this subsection (viii), nor any defect therein, to any
particular holder shall affect the sufficiency of the notice or the
legality or validity of any such reduction in Conversion Price, or the vote
authorizing such action with respect to the other holders.
(ix) At its option, the Company may make such reduction in the
Conversion Price, in addition to those otherwise required by this Section
6, as the Board deems advisable to avoid or diminish any income tax to
holders of Common Stock resulting from any dividend or distribution of
stock (or rights to acquire stock) or from any event treated as such for
income tax purposes; provided that any such reduction shall not be
effective until written evidence of the action of the Board authorizing
such reduction shall be filed with the Secretary of the Company and notice
thereof shall have been given by first-class mail, postage prepaid, to each
holder of Convertible Preferred Stock at such holder's address as it
appears on the books of the Company.
(c) Consolidation, Merger or Sale of Assets. If any transaction shall
occur, including without limitation (i) any recapitalization or
reclassification of shares of Common Stock (other than a change in par value,
or from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination of the Common Stock), (ii) any
consolidation or merger of the Company with or into another person or any
merger of another person into the Company (other than a merger in which the
Company is the surviving corporation and that does not results in a
reclassification, conversion, exchange or cancellation of Common Stock), (iii)
any sale, lease or transfer of all or substantially all of the assets of the
Company, or (iv) any compulsory share exchange, pursuant to any of which
holders of Common Stock shall be entitled to receive other securities, cash or
other property, then appropriate provision shall be made so that the holder of
each share of Convertible Preferred Stock then outstanding shall have the right
thereafter to convert such share only into the kind and amount of the
securities, cash or other property that would have been receivable upon such
recapitalization, reclassification, consolidation, merger, sale, lease,
transfer or share exchange by a holder of the number of shares of Common Stock
issuable upon conversion of such share of Convertible Preferred Stock
immediately prior to such recapitalization, reclassification, consolidation,
merger, sale, lease, transfer or share
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<PAGE> 14
exchange and the Company shall not enter into any such merger, consolidation,
sale, lease transfer or share exchange unless the company formed by such
consolidation or resulting from such merger or that acquires such assets or
that acquires the Company's shares, as the case may be, shall make provisions
in its certificate or articles of incorporation or other constituent document
to establish such right. Such certificate or articles of incorporation or
other constituent document shall provide for adjustments that, for events
subsequent to the effective date of such certificate or articles of
incorporation or other constituent documents, shall be as nearly equivalent as
may be practicable to the relevant adjustments provided for in the preceding
subsections (a) and (b) and in this subsection (c).
(d) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the Convertible Preferred Stock, and any portion of
Convertible Preferred Stock surrendered for conversion which would otherwise
result in a fractional share of Common Stock shall be redeemed for cash in an
amount equal to the product of such fraction multiplied by the closing price of
the Common Stock on the last business day prior to conversion or, if there
shall have been no sales of the Common Stock on such business day, the average
of the closing bid and asked prices at the end of such business day.
(e) Mechanics of Conversion. Before any holder of Convertible Preferred
Stock shall be entitled to convert such stock into shares of Common Stock and
to receive certificates therefor, such holder shall surrender the certificate
or certificates for the Convertible Preferred Stock to be converted, duly
endorsed, at the office of the Company or of any transfer agent for the
Convertible Preferred Stock, and shall give written notice to the Company at
such office that such holder elects to convert the same. The Company shall,
within 10 days after such delivery, issue and deliver at such office to such
holder of the Convertible Preferred Stock (or to any other person specified in
the notice delivered by such holder) a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled as
aforesaid and a check payable to the holder for any cash amounts payable as a
result of a conversion into fractional shares of Common Stock. Such conversion
shall be deemed to have been made immediately prior to the close of business on
the date of such surrender of the shares of Convertible Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date. In case
any certificate for shares of the Convertible Preferred Stock shall be
surrendered for conversion of only a part of the shares represented thereby,
the Company shall deliver within 10 days at such office to or upon the written
order of the holder thereof, a certificate or certificates for the number of
shares of Convertible Preferred Stock represented by such surrendered
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<PAGE> 15
certificate which are not being converted. Notwithstanding the foregoing, the
Company shall not be obligated to issue certificates evidencing the shares of
Common Stock issuable upon such conversion unless the certificates evidencing
the Convertible Preferred Stock are either delivered to the Company or its
transfer agent or the Company or its transfer agent shall have received
evidence satisfactory to it evidencing that such certificates have been lost,
stolen or destroyed and the holder of such Convertible Preferred Stock
executes an agreement satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection with such certificates. The issuance of
certificates of shares of Common Stock issuable upon conversion of shares of
Convertible Preferred Stock shall be made without charge to the converting
holder for any tax imposed in respect of the issuance thereof, provided that
the Company shall not be required to pay any tax which may be payable with
respect to any transfer involved in the issue and delivery of any certificate
in a name other than that of the holder of the shares of Convertible Preferred
Stock being converted.
Section 7. Mandatory Redemption.
(a) The Company shall be required to redeem (x) 33 1/3% of the
Convertible Preferred Stock outstanding on July 14, 2008, (y) 50% of the
Convertible Preferred Stock outstanding on July 14, 2009 and (z) the balance of
the Convertible Preferred Stock outstanding on July 14, 2010, at a redemption
price per share equal to the Liquidation Value (each such payment, a "Redemption
Payment"). In accordance with subsection (b) below, the Company shall mail to
each record holder of Convertible Preferred Stock written notice of its
requirement to redeem shares of Convertible Preferred Stock held by such holder.
(b) Mechanics of Redemption. In the event the Company shall be
required to redeem shares of Convertible Preferred Stock, notice of such
redemption shall be given by first class mail, postage prepaid, mailed not less
than 10 days nor more than 30 days prior to the redemption date, to the holder
of record of the shares to be redeemed at such holder's address as the same
appears on the stock register of the Corporation. Each such notice shall state:
(i) the redemption date; (ii) the redemption price; and (iii) the place or
places where certificates for such shares are to be surrendered for payment of
the redemption price. The redeemed shares of Convertible Preferred Stock shall
no longer be deemed to be outstanding and shall be canceled and shall not be
available for reissue or redesignation, and all rights of the holders thereof as
a shareholder of the Company (except the right to receive from the Company the
redemption price) shall cease.
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(c) Default on Redemption.
(i) In the event that any Redemption Payment shall not have been
paid when due, the maximum authorized number of directors of the
Company will be automatically increased by such number as would equal
the number of the directors of the Company at the time of such
increase plus one, and holders of Convertible Preferred Stock and any
Parity Securities and Senior Securities with substantially similar
voting rights ("Parity Voting Securities") shall be entitled to vote
their shares of Convertible Preferred Stock, in accordance with the
procedures set forth below, to elect, voting separately as a class,
such additional directors (the "Election Right"). So long as any
shares of Convertible Preferred Stock shall be outstanding, the
holders of Convertible Preferred Stock shall retain the Election Right
until such Redemption Payment is paid in full. The period during which
holders of Convertible Preferred Stock, together with holders of
Parity Voting Securities, retain such right is referred to as a
"Default Period."
(ii) So long as any shares of Convertible Preferred Stock shall
be outstanding, during any Default Period, the Election Right may be
exercised initially at a special meeting called pursuant to subsection
(iii) below or at any annual meeting of shareholders. The absence of a
quorum of holders of Common Stock (or any class thereof) shall not
affect the exercise of the Election Right.
(iii) Unless the holders of Convertible Preferred Stock have,
during an existing Default Period, previously exercised their right to
elect directors, the Board may, and upon the request of the holders of
record of not less than 66 2/3% of the Convertible Preferred Stock and
Parity Voting Securities then outstanding, the Board shall, order the
calling of a special meeting of holders of Convertible Preferred
Stock, which meeting shall thereupon be called by the Chairman of the
Board, the President, a Vice President or the Secretary of the
Company. Notice of such meeting and of any annual meeting at which
holders of Convertible Preferred Stock are entitled to vote pursuant
to this subsection (iii) shall be given to each holder of record of
Convertible Preferred Stock by mailing a copy of such notice to such
holder at such holder's last address as it appears on the books of the
Company. Such meeting shall be called for a date not later than 30
days after such order or request, or, in default of the calling of
such meeting within 30 days after such order or request, such meeting
may be called on similar notice by any stockholder or stockholders
owning in the aggregate not less than 66 2/3% of the Convertible
Preferred Stock then outstanding.
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<PAGE> 17
(iv) During any Default Period, the holders of Common Stock, and other
classes of stock of the Company, if applicable, shall continue to be
entitled to elect all of the directors unless and until the holders of
Convertible Preferred Stock shall have exercised the Election Right. After
the exercise of the Election Right (x) the directors so elected by the
holders of Convertible Preferred Stock and Parity Voting Securities shall
continue in office until the earlier of (A) such time as their successors
shall have been elected by such holders and (B) the expiration of the
Default Period, and (y) any vacancy in the Board with respect to a
directorship to be elected pursuant to this Section by the holders of
Convertible Preferred Stock may be filled by vote of the remaining
directors previously elected by such holders. References in this subsection
(c) to directors elected by the holders of a particular class of stock
shall include directors elected by such directors to fill vacancies as
provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a Default Period, (x) the
Election Right shall cease, (y) the term of any additional directors
elected by the holders of Convertible Preferred Stock and Parity Voting
Securities pursuant to this Section shall terminate, and (z) the number of
directors shall be such number as may be provided for in the Articles of
Incorporation or By-laws irrespective of any increase made pursuant to
subsection (i) of this subsection (c) (such number being subject, however,
to subsequent change in any manner provided by law or in the Articles of
Incorporation or By-laws).
Section 8. Status of Reacquired Shares. If shares of Convertible Preferred
Stock are converted pursuant to Section 6 hereof or redeemed pursuant to Section
7 hereof, the shares so converted or redeemed shall, upon compliance with any
statutory requirements, assume the status of authorized but unissued shares of
preferred stock of the Company, but may not be reissued as Convertible Preferred
Stock.
Section 9. Preemptive Rights. The Convertible Preferred Stock is not
entitled to any preemptive or subscription rights in respect of any securities
of the Company.
Section 10. Notices. Except as otherwise provided herein, all notices,
requests, demands, and other communications hereunder shall be in writing and
shall be deemed to have been duly given if delivered by and when sent by telex
or telecopier (with receipt confirmed) on the business day following receipt,
provided a copy is also sent by express (overnight, if possible) courier,
addressed (i) in the case of a holder of Convertible Preferred Stock, to such
holder's address as it appears on the books of the Company, and (ii) in the case
of the Company, to the Company's principal executive offices to the attention of
the Company's Chief Financial Officer.
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Section 11. Severability of Provisions. Whenever possible, each provision
hereof shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such change as
shall be necessary to render the provision in question effective and valid under
applicable law.
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IN WITNESS WHEREOF, IMC Mortgage Company has caused this Certificate of
Designation to be duly executed by its duly authorized officer and attested by
its Secretary this 13th day of July, 1998.
IMC MORTGAGE COMPANY
By: /s/ Stuart D. Marvin
----------------------------
Name: Stuart D. Marvin
Title: CFO
ATTEST:
/s/ Claudine G. Leuthauser
- ----------------------------
Name: Claudine G. Leuthauser
Title: Admn. Asst.
<PAGE> 20
ARTICLES OF AMENDMENT
DESIGNATING THE PREFERENCES, RIGHTS AND LIMITATIONS
OF THE CLASS B CONVERTIBLE PREFERRED STOCK
OF
IMC MORTGAGE COMPANY
Pursuant to Section 607.0602 of the Florida Business Corporation
Act, IMC Mortgage Company, a Florida corporation (the "Company"), hereby
certifies that the following amendments were duly adopted by the Board of
Directors of the Company (the "Board") on May 19th, 1998, pursuant to authority
conferred upon the Board by the provisions of the Articles of Incorporation of
the Company (the "Articles of Incorporation").
DESIGNATION OF CLASS B CONVERTIBLE PREFERRED STOCK. The Class,
designated as Class B Convertible Preferred Stock will have the designations,
preferences, voting powers, relative, participating, optional or other special
rights and privileges, and the qualifications, limitations and restrictions as
follows:
SECTION 1. Designation, Rank. This series of preferred stock
shall be designated the "Class B Convertible Preferred Stock," with a par value
of $0.01 per share (the "Convertible Preferred Stock"). The Convertible
Preferred Stock will rank, with respect to rights on liquidation, winding-up
and dissolution, (i) senior to all classes of common stock of the Company, as
they exist on the date hereof or as such stock may be constituted from time to
time (the "Common Stock"), and each other class of capital stock or class or
series of preferred stock established by the Board to the extent the terms of
such stock do not expressly provide that it ranks on a parity with the
Convertible Preferred Stock as to rights on liquidation, winding-up and
dissolution (collectively, together with the Common Stock, the "Junior
Securities"); (ii) on a parity with each class of capital stock or class or
series of preferred stock established by the Board to the extent the terms of
such stock expressly provide that it will rank on a parity with the Convertible
Preferred Stock as to rights on liquidation, winding-up and dissolution
(collectively, the "Parity Securities"); and (iii) junior to each other class
of capital stock or class or series of preferred stock established by the Board
to the extent the terms of such stock expressly provide that it will rank
senior to the Convertible Preferred Stock as to rights on liquidation,
winding-up and dissolution (collectively, the "Senior Securities").
SECTION 2. Authorized Number. The authorized number of shares
constituting the Convertible Preferred Stock shall be 300,000 shares.
<PAGE> 21
SECTION 3. Dividends. Holders of Convertible Preferred Stock
will not be entitled to any dividends.
SECTION 4. Liquidation Rights. The liquidation value of each
share of Convertible Preferred Stock shall be $100.00 (the "Liquidation
Value"). In the event of any voluntary or involuntary liquidation, dissolution
or winding-up of the Company, after satisfaction of the claims of creditors and
before any payment or distribution of assets is made on any Junior Securities,
including, without limitation, the Common Stock but after any payment or
distribution of assets to holders of Senior Securities, if any, (i) the holders
of Convertible Preferred Stock shall receive a liquidation preference equal to
the Liquidation Value of their shares and (ii) the holders of any Parity
Securities shall be entitled to receive an amount equal to the full respective
liquidation preferences (including any premium) to which they are entitled and
shall receive an amount equal to all accrued and unpaid dividends with respect
to their respective shares through and including the date of distribution
(whether or not declared). If, upon such a voluntary or involuntary
liquidation, dissolution or winding-up of the Company, the assets of the
Company are insufficient to pay in full the amounts described above as payable
with respect to the Convertible Preferred Stock and any Parity Securities, the
holders of the Convertible Preferred Stock and such Parity Securities will
share ratably in any distribution of assets of the Company in proportion to
their respective liquidation preferences. After payment of the Liquidation
Value, the Convertible Preferred Stock will not be entitled to any further
participation in any distribution of assets by the Company. Neither the sale or
transfer of all or any part of the assets of the Company, nor the merger or
consolidation of the Company into or with any other corporation or a merger of
any other corporation with or into the Company, will be deemed to be a
liquidation, dissolution or winding-up of the Company.
SECTION 5. Voting Rights.
Except as provided below or as may be required by the law of the
State of Florida or provided by the resolution creating any other series of
preferred stock, the holders of Convertible Preferred Stock will not be
entitled to vote. So long as any shares of Convertible Preferred Stock are
outstanding, the vote or consent of the holders of 66 2/3% of the outstanding
shares of Convertible Preferred Stock, voting together as a single class, shall
be necessary to (i) increase or decrease the par value of the shares of
Convertible Preferred Stock or (ii) amend Article IV of the Articles of
Incorporation, except with respect to changes in the par value of, or the
number of authorized shares of Common Stock, or alter or change the powers,
preferences, or special rights of the shares of Convertible Preferred Stock, so
as to affect them adversely, either directly or indirectly, or through a merger
or consolidation with any
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person, or (iii) authorize or issue any additional class or series of Parity
Securities or Senior Securities, or any security convertible into Parity
Securities or Senior Securities; provided, however, that the Company may amend
such Article IV to authorize Parity Securities not to exceed, in the aggregate,
$100 million in liquidation value without the consent of holders of 66 2/3% of
the outstanding shares of Convertible Preferred Stock.
SECTION 6. Conversion.
(a) Right to Convert. Each share of Convertible Preferred Stock
will be convertible (the rights to convert described in this subsection (a) are
referred to as the "Conversion Rights") at any time at the option of the holder
thereof, into such number of fully paid and non-assessable shares of Common
Stock (together with any Rights (as defined in subsection (b)(iii) below)
associated therewith) as is equal to (A) the sum of the Liquidation Value of
the Convertible Preferred Stock, divided by (B) the Conversion Price then in
effect. The initial "Conversion Price" for the Convertible Preferred Stock
shall be $22.50 and shall be subject to adjustment as described below. Shares
of Convertible Preferred Stock to be redeemed in accordance with Section 7
hereof will not be convertible after the close of business on the day preceding
the date fixed for redemption, unless the Company defaults in payment of the
redemption price.
(b) Anti-dilution Provisions. The Conversion Price is subject to
adjustment after the issuance of the Convertible Preferred Stock from time to
time as follows:
(i) In case the Company shall (1) pay a dividend or make a
distribution on Common Stock in shares of Common Stock, (2) subdivide
its outstanding shares of Common Stock into a greater number of shares
or (3) combine its outstanding shares of Common Stock into a smaller
number of shares, the Conversion Price in effect immediately prior to
such action shall be adjusted so that the holder of any Convertible
Preferred Stock thereafter surrendered for conversion shall be entitled
to receive the number of shares of Common Stock which such holder would
have been entitled to receive immediately following such action had the
holder's Convertible Preferred Stock been converted immediately prior
thereto. An adjustment made pursuant to this subsection (i) shall
become effective immediately (except as provided in subsection (vi)
below) after the record date in the case of a dividend or distribution
and shall become effective immediately after the effective date in the
case of a subdivision or combination.
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(ii) In case the Company shall issue rights, options or warrants
to holders of its outstanding shares of Common Stock entitling them to
subscribe for or purchase shares of Common Stock at a price per share
less than the Current Market Price per share (as defined in subsection
(v) below) of the Common Stock on the record date mentioned below, then
the Conversion Price in effect immediately prior thereto shall be
adjusted so that it shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the date of issuance of
such rights, options or warrants by a fraction of which
(1) the numerator shall be the sum of (A) the number of
shares of Common Stock outstanding on the date of issuance of
such rights, options or warrants immediately prior to such
issuance plus (B) the number of shares of Common Stock which the
aggregate offering price of the total number of shares so
offered would purchase at such Current Market Price (determined
by multiplying such total number of shares offered for
subscription or purchase by the sum of the exercise price of
such rights, options or warrants plus the value of any
consideration per share paid to the Company for such rights,
options or warrants and dividing the product so obtained by such
Current Market Price), and
(2) the denominator shall be the sum of (A) the number of
shares of Common Stock outstanding on the date of issuance of
such rights, options or warrants immediately prior to such
issuance plus (B) the number of additional shares of Common
Stock which are so offered for subscription or purchase.
Such adjustment shall be made successively whenever any rights,
options or warrants are issued, and shall become effective immediately
(except as provided in subsection (vi) below) after the record date for
the determination of stockholders entitled to receive such rights,
options or warrants; provided, however, in the event that all the
shares of Common Stock offered for subscription or purchase are not
delivered upon the exercise of such rights, options or warrants, upon
the expiration of such rights, options or warrants the Conversion Price
shall be readjusted to the Conversion Price which would have been in
effect had the numerator and the denominator of the foregoing fraction
and the resulting adjustment been made based upon the number of shares
of Common Stock actually delivered upon the exercise of such rights,
options or warrants rather than upon the number of shares of Common
Stock offered for subscription or purchase. In determining the value of
any consideration
4
<PAGE> 24
received by the Company for such rights, options or warrants, the
determination of the Board in good faith shall be conclusive and shall
be described in a Board resolution.
(iii) Notwithstanding subsection (ii) above, any adjustments to
the Conversion Price to account for the issuance of "Rights" under a
Shareholder Rights Plan or Agreement (a "Rights Agreement") adopted
subsequent to the date hereof shall be made when such Rights are
exercised or exchanged by the Company for Common Stock (Common Stock
issued pursuant to the exercise of, or exchange by the Company for,
such Rights are referred to as "Rights Stock") pursuant to a Rights
Agreement or like arrangement at a price per share less than the
Current Market Price per share of Common Stock on the date of such
exercise or exchange. The Conversion Price in effect immediately prior
to such exercise or exchange shall be adjusted so that it shall equal
the price determined by multiplying the Conversion Price in effect
immediately prior to the date of such exercise or exchange by a
fraction of which
(1) the numerator shall be the sum of (A) the number of
shares of Common Stock outstanding on the date of issuance of
such Rights Stock immediately prior to such issuance plus (B)
the number of shares of Common Stock which the aggregate
consideration received for the total number of shares of Rights
Stock so issued would purchase at such Current Market Price
(determined by multiplying such total number of shares of Rights
Stock by the consideration received per share of such Rights
Stock and dividing the product so obtained by such Current
Market Price), and
(2) the denominator shall be the sum of (A) the number of
shares of Common Stock outstanding on the date of issuance of
such Rights Stock immediately prior to such issuance plus (B)
the number of additional shares of Rights Stock which are so
issued.
Such adjustment shall be made successively whenever any Rights
Stock is issued, and shall become effective immediately (except as
provided in subsection (vi) below) after the issuance of Rights Stock.
If after the "Distribution Date" or a similar date (as defined in a
Rights Agreement), holders converting shares of Convertible Preferred
Stock are, for any reason, not entitled to receive the Rights or
similar rights, options or warrants which would otherwise be
attributable (but for the date of conversion) to the shares of Common
Stock received upon such conversion, then a reducing adjustment shall
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<PAGE> 25
be made in the Conversion Price to reflect the fair market value of the
Rights or similar rights, options or warrants. If such an adjustment is
made and the Rights or similar rights, options or warrants are later
exchanged, redeemed, invalidated or terminated, then a corresponding
reversing adjustment shall be made to the Conversion Price, on an
equitable basis, to take account of such event.
(iv) In case the Company shall distribute to holders of Common
Stock evidences of indebtedness, equity securities (including equity
interests in the Company's subsidiaries) other than Common Stock or
other assets (other than cash dividends paid out of earned surplus of
the Company or, if there shall be no earned surplus, out of net profits
for the fiscal year in which the dividend is made and/or the preceding
fiscal year), or shall distribute to holders of Common Stock rights,
options or warrants to subscribe to securities (other than any Rights,
rights, options or warrants referred to in subsection (ii) or
subsection (iii) above), then in each such case the Conversion Price
shall be adjusted so that it shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the
date of such distribution by a fraction of which the numerator shall be
the Current Market Price per share of the Common Stock on the record
date mentioned below less the then fair market value of the portion of
the assets, evidence of indebtedness and equity securities so
distributed, or of such subscription rights, warrants or options,
applicable to one share of Common Stock, and of which the denominator
shall be such Current Market Price. For the purposes of this subsection
(iv), in the event of a distribution of shares of capital stock or
other securities of any subsidiary of the Company as a dividend on
shares of Common Stock, the "then fair market value" of the shares or
other securities so distributed shall be the value of such shares or
other securities on the record date mentioned below as determined by
the Board, whose good faith determination shall be conclusive evidence
of such value, and shall be described in a Board resolution. Such
adjustment shall become effective immediately (except as provided in
subsection (vi) below) after the record date for the determination of
stockholders entitled to receive such distribution.
(v) For the purpose of any computation under subsection (ii),
subsection (iii) or subsection (iv) above, the "Current Market Price"
per share of stock on any date shall be deemed to be the average of the
last sale prices of a share of such stock for the 15 consecutive
trading days commencing 20 trading days before the earliest of the date
in question and the date before the "ex date" with respect to the
issuance or distribution requiring such computation, or, if there
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<PAGE> 26
shall have been no sales of such stock on any such trading day, the
average of the closing bid and asked prices at the end of such trading
day. For purposes of this subsection (v), the term "ex date", when used
with respect to any issuance or distribution, means the first date on
which the stock trades regular way on the principal national securities
exchange on which the stock is listed or admitted to trading (or if not
so listed or admitted, on NASDAQ, or a similar organization if NASDAQ
is no longer reporting trading information) without the right to
receive such issuance or distribution.
(vi) In any case in which this Section shall require that an
adjustment be made immediately following a record date or immediately
following the exercise of, or exchange of Rights Stock for, a Right,
the Company may elect to defer the effectiveness of such adjustment
(but in no event until a date later than the later of the "ex date" as
defined above and the effective date of the event giving rise to such
adjustment), in which case the Company shall, with respect to any
Convertible Preferred Stock converted after the date of such exercise
or exchange or such record date, as the case may be, and before such
adjustment shall have become effective (1) defer making any cash
payment or issuing to the holder of such Convertible Preferred Stock
the number of shares of Common Stock and other capital stock of the
Company issuable upon such conversion in excess of the number of shares
of Common Stock and other capital stock of the Company issuable
thereupon only on the basis of the Conversion Price prior to
adjustment, and (2) not later than five business days after such
adjustment shall have become effective, pay to such holder the
appropriate cash payment and issue to such holder the additional shares
of Common Stock and other capital stock of the Company issuable on such
conversion.
(vii) Whenever the Conversion Price is adjusted as provided
above:
(1) the Company shall compute the adjusted Conversion
Price and shall promptly file with the stock transfer or
conversion agent, as appropriate, for the Convertible Preferred
Stock, a certificate signed by a principal financial officer of
the Company setting forth the adjusted Conversion Price and
showing in reasonable detail the facts upon which such
adjustment is based and the computation thereof; and
(2) a notice stating that the Conversion Price has been
adjusted and setting forth the adjusted Conversion Price shall,
as soon as practicable, be sent by first-class mail to the
holders of record of the Convertible Preferred Stock.
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<PAGE> 27
In case:
(A) the Company shall take any action which would require
an adjustment to the Conversion Price pursuant to subsection
(iv) above;
(B) the Company shall authorize the granting to the
holders of its Common Stock of rights, options or warrants
entitling them to subscribe for or purchase any shares of
capital stock of any class or of any other rights;
(C) of any reorganization or reclassification of the
Common Stock (other than a change in par value, or from par
value to no par value, or from no par value to par value, or a
subdivision or combination of its outstanding Common Stock), or
of any consolidation or merger to which the Company is a party
and for which approval of any stockholders of the Company is
required, or of the sale, lease or transfer of all or
substantially all the assets of the Company; or
(D) of the voluntary or involuntary liquidation,
dissolution or winding-up of the Company;
then the Company shall cause to be mailed to the stock transfer or
conversion agent, as appropriate, for the Convertible Preferred Stock
and to the holders of record of Convertible Preferred Stock, at least
20 days (or 10 days in any case described in subsections (A) or (B)
above) prior to the applicable record date or effective date specified
below, a notice stating (x) the date as of which the holders of record
of Common Stock to be entitled in such dividend, distribution, rights,
options or warrants are to be determined, or (y) the date on which such
reorganization, reclassification, consolidation, merger, sale, lease,
transfer, liquidation, dissolution or winding-up is expected to become
effective, and the date as of which it is expected that holders of
record of Common Stock shall be entitled to exchange their shares for
securities or other property, if any, deliverable upon such
reorganization, reclassification, consolidation, merger, sale, lease,
transfer, liquidation, dissolution or winding-up. Neither the failure
to give the notice required by this subsection (vii), nor any defect
therein, to any particular holder shall affect the sufficiency of the
notice or the legality or validity of any such dividend, distribution,
right, option, warrant, reorganization, reclassification,
consolidation, merger, sale, lease, transfer, liquidation, dissolution
or winding-up, or the vote authorizing any such action with respect to
the other holders.
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<PAGE> 28
(viii) To the extent permitted by law, the Company from time to
time may reduce the Conversion Price by any amount for any period of at
least 20 days (or such other period as may then be required by
applicable law) if the Board has made a determination in good faith
that such reduction would be in the best interests of the Company,
which determination shall be conclusive. No reduction in the Conversion
Price pursuant to this subsection (viii) shall become effective unless
the Company shall have mailed a notice, at least 15 days prior to the
date on which such reduction is scheduled to become effective, to each
holder of Convertible Preferred Stock. Such notice shall be given by
first-class mail, postage prepaid, at such holder's address as it
appears on the books of the Company. Such notice shall state the amount
per share by which the Conversion Price will be reduced and the period
for which such reduction will be in effect. Neither the failure to give
the notice required by this subsection (viii), nor any defect therein,
to any particular holder shall affect the sufficiency of the notice or
the legality or validity of any such reduction in Conversion Price, or
the vote authorizing such action with respect to the other holders.
(ix) At its option, the Company may make such reduction in the
Conversion Price, in addition to those otherwise required by this
Section 6, as the Board deems advisable to avoid or diminish any income
tax to holders of Common Stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event
treated as such for income tax purposes; provided that any such
reduction shall not be effective until written evidence of the action
of the Board authorizing such reduction shall be filed with the
Secretary of the Company and notice thereof shall have been given by
first-class mail, postage prepaid, to each holder of Convertible
Preferred Stock at such holder's address as it appears on the books of
the Company.
(c) Consolidation, Merger or Sale of Assets. If any transaction
shall occur, including without limitation (i) any recapitalization or
reclassification of shares of Common Stock (other than a change in par value,
or from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination of the Common Stock), (ii) any
consolidation or merger of the Company with or into another person or any
merger of another person into the Company (other than a merger in which the
Company is the surviving corporation and that does not result in a
reclassification, conversion, exchange or cancellation of Common Stock), (iii)
any sale, lease or transfer of all or substantially all of the assets of the
Company, or (iv) any compulsory share exchange, pursuant to any of which
holders of Common Stock shall be entitled to receive other securities, cash or
other property, then appropriate provision shall be made so that the holder of
each share of Convertible Preferred Stock
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<PAGE> 29
then outstanding shall have the right thereafter to convert such share only
into the kind and amount of the securities, cash or other property that would
have been receivable upon such recapitalization, reclassification,
consolidation, merger, sale, lease, transfer or share exchange by a holder of
the number of shares of Common Stock issuable upon conversion of such share of
Convertible Preferred Stock immediately prior to such recapitalization,
reclassification, consolidation, merger, sale, lease, transfer or share
exchange and the Company shall not enter into any such merger, consolidation,
sale, lease transfer or share exchange unless the company formed by such
consolidation or resulting from such merger or that acquires such assets or
that acquires the Company's shares, as the case may be, shall make provisions
in its certificate or articles of incorporation or other constituent document
to establish such right. Such certificate or articles of incorporation or other
constituent document shall provide for adjustments that, for events subsequent
to the effective date of such certificate or articles of incorporation or other
constituent documents, shall be as nearly equivalent as may be practicable to
the relevant adjustments provided for in the preceding subsections (a) and (b)
and in this subsection (c).
(d) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the Convertible Preferred Stock, and any
portion of Convertible Preferred Stock surrendered for conversion which would
otherwise result in a fractional share of Common Stock shall be redeemed for
cash in an amount equal to the product of such fraction multiplied by the
closing price of the Common Stock on the last business day prior to conversion
or, if there shall have been no sales of the Common Stock on such business day,
the average of the closing bid and asked prices at the end of such business
day.
(e) Mechanics of Conversion. Before any holder of Convertible
Preferred Stock shall be entitled to convert such stock into shares of Common
Stock and to receive certificates therefor, such holder shall surrender the
certificate or certificates for the Convertible Preferred Stock to be
converted, duly endorsed, at the office of the Company or of any transfer agent
for the Convertible Preferred Stock, and shall give written notice to the
Company at such office that such holder elects to convert the same. The Company
shall, within 10 days after such delivery, issue and deliver at such office to
such holder of the Convertible Preferred Stock (or to any other person
specified in the notice delivered by such holder) a certificate or certificates
for the number of shares of Common Stock to which such holder shall be entitled
as aforesaid and a check payable to the holder for any cash amounts payable as
a result of a conversion into fractional shares of Common Stock. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Convertible Preferred
Stock to be converted, and the
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<PAGE> 30
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date. In case any certificate
for shares of the Convertible Preferred Stock shall be surrendered for
conversion of only a part of the shares represented thereby, the Company shall
deliver within 10 days at such office to or upon the written order of the
holder thereof, a certificate or certificates for the number of shares of
Convertible Preferred Stock represented by such surrendered certificate which
are not being converted. Notwithstanding the foregoing, the Company shall not
be obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless the certificates evidencing the
Convertible Preferred Stock are either delivered to the Company or its transfer
agent or the Company or its transfer agent shall have received evidence
satisfactory to it evidencing that such certificates have been lost, stolen or
destroyed and the holder of such Convertible Preferred Stock executes an
agreement satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection with such certificates. The issuance of
certificates of shares of Common Stock issuable upon conversion of shares of
Convertible Preferred Stock shall be made without charge to the converting
holder for any tax imposed in respect of the issuance thereof; provided that
the Company shall not be required to pay any tax which may be payable with
respect to any transfer involved in the issue and delivery of any certificate
in a name other than that of the holder of the shares of Convertible Preferred
Stock being converted.
Section 7. Mandatory Redemption.
(a) The Company shall be required to redeem (x) 33 1/3% of the
Convertible Preferred Stock outstanding on July 14, 2008, (y) 50% of the
Convertible Preferred Stock outstanding on July 14, 2009 and (z) the balance of
the Convertible Preferred Stock outstanding on July 14, 2010, at a redemption
price per share equal to the Liquidation Value (each such payment, a
"Redemption Payment"). In accordance with subsection (b) below, the Company
shall mail to each record holder of Convertible Preferred Stock written notice
of its requirement to redeem shares of Convertible Preferred Stock held by such
holder.
(b) Mechanics of Redemption. In the event the Company shall be
required to redeem shares of Convertible Preferred Stock, notice of such
redemption shall be given by first class mail, postage prepaid, mailed not less
than 10 days nor more than 30 days prior to the redemption date, to the holder
of record of the shares to be redeemed at such holder's address as the same
appears on the stock register of the Corporation. Each such notice shall state:
(i) the redemption date; (ii) the redemption price; and (iii) the place or
places where certificates for such shares are to be
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<PAGE> 31
surrendered for payment of the redemption price. The redeemed shares of
Convertible Preferred Stock shall no longer be deemed to be outstanding and
shall be canceled and shall not be available for reissue or redesignation, and
all rights of the holders thereof as a shareholder of the Company (except the
right to receive from the Company the redemption price) shall cease.
(c) Default on Redemption.
(i) In the event that any Redemption Payment shall not have been
paid when due, the maximum authorized number of directors of the
Company will be automatically increased by such number as would equal
the number of the directors of the Company at the time of such increase
plus one, and holders of Convertible Preferred Stock and any Parity
Securities and Senior Securities with substantially similar voting
rights ("Parity Voting Securities") shall be entitled to vote their
shares of Convertible Preferred Stock, in accordance with the
procedures set forth below, to elect, voting separately as a class,
such additional directors (the "Election Right"). So long as any shares
of Convertible Preferred Stock shall be outstanding, the holders of
Convertible Preferred Stock shall retain the Election Right until such
Redemption Payment is paid in full. The period during which holders of
Convertible Preferred Stock, together with holders of Parity Voting
Securities, retain such right is referred to as a "Default Period".
(ii) So long as any shares of Convertible Preferred Stock shall
be outstanding, during any Default Period, the Election Right may be
exercised initially at a special meeting called pursuant to subsection
(iii) below or at any annual meeting of shareholders. The absence of a
quorum of holders of Common Stock (or any class thereof) shall not
affect the exercise of the Election Right.
(iii) Unless the holders of Convertible Preferred Stock have,
during an existing Default Period, previously exercised their right to
elect directors, the Board may, and upon the request of the holders of
record of not less than 66 2/3% of the Convertible Preferred Stock and
Parity Voting Securities then outstanding, the Board shall, order the
calling of a special meeting of holders of Convertible Preferred Stock,
which meeting shall thereupon be called by the Chairman of the Board,
the President, a Vice President or the Secretary of the Company. Notice
of such meeting and of any annual meeting at which holders of
Convertible Preferred Stock are entitled to vote pursuant to this
subsection (iii) shall be given to each holder of record of Convertible
Preferred Stock by
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<PAGE> 32
mailing a copy of such notice to such holder at such holder's last
address as it appears on the books of the Company. Such meeting shall
be called for a date not later than 30 days after such order or
request, or, in default of the calling of such meeting within 30 days
after such order or request, such meeting may be called on similar
notice by any stockholder or stockholders owning in the aggregate not
less than 66 2/3% of the Convertible Preferred Stock then outstanding.
(iv) During any Default Period, the holders of Common Stock, and
other classes of stock of the Company, if applicable, shall continue to
be entitled to elect all of the directors unless and until the holders
of Convertible Preferred Stock shall have exercised the Election Right.
After the exercise of the Election Right (x) the directors so elected
by the holders of Convertible Preferred Stock and Parity Voting
Securities shall continue in office until the earlier of (A) such time
as their successors shall have been elected by such holders and (B) the
expiration of the Default Period, and (y) any vacancy in the Board with
respect to a directorship to be elected pursuant to this Section by the
holders of Convertible Preferred Stock may be filled by vote of the
remaining directors previously elected by such holders. References in
this subsection (c) to directors elected by the holders of a particular
class of stock shall include directors elected by such directors to
fill vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a Default Period, (x) the
Election Right shall cease, (y) the term of any additional directors
elected by the holders of Convertible Preferred Stock and Parity Voting
Securities pursuant to this Section shall terminate, and (z) the number
of directors shall be such number as may be provided for in the
Articles of Incorporation or By-laws irrespective of any increase made
pursuant to subsection (i) of this subsection (c) (such number being
subject, however, to subsequent change in any manner provided by law or
in the Articles of Incorporation or By-laws).
Section 8. Status of Reacquired Shares. If shares of Convertible
Preferred Stock are converted pursuant to Section 6 hereof or redeemed pursuant
to Section 7 hereof, the shares so converted or redeemed shall, upon compliance
with any statutory requirements, assume the status of authorized but unissued
shares of preferred stock of the Company, but may not be reissued as
Convertible Preferred Stock.
Section 9. Preemptive Rights. The Convertible Preferred Stock is not
entitled to any preemptive or subscription rights in respect of any securities
of the Company.
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<PAGE> 33
Section 10. Notices. Except as otherwise provided herein, all notices,
requests, demands, and other communications hereunder shall be in writing and
shall be deemed to have been duly given if delivered by and when sent by telex
or telecopier (with receipt confirmed) on the business day following receipt,
provided a copy is also sent by express (overnight, if possible) courier,
addressed (i) in the case of a holder of Convertible Preferred Stock, to such
holder's address as it appears on the books of the Company, and (ii) in the
case of the Company, to the Company's principal executive offices to the
attention of the Company's Chief Financial Officer.
Section 11. Severability of Provisions. Whenever possible, each
provision hereof shall be interpreted in a manner as to be effective and valid
under applicable law, but if any provision hereof is held to be prohibited by
or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such change as
shall be necessary to render the provision in question effective and valid
under applicable law.
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<PAGE> 34
IN WITNESS WHEREOF, IMC Mortgage Company has caused this Certificate of
Designation to be duly executed by its duly authorized officer and attested by
its Secretary this 13th day of July, 1998.
IMC MORTGAGE COMPANY
/s/ Stuart D. Marvin
By: ---------------------------
Name: Stuart D. Marvin
Title: CFO
ATTEST:
/s/ Claudine G. Leuthauser
- -----------------------------
Name: Claudine G. Leuthauser
Title: Admn. Asst.
<PAGE> 1
EXHIBIT 10.53
FIRST AMENDMENT AND RESTATEMENT OF CONTINGENCY
FEE COMPENSATION ARRANGEMENT
This First Amendment And Restatement is entered into as of the 1st day
of April, 1998, by and between IMC MORTGAGE COMPANY, a Florida corporation (the
"Company") and MITCHELL W. LEGLER ("Legler").
Recitals
A. The Company and Legler (through his wholly owned
professional association, Mitchell W. Legler, P.A.) entered into a transaction
contingency fee arrangement as of October 25, 1996 which is reflected in the The
Company/Legler-Transaction Contingency Fee Term Sheet attached to the minutes of
the Company's board of directors meeting of that same date (the "Existing
Agreement") which the parties wish to amend and restate as provided herein
effective as to all Transactions (as defined below) which close after July 30th,
1997.
B. The amendment to the Existing Agreement is intended (i) to
limit the amount of cash paid to Legler in any calendar year with respect to
Transactions, (ii) to provide for payment of any additional amounts due to
Legler under the existing arrangement to be made in unregistered shares of the
Company's common stock (the "Common Stock"), (iii) to place an annual limit on
the aggregate compensation (both cash and Common Stock) due under the Existing
Agreement as modified hereby with respect to Transactions, (iv) to clarify the
formula for calculation of the contingency fee, (v) incorporate the monthly
retainer fee arrangement into the contract, and (vi) provide a term for the
Agreement.
C. The Company acknowledges that Legler has been required to
give up representation of a number of clients and to decline to accept new
representations in order to have the resources available to address the legal
needs of the Company.
AGREEMENT
NOW THEREFORE, in consideration of the mutual benefits to be
derived herefrom, the parties hereto agree that the matters set forth as
recitals are true and correct and do further agree that the Existing Agreement
is hereby amended and restated in its entirety as set forth herein:
1. Engagement. The Company has engaged Legler, and Legler has
accepted the engagement (the "Engagement"), for Legler to perform the following
duties as an independent contractor and not as an employee of the Company:
1
<PAGE> 2
A. General Counsel Duties. To provide the services of outside
general counsel including performing legal work for the Company to the extent of
Legler's expertise and to supervise legal work performed by other counsel to the
Company including the supervision and training of the Company's employee
attorneys as they exist from time to time; and
B. Acquisitions & Alliances Duties. To assume a lead role in
negotiating and closing of transactions with other entities ("Targets") in the
nature of acquisitions of assets, businesses, equity positions and Strategic
Alliances (as defined below) as well as mergers, all as approved by The Company
(the "Transactions"). A Strategic Alliance is a Transaction where The Company
provides financing and/or other benefits for a minority interest (or options or
warrants to obtain a minority interest) in a Target.
2. Fees. Legler will be compensated for work hereunder as follows
(collectively called "Compensation"):
A. Base Retainer. For Legler's services in connection with
Legler's Engagement as General Counsel, the Company will pay a retainer (the
"Base Retainer") of $32,500 per month commencing April 1, 1998 and continuing
during the Term; and
B. Contingent Fee. For Legler's services in connection with
Legler's Engagement in connection with Acquisitions and Strategic Alliances, for
each Transaction a contingency fee (the "Contingent Fee") which is intended to
provide an incentive for Legler to negotiate the most favorable transaction for
The Company as a function of a Transaction's effect on (i) the increase in The
Company's earnings per share ("EPS"), and (ii) the amount paid by The Company as
a multiple of the Target's after tax earnings. The fee will be calculated by
multiplying 6.45% times the "Incremental Value Increase" of The Company as a
result of all Transactions the negotiation of which commenced on or after
October 25, 1996. The Company will also reimburse Legler for out of pocket
expenses incurred by Legler in connection with possible and completed
Transactions.
C. Time of Payment. The Base Retainer will be paid monthly. As
to Transactions other than Strategic Alliances, the Contingent Fee will be paid
in two installments: (i) the "Initial Contingent Fee Payment" will be paid
within thirty days following the closing of a Transaction based on the Target's
performance prior to the closing of the Transaction, and (ii) the Final
Contingent Fee will be recalculated at the end of four full calendar quarters
following the effective date of the closing of a Transaction based on actual
post-closing performance and the balance, if any, of the Final Contingency Fee
over the Initial Contingent Fee Payment will be paid within sixty days following
the end of those four quarters. As to Strategic Alliances, the entire Contingent
Fee will be paid within sixty days following the expiration of twelve full
calendar quarters following the closing of a Strategic Alliance.
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<PAGE> 3
D. Incremental Value Increase. The parties agree that the
Incremental Value Increase is to be calculated as a function of the increase in
The Company's earnings per share during the Calculation Period (as defined
below) resulting from the earnings contribution of the business unit involved in
the Transaction (the "Business Unit") with such earnings calculated as
determined by The Company in good faith from time to time.
E. Incremental Value Increase. The Incremental Value Increase
from a Transaction is equal to the sum of the total net income increase derived
from the Business Unit as described above (all calculations are determined based
on the four quarters following the effective date of the Transaction as to the
final payment [or twelve quarters as to a Strategic Alliance] and based on the
four quarters prior to the initial closing for the Initial Contingent Fee
Payment (the "Calculation Period") and on an after-tax basis:
Net income contributed by the Business Unit being the sum of:
(i) the actual net income generated by the Business Unit, and
(ii) the net income to be contributed to The Company if the
loan volume of the Business Unit were to be securitized.
F. Cap on Contingency Fee Payments. The parties agree that (i)
the total cash compensation received by Legler in any calendar year as
Contingent Fees pursuant to this Agreement (but not including other compensation
to Legler including, without limitation, regular legal fees, retainer payments
and payments to "gross-up" taxes on any Common Stock issued to Legler, called
"Other Compensation") shall not exceed an average of $750,000 per year in any
two calendar year periods (the "Cash Cap"), and (ii) the total cash and Common
Stock received by Legler as Contingent Fees under this Agreement (but not
including Other Compensation) in any calendar year will not exceed the lesser of
(i) an average of $1.3 million per year in any two calendar year periods, or
(ii) an amount equal to the total compensation (excluding compensation resulting
from the exercise of stock options) paid to the lowest paid of the Company's
Chief Executive Officer, Chief Operating Officer and Chief Financial Officer
(the "Total Cap"). All compensation due to Legler as Contingent Fees pursuant to
this Agreement in any calendar year will be paid first in cash up to the Cash
Cap and any fee in excess of that amount in any calendar year shall be paid to
Legler in Common Stock up to the Total Cap. The Common Stock payable shall be
issued to Legler with the number of shares of common stock issued to Legler (i)
as to any shares issued for the initial payment being determined by dividing the
compensation then due to Legler with respect to the Transaction in question (in
excess of any cash paid with respect thereto) by the price per share by the
average closing price for the Company's common shares on NASDAQ for the ten
trading days preceding the closing of the Transaction in question, and (ii) as
to any shares delivered on the first anniversary of each closing, at the closing
price for the ten trading days ending on the fourth full quarter after the
closing of the Transaction of the Company's shares on such anniversary date. In
addition, to the extent the Company realizes a reduction in its income taxes
payable as a result of the payment of the Common Stock, an amount equal to that
actual reduction in income taxes will be paid to the Legler as an additional
cash bonus to aid the Legler in paying the Legler's taxes created by such Common
Stock.
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3. Term of Engagement. The initial term of this Agreement
shall be effective as of October 25, 1996, (the "Commencement Date") and
continue through December 31, 2001, subject to extension or earlier termination
as otherwise set forth in this Agreement.
A. Termination of Engagement by the Company for Cause.
The Company may terminate Legler's Engagement upon giving written notice
thereof, if such termination is for "Cause" (as defined herein) and Cause is not
cured by Legler within any available cure period provided below. Such notice
must set forth in reasonable detail the facts underlying the claim of Cause. For
the purposes of this Agreement, "Cause" shall be defined as any of the
following, which act or omission is made or omitted by Legler without a
reasonable belief that such act or omission would benefit the Company:
(1) a default or breach by Legler of any of the
provisions of this Agreement materially detrimental to the Company which is not
cured within fifteen (15) days following written notice thereof;
(2) actions by Legler constituting fraud,
embezzlement or dishonesty which result in a conviction of a criminal offense
not yet overturned on appeal;
(3) actions by Legler in intentionally furnishing
materially false, misleading, or omissive information to the Company, its Board
of Directors or any committee of the Board of Directors that is materially
detrimental to the Company;
(4) actions constituting a breach of the
confidentiality of the Business and/or trade secrets of the Company which is
materially detrimental to the Company;
(5) acts or omissions which constitute willful
failure to follow reasonable and lawful directives of the Company's Chief
Executive Officer or President, which are consistent with Legler's Engagement
and performance which is not cured within fifteen (15) days following written
notice thereof.
Negligence in performance of legal services hereunder will not constitute Cause
unless such actions constituted bad faith. If any conviction pursuant to Section
3(A)(2) above is overturned on appeal, Legler will be deemed to have been
terminated without Cause as of the effective date of his earlier termination.
B. Termination Without Cause. The Company shall have
the right to terminate this Legler's Engagement without Cause on thirty (30)
days written notice, subject to payment by the Company of all amounts then due
to Legler under this Agreement and payment of the Deferred Compensation
described in Section 4 below. In such event, the Engagement of Legler will cease
immediately upon the expiration of that period.
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<PAGE> 5
C. Termination by Legler. Legler may terminate
Legler's Engagement upon thirty (30) days written notice after the occurrence of
a material default of this Agreement by the Company, which default is not cured
within the thirty-day notice period. Such notice shall set forth in reasonable
detail the facts underlying the default. If Legler terminates Legler's
Engagement under this Section 3C, Legler shall be entitled to payment by the
Company of all amounts then due to Legler under this Agreement and payment of
the Deferred Compensation described in Section 4 below.
D. Termination by Legler Upon Change of Control.
Legler may terminate Legler's Engagement Agreement upon thirty (30) days written
notice at any time within six (6) months following the occurrence of a "Change
of Control", but only prior to Legler's receiving a notice of termination by the
Company for Cause. Upon such termination Legler shall be entitled to payment by
the Company of all amounts then due to Legler under this Agreement and payment
of the Deferred Compensation described in Section 4 below. Change of Control is
defined for the purposes of this Agreement as any of the following acts:
(1) The acquisition by any person, entity or
"group" within the mean of ss. 13(d) or 14(d) of the Securities Exchange Act of
1934 (the "Exchange Act") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of twenty-five (25%) percent or more
of either the then outstanding equity interests in the Company or the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of the Board of Directors; or
(2) If the individuals who serve on the Board of
Directors as of the Commencement Date (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of Directors; provided,
however, any person who becomes a director subsequent to the Commencement Date,
whose election or nomination for election was approved by a vote of at least a
majority of the directors then compiling the Incumbent Board, shall for purposes
of this Agreement be considered as if such person was a member of the Incumbent
Board; or
(3) Approval by the Company's equity holders of
(i) a merger, reorganization or consolidation whereby the Company's equity
holders immediately prior to such approval do not, immediately after
consummation of such reorganization, merger or consolidation own more than 50%
of the combined voting power entitled to vote generally in the election of
directors of the surviving entity's then outstanding voting securities; or (ii)
liquidation or dissolution of the Company; or (iii) the sale of all or
substantially all of the assets of the Company.
E. Disability. In the event that M. Legler shall
become mentally or physically disabled (as hereinafter defined) so as to be
unable to fully perform his duties herein, for a period of three consecutive
months of continuous Disability (hereinafter "Permanent Disability"), the
Company shall have the right to immediately terminate Legler's Engagement. Upon
termination, Legler shall receive the Deferred Compensation provided in Section
4 herein. Disability for the purposes of this Section shall mean the inability
of Legler to perform his duties as described herein.
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<PAGE> 6
F. Automatic Extension. The term of the Engagement
under this Agreement shall be automatically extended for successive three (3)
year periods at the end of the initial and each extended term thereafter, unless
either party provides written notice of termination to the other party at least
six (6) months prior to the expiration of the initial or such extended term,
respectively. In the event the Company terminates this Legler's Engagement or
fails to renew Legler's Engagement under this Agreement or does not permit the
automatic extension to occur at the end of any term hereof, Legler shall be
entitled to receive the Deferred Compensation under Section 4 hereof.
4. DEFERRED COMPENSATION.
A. When Due. Legler (or his estate as the case may
be) shall be entitled to the Deferred Compensation as calculated below, to be
paid in the event that Legler's Engagement is terminated for any of the
following reasons: (i) death of Legler; (ii) termination by the Company without
cause or for no reason pursuant to Section 3B, (iii) termination by Legler upon
default by the Company pursuant to Section 3C, (iv) termination by Legler after
a Change of Control pursuant to Section 3D; (vi) termination by the Company in
the event of a Disability of Legler pursuant to Section 3E, or (vii) termination
or failure to renew by the Company pursuant to Section 3F.
B. Amount. The Deferred Compensation shall be the
amount which is equal to 150% of the highest Compensation received by Legler
(and Mitchell W. Legler, P.A.) from the Company (including both Base Retainer
and Contingency Fee) in any one of the three calendar years preceding the event
giving rise to the need to calculate Deferred Compensation. The Deferred
Compensation herein shall be deemed liquidated damages resulting from the
Company's termination of this Agreement and shall be Legler's sole and exclusive
remedy for any such termination. Deferred Compensation shall not be diminished
or offset by reason of any earnings by Legler subsequent to the date of
termination. The Deferred Compensation shall be the amount which is calculated
as the greater of (i) the Base Retainer payments Legler would have received had
his Engagement continued for the remaining term of this Agreement; or (ii) an
amount equal to 150% of the highest compensation earned by M. Legler in any one
of the past three calendar years (including both Base Salary and Contingent
Fee).
C. Payment of Deferred Compensation. Except as
provided below, the Deferred Compensation shall be paid in monthly installments
over the thirty-six (36) months following the event giving rise to a Deferred
Compensation. If such termination is a result of the death of Legler, the
initial Deferred Compensation payment shall be made within fifteen (15) days
after the personal representative of Legler's estate notifies the Company that
Letters of Administration have been filed in the probate proceeding. The Company
shall have the option at all times during the term of this Agreement to maintain
key man life insurance on Legler's life to cover the cost of any Deferred
Compensation due to Legler. If such key man life insurance is maintained, and
the Deferred Compensation is due as a result of M. Legler's death, the Deferred
Compensation shall be paid 100% in cash upon M. Legler's death.
6
<PAGE> 7
5. CONFIDENTIALITY AND NON-DISCLOSURE OF INFORMATION.
A. Confidentiality. Legler shall not, during the
term of this Agreement or at any time thereafter, divulge, furnish or make
accessible to anyone, without the Company's prior written consent, any knowledge
or information with respect to any confidential or secret aspect of the Business
which if disclosed could reasonably be expected to have a material adverse
affect on the Business, taken as a whole ("Confidential Information").
B. Ownership of Information. Legler recognizes that
all Confidential Information and copies or reproductions thereof, relating to
the Company's operations and activities made or received by Legler in the course
of his employment are the exclusive property of the Company and Legler holds and
uses same as trustee for the Company and subject to the Company's sole control
and will deliver same to the Company at the termination of his employment,
or earlier if so requested by the Company in writing. All of such Confidential
Information, which if used by Legler outside the scope of the Engagement, could
cause irreparable and continuing injury to the Business for which there may not
be an adequate remedy at law.
C. Material Breach. Any material breach of the terms
of this paragraph by Legler shall be deemed a material breach of this Agreement.
Legler acknowledges that compliance with the provisions of this Section 6 is
necessary to protect the goodwill and other proprietary interests of the Company
and is a material condition of employment.
6. RESTRICTIVE COVENANT. As an inducement to cause the
Company to enter into this Agreement, Legler covenants and agrees that during
his Engagement and, for a period of eighteen (18) months after the end of the
Engagement, regardless of the manner or cause of termination, except as limited
in Section 6F below:
A. Restriction. M. Legler will not be an employee,
agent, director, stockholder or owner (except of not more than a 5% interest in
the voting securities of any publicly traded entity), partner, consultant,
financial backer, creditor or be otherwise directly or indirectly connected with
or participate in the management, operation or control of any Business, firm,
proprietorship, corporation, partnership, association, entity or venture
primarily engaged in a similar business as the Business (a "Competing Business")
within an area (the "Restricted Area") which is the continental United States.
B. Solicitation of Business. Legler will not
initiate any contact with, call upon, solicit business from, sell or render
services to any customer of the Company with respect to a Competing Business
within the Restricted Area and Legler shall not directly or indirectly aid or
assist any other person, firm or corporation to do any of the aforesaid acts.
C. Solicitation of Employees. Legler will not
directly or indirectly, as principal, agent, owner, partner, stockholder,
officer, director, employee, independent contractor or consultant of any
Competing Business within the Restricted Area or in any individual or
representative capacity for solicit, directly or indirectly cause others to
solicit the employment of any
7
<PAGE> 8
officer, sales person, agent, or other employee of the Company who has a base
compensation rate of $50,000 or more (subject to a COLA Adjustment), for the
purpose of causing said officer, sales person, agent or other person to
terminate employment with the Company and be employed by such Competing
Business.
D. Material Violation. A proven material violation
of this Section 6 shall constitute a material and substantial breach of this
Agreement and shall result in the imposition of the Company's remedies contained
in Section 7 herein. Legler acknowledges and agrees that proof of more than one
such personal solicitation by him, after due notice of the first alleged
violation, of a customer or employee, shall constitute absolute and conclusive
evidence that Legler has substantially and materially breached the provisions of
this Agreement.
E. Other Employment. It is understood by and
between the parties that the foregoing covenants set forth in Section 6 are
essential elements of this Agreement, and that, but for the agreement of Legler
to comply with such covenants, the Company would not have entered into this
Agreement. Such covenants by Legler shall be construed as agreements independent
of any other provision of this Agreement and the existence of any claim or cause
of action Legler may have against the Company whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Company of these covenants.
F. Defaults and Deferred Compensation.
(1) Company Breach. If the Company breaches
any requirement of Section 4 ("Deferred Compensation") herein in addition to any
other remedy to which Legler may be entitled, Company shall not be entitled to
enforce the provisions of this Section 6. The provisions of this Section 6 shall
not be imposed notwithstanding reinstatement of any benefits contained in
Section 5.
(2) Legler Breach. If Legler breaches any
requirement of Section 7 herein, in addition to any other remedy to which the
Company may be entitled, all of Legler's rights to receive any portion of the
Deferred Compensation not already paid shall terminate. The right to receive
unpaid Deferred Compensation will not be reinstated notwithstanding any
cessation by Legler of his breach of Section 6.
(3) Inapplicability of Restrictions. In the
event that Legler's Engagement is terminated due to a material breach by Company
of its obligations or in the event of a termination of Legler's Engagement,
without cause, the restrictions contained in Section 6 shall not be applicable
to Legler.
7. REMEDIES. Legler hereby acknowledges, covenants and
agrees that in the event of a material default or breach by Legler under
Sections 5 or 6 of this Agreement:
A. Company may suffer irreparable and continuing
damages as a result of such breach and its remedy at law will be inadequate.
Legler agrees that in the event of a violation or breach of Sections 5 or 6 of
this Agreement, in addition to any other remedies available to it,
8
<PAGE> 9
Company shall be entitled to an injunction restraining any such default or any
other appropriate decree of specific performance, with the requirement to prove
actual damages or to post any bond or any other security and to any other
equitable relief the court deems proper; and
B. Any and all of Company's remedies described in
this Agreement shall not be exclusive and shall be in addition to any other
remedies which Company may have at law or in equity including, but not limited
to, the right to monetary damages.
8. SEVERABILITY. The invalidity of any one or more of the
words, phrases, sentences, clauses, sections, subdivisions, or subparagraphs
contained in this Agreement shall not affect the enforceability of the remaining
portions of this Agreement or any part thereof, all of which are inserted
conditionally on their being legally valid. In the event that one or more of the
words, phrases, sentences, clauses, sections, subdivisions, subparagraphs, or
Sections are determined to be unenforceable and if such invalidity shall be
caused by the length of any period of time or the size of any area set forth in
any part hereof, such period of time or such area, or both, shall be considered
to be reduced to a period or area which would cure such invalidity.
9. SUCCESSORS. This Agreement shall be binding upon and
inure to the successors and assigns of the parties hereto. Legler may assign
rights to receive payments hereunder to any law firm by which he is employed
from time to time including, without limitation, Mitchell W. Legler, P.A.
IN WITNESS WHEREOF, this agreement has been executed as of the day and year
first above written.
IMC MORTGAGE COMPANY
By: /s/ George Nicholas
----------------------------------
George Nicholas, Chairman
/s/ Mitchell W. Legler
-------------------------------------
MITCHELL W. LEGLER
9
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EXHIBIT 10.54
SECOND AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS SECOND AMENDMENT is entered into as of April 1, 1998 by and
between IMC MORTGAGE COMPANY, a Florida corporation (the "Company") and STUART
D. MARVIN (the "Executive").
Background
A. Industry Mortgage Company, L.P., a Delaware limited partnership (the
"Limited Partnership") entered into an employment agreement dated as of August
1, 1996 with the Executive which is amended by a First Amendment thereto dated
October 3rd , 1997 pursuant to which all obligations of the limited partnership
were assumed by the Company and pursuant to which certain further changes were
made (which agreement as amended is called the "Existing Agreement"); and
B. The parties wish to further amend the Existing Agreement to
incorporate the changes set forth below relating to the payment of deferred
compensation to the Executive.
NOW, THEREFORE, in consideration of the mutual benefits to be derived
herefrom, the parties hereto agree that the Existing Agreement is hereby further
modified as follows:
1. Automatic Renewal. The following provision is hereby added to
Section 3 of the Existing Agreement:
3.6 Automatic Extension. This Agreement shall be
automatically extended for successive three (3) year periods at the end
of the initial and each extended term thereafter, unless either party
provides written notice of termination to the other party at least six
(6) months prior to the expiration of the initial or such extended
term, respectively. In the event the Company terminates this Agreement
or fails to renew this Agreement or does not permit the automatic
extension to occur at the end of any term hereof, Executive shall be
entitled to receive his Deferred Compensation under section 4.2 hereof.
2. Deferred Compensation. The following provision is hereby adopted in
substitution of Section 4.2 of the Existing Agreement ("Deferred Compensation")
and shall hereafter govern the provisions of the Agreement:
4.2 Deferred Compensation.
(a) When Due. Executive (or his estate as the case
may be) shall be
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entitled to the Deferred Compensation as calculated in the
event that Executive's employment is terminated for any of the
following reasons herein: (i) death of Executive; (ii)
termination by the Company without cause pursuant to Section
3.3; (iii) termination by Executive upon default by the
Company pursuant to Section 3.4; (iv) termination by Executive
after a Change of Control pursuant to Section 3.5; (vi)
termination by the Company pursuant to Section 3.6, or (vii)
termination by the Company pursuant to Section 5.1.
(b) Amount. The Deferred Compensation shall be the
amount ("Base Deferred Compensation") which is calculated as
the greater of (i) the Base Salary payments Executive would
have received had his employment continued for the remaining
term of this Agreement (including yearly increases calculated
at the maximum increase for the prior three years); or (ii) an
amount equal to 150% of the highest compensation earned by
Executive in any of the past three calendar years (including
both Base Salary and Bonus Compensation, including any
compensation paid under the Executive Officer Unregistered
Stock Plan), with compensation for calendar year 1997 being
treated as including Bonus Compensation equal to three hundred
percent of Executive's Base Salary is the Base Salary was at
the end of 1997. In addition to the Base Deferred
Compensation, Executive shall be entitled to the following
(which, together with the Base Deferred Compensation shall be
collectively called the "Deferred Compensation") all of the
benefits and personal perquisites otherwise provided in this
Agreement (including automobile expenses) during that period
of time which is the greater of (i) the remaining term of this
Agreement, or (ii) two years (the "Deferral Period"). The
Deferred Compensation herein shall be deemed liquidated
damages resulting from the Company's termination of this
Agreement and shall be Executive's sole and exclusive remedy
for any such termination. Deferred Compensation shall not be
diminished or offset by reason of any earnings by Executive
subsequent to the date of termination.
(c) Payment of Deferred Compensation. Except as
provided below, the Deferred Compensation shall be paid in
monthly installments over the thirty-six (36) months following
the event giving rise to a Deferred Compensation. If such
termination is a result of the death of Executive, the initial
Deferred Compensation shall be made within fifteen (15) days
after the personal representative of Executive's estate
notifies the Company that Letters of Administration have been
filed in the probate proceeding. The Company shall have the
option at all times during the term of this Agreement to
maintain key man life insurance on Executive's life to cover
the cost of any Deferred Compensation due to Executive. If
such key man life insurance is maintained, and the Deferred
Compensation is due as a result of Executive's death, the
Deferred Compensation shall be paid 100% in cash upon
Executive's death.
3. Ratification as to Other Respects. The Existing Agreement is hereby
ratified and confirmed and remains in full force and effect in all respects
except as hereby modified.
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IN WITNESS WHEREOF, this Amendment has been executed as of the day and
year first above written.
IMC MORTGAGE COMPANY
By: /s/ George Nicholas
------------------------------------
George Nicholas, Chairman
/s/ Stuart D. Marvin
---------------------------------------
STUART D. MARVIN, Executive
3
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EXHIBIT 10.55
===============================================================================
IMC MORTGAGE COMPANY
Class A Convertible Preferred Stock
Class B Convertible Preferred Stock
-----------------------------
PREFERRED STOCK
PURCHASE AND OPTION AGREEMENT
-----------------------------
July 14, 1998
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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SECTION 1. Authorization and Sale of the Shares
1.1 Authorization of the Shares...................................................................1
1.2 Sale of the Shares............................................................................2
SECTION 2. Closing; Delivery
2.1 Time and Place................................................................................2
2.2 Delivery......................................................................................2
SECTION 3. Option to Purchase Class B Preferred Shares
3.1 Option to Purchase Class B Preferred Shares...................................................3
SECTION 4. Representations and Warranties of the Company
4.1 Organization and Standing, Articles of Organization and By-Laws...............................5
4.2 Corporate Power...............................................................................5
4.3 Capitalization................................................................................5
4.4 Subsidiaries..................................................................................6
4.5 Authorization.................................................................................6
4.6 SEC Reports; Company Assets and Liabilities...................................................7
4.7 No Material Adverse Change....................................................................8
4.8 Outstanding Debt..............................................................................8
4.9 Taxes.........................................................................................9
4.10 Employee Benefits; ERISA......................................................................9
4.11 Litigation...................................................................................10
4.12 Consents.....................................................................................10
4.13 Properties; Liens and Encumbrances...........................................................11
4.14 Intellectual Property, etc...................................................................11
</TABLE>
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<TABLE>
<S> <C> <C>
4.15 Minute Books.................................................................................12
4.16 Offering.....................................................................................12
4.17 Compliance with Other Instruments............................................................12
4.18 Registration Rights..........................................................................12
4.19 Environmental and Safety Laws................................................................12
4.20 Disclosure...................................................................................13
SECTION 5. Representations and Warranties of Purchasers
5.1 Organization and Standing....................................................................13
5.2 Power and Authority..........................................................................13
5.3 Authorization................................................................................13
5.4 Experience...................................................................................13
5.5 Investment...................................................................................14
5.6 Access to Data...............................................................................14
SECTION 6. Conditions to Closing of Purchasers
6.1 Representations and Warranties Correct.......................................................14
6.2 Performance..................................................................................14
6.3 Opinion of Company's Counsel.................................................................15
6.4 Compliance Certificate.......................................................................15
6.5 Certificate of Designation...................................................................15
6.6 Consents.....................................................................................15
6.7 No Material Adverse Change...................................................................15
6.8 Consulting and Fee Agreement.................................................................15
6.9 Satisfactory Review of the Company...........................................................16
6.10 General......................................................................................16
SECTION 7. Conditions to Closing of Company
7.1 Representations and Warranties Correct.......................................................16
7.2 Performance..................................................................................16
7.3 Opinion of Purchasers' Counsel...............................................................17
7.4 Compliance Certificate.......................................................................17
</TABLE>
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<TABLE>
<S> <C> <C>
7.5 General......................................................................................17
SECTION 8. Covenants of the Company
8.1 Basic Financial Information..................................................................17
8.2 Additional Information.......................................................................18
8.3 Availability of Common Stock for Conversion..................................................18
8.4 Use of Proceeds..............................................................................18
SECTION 9. Covenants of the Purchasers
9.1 Certain Actions..............................................................................19
9.2 Right of First Offer.........................................................................20
SECTION 10. Approval Rights; Board Representation; Notice Requirements
10.1 Board Representation.........................................................................22
10.2 Notice Requirement...........................................................................23
10.3 Approval Rights..............................................................................23
SECTION 11. Restrictions on Transferability of Shares;
Compliance with Securities Act
11.1 Certain Definitions..........................................................................26
11.2 Restrictive Legend...........................................................................27
11.3 Notice of Proposed Transfers.................................................................27
11.4 Requested Registration.......................................................................28
11.5 Company Registration.........................................................................31
11.6 Expenses of Registration.....................................................................33
11.7 Registration Procedures......................................................................33
11.8 Indemnification..............................................................................37
11.9 Information by Holder........................................................................39
11.10 Rule 144 Reporting...........................................................................39
11.11 Transfer or Assignment of Registration Rights................................................40
</TABLE>
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<TABLE>
<S> <C> <C>
11.12 "Market Stand-off" Agreement.................................................................40
11.13 Shelf Registrations..........................................................................40
SECTION 12. Miscellaneous
12.1 Governing Law................................................................................41
12.2 Survival.....................................................................................41
12.3 Use of Purchasers' Names.....................................................................41
12.4 Successors and Assigns.......................................................................41
12.5 Substitution of Purchaser....................................................................41
12.6 Entire Agreement; Amendment..................................................................42
12.7 Notices, etc.................................................................................42
12.8 Delays or Omissions..........................................................................42
12.9 Rights; Separability.........................................................................43
12.10 Agent's Fees.................................................................................43
12.11 Expenses.....................................................................................43
12.12 Titles and Subtitles.........................................................................43
12.13 Counterparts.................................................................................44
</TABLE>
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<TABLE>
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SCHEDULES AND EXHIBITS
Schedule of Exceptions
Exhibit 2.2 -- Company Account
Exhibit A -- Form of Certificate of Designation for Class A Preferred Stock
Exhibit B -- Form of Certificate of Designation for Class B Preferred Stock
Exhibit C -- Form of Opinion of Mitchell W. Legler, P.A.
Exhibit D -- Form of Opinion of Kramer, Levin, Naftalis & Frankel
Exhibit E -- Form of Consulting and Fee Agreement
Exhibit F -- Form of Opinion of Counsel to the Purchasers
</TABLE>
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IMC MORTGAGE COMPANY
5901 EAST FOWLER AVENUE
TAMPA, FLORIDA 33617
PREFERRED STOCK PURCHASE AND OPTION AGREEMENT
Greenwich Street Capital Partners II, L.P. ("Greenwich II")
GSCP Offshore Fund, L.P. ("GSCP Offshore")
Greenwich Fund, L.P. ("GF")
Travelers Casualty and Surety Company ("Travelers")
388 Greenwich Street
New York, New York 10013
The undersigned, IMC Mortgage Company, a Florida corporation (the
"Company"), hereby agrees with each of you (together with your successors and
assigns, the "Purchasers") as follows:
SECTION 1.
Authorization and Sale of the Shares
1.1 Authorization of the Shares. (a) The Company has, or before the
Closing (as defined below) will have, authorized the issue and sale of 500,000
shares of its Class A Convertible Preferred Stock, liquidation value $100.00 per
share (the "Class A Preferred Shares"), having the powers, preferences and
rights set forth in the Company's Class A Convertible Preferred Stock
Certificate of Designation (the "Class A Certificate"), the form of which is
attached hereto as Exhibit A.
(b) The Company has, or before the Closing, will have, authorized the
issue and sale of 300,000 shares of its Class B Convertible Preferred Stock,
liquidation value $100.00 per share (the "Class B Preferred Shares"; and,
together with the Class A Preferred Shares, the "Shares"), which Class B
Preferred Shares shall be identical to the Class A Preferred Shares, except that
the conversion price for each such Class B Preferred Share shall be $22.50 per
share. The form of the Company's Class B Convertible Preferred Stock Certificate
of Designation (the "Class B Certificate"; and, together with the Class A
Certificate, the "Certificates") setting forth the specific powers, preferences
and rights of the Class B Preferred Shares, is attached hereto as Exhibit B.
<PAGE> 8
1.2 Sale of the Shares. Subject to the terms and conditions hereof and
in reliance upon the representations, warranties and agreements contained
herein, at the Closing, (i) the Company will issue and sell to Greenwich II and
Greenwich II will purchase from the Company, 369,182.7532 Class A Preferred
Shares for a purchase price of $36,918,275.32, (ii) the Company will issue and
sell to GSCP Offshore and GSCP Offshore will purchase from the Company,
5,781.8474 Class A Preferred Shares for a purchase price of $578,184.74, (iii)
the Company will issue and sell to GF and GF will purchase from the Company,
25,035.3994 Class A Preferred Shares for a purchase price of $2,503,539.94 and
(iv) the Company will issue and sell to Travelers and Travelers will purchase
from the Company 100,000 Class A Preferred Shares for a purchase price of
$10,000,000.
SECTION 2.
Closing; Delivery
2.1 Time and Place. The closing of the transactions contemplated under
this Agreement (the "Closing") shall take place at the offices of Debevoise &
Plimpton, 875 Third Avenue, New York, New York, at 10:00 a.m. on a date mutually
agreed to by the Purchasers and the Company, but in any event not later than
July 15, 1998, unless otherwise mutually agreed to by the Purchasers and the
Company (the "Closing Date").
2.2 Delivery. At the Closing, the Company will deliver to (i) Greenwich
II a certificate or certificates (in definitive form) in such denominations and
registered in Greenwich II's name (or the name of its nominee), representing
369,182.7532 Class A Preferred Shares against payment by Greenwich II of the
purchase price of $36,918,275.32 therefor, (ii) GSCP Offshore a certificate or
certificates (in definitive form) in such denominations and registered in GSCP
Offshore's name (or the name of its nominee), representing 5,781.8474 Class A
Preferred Shares against payment by GSCP Offshore of the purchase price of
$578,184.74 therefor, (iii) GF a certificate or certificates (in definitive
form) in such denominations and registered in GF's name (or the name of its
nominee), representing 25,035.3994 Class A Preferred Shares against payment by
GF of the purchase price of $2,503,539.94 therefor and (iv) Travelers a
certificate or certificates (in definitive form) in such denominations and
registered in
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Travelers' name (or the name of its nominee), representing 100,000 Class A
Preferred Shares against payment by Travelers of the purchase price of
$10,000,000 therefor. All such purchase price payments shall be made by the
applicable Purchaser by wire transfer of immediately available funds to the
account of the Company set forth on Exhibit 2.2 hereto, as such account
information may be modified from time to time by the Company by written notice
to the Purchasers, and all such certificates shall bear the legends set forth in
Section 11 hereof.
SECTION 3.
Option to Purchase Class B Preferred Shares
3.1 Option to Purchase Class B Preferred Shares. (a) (i) Greenwich II
shall have an option to purchase up to 221,509.652 shares of Class B Preferred
Shares, (ii) GSCP Offshore shall have an option to purchase up to 3,469.1084
shares of Class B Preferred Shares, (iii) GF shall have an option to purchase up
to 15,021.2396 shares of Class B Preferred Shares and (iv) Travelers shall have
an option (such options, individually, an "Option" and collectively, the
"Options") to purchase up to 60,000 shares of Class B Preferred Shares for a
purchase price per Class B Preferred Share equal to $100 per share (such
purchase price per Class B Preferred Share, the "Class B Preferred Share
Consideration") and on the other terms and conditions set forth in this Section
3.
(b) Each Purchaser may exercise its Option, in whole or in part, at any
time and from time to time from and after the Closing until the earlier of (x)
the third anniversary of the Closing, (y) the date on which such Purchaser
agrees to sell substantially all of such Purchaser's Shares to the Company
pursuant to a Dispute Resolution Offer (as defined in Section 10.3 hereof) (it
being understood that, in the event such sale is not ultimately consummated by
the Company in accordance with the applicable provisions of this Agreement, such
Purchaser's right to exercise its Option shall be deemed not to have been
terminated pursuant to this clause (y)) and (z) 5 business days after such
Purchaser receives written notice from the Company that the average of the
closing prices for the Company's Common Stock as reported on the NASDAQ National
Market, Inc. ("NASDAQ") for any 30 consecutive trading day period, or, if there
shall have been no sales of such stock on any such trading day, the average of
the closing bid and asked prices at the end of such trading day, has been equal
to or greater than $28.125, as such amount may be hereafter adjusted to give
effect to any stock dividend, stock split, reverse split, combination,
reclassification, merger,
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consolidation or like event with respect to or affecting the Company's Common
Stock. Any exercise shall be made by such Purchaser sending a written notice
(the "Notice of Exercise") to the Company of its intention to exercise the
Option, which Notice of Exercise shall indicate the number of Class B Preferred
Shares as to which such Purchaser is exercising the Option (which number,
together with all other Class B Preferred Shares previously purchased by such
Purchaser pursuant to this Section 3.1, shall not exceed (i) 221,509.652, in the
case of Greenwich II, (ii) 3,469.1084, in the case of GSCP Offshore, (iii)
15,021.2396, in the case of GF and (iv) 60,000, in the case of Travelers), and a
date (the "Class B Preferred Share Closing Date"), not more than 30 days nor
less than 10 days from the date of such notice, on which such Purchaser proposes
to purchase such Class B Preferred Shares.
(c) Subject to the terms and conditions of Section 3.1(d), on any Class
B Preferred Share Closing Date, the applicable Purchaser shall purchase the
number of Class B Preferred Shares specified in the applicable Notice of
Exercise for a purchase price equal to the number of such Class B Preferred
Shares times the Class B Preferred Share Consideration.
(d) On each Class B Preferred Share Closing Date, against delivery of
the applicable Class B Preferred Share Consideration for such Class B Preferred
Shares (as calculated pursuant to Section 3.1(c)), the Company will (x) deliver
to the applicable Purchaser a stock certificate registered in the name of such
Purchaser and representing the applicable number of Class B Preferred Shares
being purchased on such Class B Preferred Share Closing Date (as specified in
the applicable Notice of Exercise), which certificate shall bear the legends set
forth in Section 11 hereof and (y) a certificate, executed by a duly authorized
officer of the Company, certifying that the representations and warranties made
by the Company in Section 4 hereof with respect to the Shares are true and
correct in all material respects with respect to all of the Class B Preferred
Shares to be sold by the Company on such Class B Preferred Share Closing Date.
On or prior to each Class B Preferred Share Closing Date, such Purchaser shall
deliver the applicable Class B Preferred Share Consideration for such Class B
Preferred Shares being purchased on such Class B Preferred Share Closing Date
(as calculated pursuant to Section 3.1(c) in cash (payable by wire transfer of
immediately available funds) to an account previously designated in writing by
the Company prior to the Class B Preferred Share Closing Date (as such
designation may be changed from time to time by the Company), together with a
certificate, executed by such Purchaser, certifying that the representations and
warranties of the Purchaser made in Section 5 hereof with respect to the Shares
are true and correct
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in all material respects with respect to all of the Class B Preferred Shares to
be purchased by the Purchaser on such Class B Preferred Share Closing Date.
SECTION 4.
Representations and Warranties of the Company
Except to the extent set forth on the Company's Schedule of Exceptions
attached hereto (the "Schedule of Exceptions"), the Company hereby represents
and warrants to the Purchaser as follows:
4.1 Organization and Standing, Articles of Organization and By-Laws.
The Company and each material subsidiary of the Company is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. The Company and each such subsidiary is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the failure to so qualify would have a material
adverse effect on its and its subsidiaries' business or properties, taken as a
whole. The Company has furnished you with complete and correct copies of its
Articles of Incorporation and By-Laws and, in each case, all amendments to the
date of this Agreement.
4.2 Corporate Power. The Company and each of its subsidiaries has all
requisite corporate power and authority to own the properties owned by it and to
carry on its business as now conducted or proposed to be conducted. The Company
has all requisite corporate power and authority to enter into this Agreement and
will have at the Closing all requisite corporate power to issue and sell the
Shares, to issue the Common Stock (as defined in Section 4.3 hereof) issuable
upon conversion of the Shares and to carry out and perform its obligations under
the terms of this Agreement.
4.3 Capitalization. The Company's authorized capital stock consists of
(a) 50,000,000 shares of Common Stock, par value $.01 per share (the "Common
Stock") and (b) 10,000,000 shares of Preferred Stock, par value $.01 per share
(the "Preferred Stock"), of which 500,000 shares have been designated Class A
Preferred Shares and 300,000 shares have been designated Class B Preferred
Shares. As of the date hereof, (i) 30,825,934 shares of Common Stock are issued
and outstanding, all of which are validly issued, fully paid and nonassessable
and not subject to preemptive rights; (ii) no shares of Common Stock are held in
the treasury of the Company as treasury stock; (iii) there are outstanding
options to purchase an aggregate of 3,722,657 shares of Common Stock (the
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"Stock Options"); and (iv) there are no outstanding Class A Preferred Shares,
Class B Preferred Shares or other shares of Preferred Stock. Except as set forth
in Section 4.3 of the Schedule of Exceptions, there are no stock appreciation
rights outstanding. Section 4.3 of the Schedule of Exceptions sets forth a list,
complete and correct as of the date hereof, of the holders of all Stock Options
and the number of shares of Common Stock issuable upon the exercise of each such
Stock Option and the exercise prices thereof. There are no bonds, debentures,
notes or other indebtedness of the Company having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which holders of Common Stock of the Company may vote. Except as
set forth in this Section 4.3 or in Section 4.3 of the Schedule of Exceptions,
no shares of capital stock or other voting securities are issued, reserved for
issuance or outstanding, nor are there any outstanding subscriptions, options,
warrants, rights, convertible securities or other agreements or commitments of
any character relating to the issued or unissued capital stock or other
securities of the Company or any of its subsidiaries obligating the Company or
any of its subsidiaries to issue, deliver, sell or purchase, or cause to be
issued, delivered, sold or purchased, any securities of the Company or any of
its subsidiaries. Except as set forth in Section 4.3 of the Schedule of
Exceptions, there are no voting trusts or other agreements or understandings to
which the Company or any of its subsidiaries is a party with respect to the
voting of capital stock of the Company or any of its subsidiaries.
4.4 Subsidiaries. Section 4.4 of the Schedule of Exceptions sets forth
a list, true and complete as of the date hereof, of all of the subsidiaries of
the Company. All of the outstanding shares of capital stock of each subsidiary
of the Company have been validly issued and are fully paid and nonassessable and
are owned by the Company or by a subsidiary of the Company free and clear of any
pledges, claims, liens, charges, encumbrances and security interests of any kind
or nature whatsoever (collectively, "Liens"). Except for the capital stock of
its subsidiaries or as set forth in Section 4.4 of the Schedule of Exceptions,
as of the date hereof, the Company does not own, directly or indirectly, any
capital stock or other ownership interest in any corporation, limited liability
company, partnership, joint venture or other entity.
4.5 Authorization. All corporate action on the part of the Company, its
directors and stockholders necessary for the due authorization, execution,
delivery and performance by the Company of this Agreement and the consummation
of the transactions contemplated herein and therein, and for the due
authorization, issuance and delivery of the Shares and the shares of Common
Stock issuable upon conversion of the Shares has been taken or will be taken
prior to the Closing. This Agreement is a legal,
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valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws of general application
affecting enforcement of creditors' rights generally and subject to general
principles of equity. The execution, delivery and performance by the Company of
this Agreement and compliance herewith and the issuance and sale of the Shares
and the issuance of the Common Stock issuable upon conversion of the Shares does
not and will not result in any violation of or be in conflict with, or result in
a breach of, or constitute a default under, any term or provision of any state
or Federal law, ordinance, rule or regulation to which the Company is subject,
or the Company's Articles of Incorporation or By-Laws, as amended and in effect
on the date hereof, or any mortgage, indenture, agreement, instrument, judgment,
decree, order or other restriction to which the Company is a party or by which
it is bound, or result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company
pursuant to any such term. No stockholder has any preemptive right or rights of
first refusal by reason of the issuance of the Shares or the issuance of any
shares of Common Stock upon the conversion of any of the Shares. The Shares,
when issued in compliance with the provisions of this Agreement, will be validly
issued, fully paid and nonassessable, and the Shares will be free of any Liens.
All shares of Common Stock issuable upon conversion of any Shares will be, when
issued in compliance with the applicable provisions of the Certificates, validly
issued, fully paid and nonassessable and not subject to preemptive rights, and
such shares of Common Stock will be free of any Liens.
4.6 SEC Reports; Company Assets and Liabilities. The Company has filed
all forms, reports, statements and schedules with the Securities and Exchange
Commission (the "Commission") required to be filed pursuant to the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated by the Commission (the "Commission Rules"), since April
23, 1997 (the "SEC Reports"). As of their respective filing dates, the SEC
Reports complied as to form in all material respects with all applicable
requirements of the Exchange Act and the Commission Rules applicable to such SEC
Reports, and did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances under which they
were made, not misleading. The audited and unaudited consolidated financial
statements of the Company included (or incorporated by reference) in the SEC
Reports comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission with
respect thereto, have been prepared in accordance with generally accepted
accounting principles
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applied on a consistent basis (except as stated in the financial statements,
including the related notes, and except that the quarterly financial statements
do not contain all of the footnote disclosures required by generally accepted
accounting principles) and fairly present, in all material respects, the
financial position of the Company and its consolidated subsidiaries as of the
respective dates thereof and the results of their operations, stockholders'
equity and cash flows for the periods then ended, subject, in the case of the
unaudited financial statements, to normal year-end adjustments and any other
adjustments described therein. Except for liabilities and obligations incurred
in the ordinary course of business since the date of the most recent
consolidated balance sheet included in the SEC Reports, neither the Company nor
any of its subsidiaries has incurred any liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise) which are reasonably
likely to have a material adverse effect on the Company and its subsidiaries,
taken as a whole, other than those reflected in the SEC Reports and in Section
4.6 of the Schedule of Exceptions and those incurred in connection with the
transactions contemplated hereby.
4.7 No Material Adverse Change. Except as and to the extent disclosed
in the SEC Reports or as set forth in Section 4.7 of the Schedule of Exceptions,
since December 31, 1997, there has not been (i) any material adverse change in
the business, operations or condition (financial or other) of the Company and
its subsidiaries taken as a whole, (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of the Company's capital stock, (iii) any split,
combination or reclassification of any of the Company's capital stock or any
issuance or the authorization of the issuance of any securities in respect of or
in substitution for shares of its capital stock, (iv) any granting by the
Company (x) to any executive officer or other key employee of the Company of any
increase in compensation, except for normal increases in the ordinary course of
business consistent with past practice or as required under employment
agreements in effect as of the date of the most recent SEC Reports or set forth
in Section 4.7 of the Schedule of Exceptions or (y) to any such executive
officer of any increase in severance or termination pay, except as was required
under any employment, severance or termination agreements in effect as of the
date of the most recent SEC Reports or set forth in Section 4.7 of the Schedule
of Exceptions, (v) any damage, destruction or loss, whether or not covered by
insurance, that are reasonably likely to have a material adverse effect on the
Company's and its subsidiaries' business or properties, taken as a whole or (vi)
except as may have been required by a change in generally accepted accounting
principles or as disclosed in the SEC Reports, any change in accounting methods,
principles or practices
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by the Company or any of its subsidiaries materially affecting its assets,
liabilities or business.
4.8 Outstanding Debt. Neither the Company nor any of its subsidiaries
has any outstanding indebtedness for borrowed money except as reflected on the
Financial Statements and such additional borrowings under existing warehouse and
working capital credit lines as is consistent with the ordinary course of the
Company's business consistent with past practice, and is not a guarantor or
otherwise contingently liable for any such indebtedness. All such warehouse and
working capital credit lines are listed in Section 4.8 of the Schedule of
Exceptions. There exists no default under the provisions of any instrument
evidencing any indebtedness or otherwise or of any agreement relating thereto.
4.9 Taxes. The Company has duly filed within the time prescribed by law
(including extensions of time approved by the appropriate taxing authority) all
tax returns and reports required to be filed with the United States Internal
Revenue Service and with the state of Florida, and (except to the extent that
the failure to file is not reasonably likely to have a material adverse effect
on the condition or operations of the Company and its subsidiaries, taken as a
whole) with all other jurisdictions where such filing is required by law; all
such tax returns are true and correct in all material respects; and the Company
has paid all taxes, interest, penalties, assessments or deficiencies shown to be
due on such tax returns and reports. The Company knows of (i) no other tax
returns or reports which are required to be filed which have not been so filed
and (ii) no unpaid assessment for additional taxes for any fiscal period or any
basis therefor that is reasonably likely to have a material adverse effect on
the Company and its subsidiaries, taken as a whole. The Company's federal income
tax returns have not been audited by the Internal Revenue Service.
4.10 Employee Benefits; ERISA. (a) With respect to each employee
benefit plan (as such term is defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) (an "Employee Benefit Plan")
maintained by the Company, any of its subsidiaries or an "ERISA Affiliate" (as
defined below): (i) such plan has been administered and operated in compliance
with its terms and the applicable requirements of ERISA and the Internal Revenue
Code of 1986, as amended (the "Code"); (ii) no event has occurred and there
exists no circumstance under which the Company or any such subsidiary could
incur liability under ERISA, the Code, or otherwise (other than for
contributions or benefits paid or payable in the ordinary course of operation of
such plan); (iii) there are no actions, suits or claims pending or threatened
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with respect to any Employee Benefit Plan or against the assets or a fiduciary
of any Employee Benefit Plan; (iv) no "prohibited transaction" (as defined in
Section 406 of ERISA or Section 4975 of the Code) which is not covered by an
applicable exemption has occurred; (v) no "reportable event" (as defined in
Section 4043 of ERISA) has occurred; (vi) all contributions and premiums due
have been paid on a timely basis; and (vii) all contributions made under any
Employee Benefit Plan intended to be tax deductible meet the requirements for
deductibility under the Code. As used herein, the term "ERISA Affiliate" refers
to any organization that is (x) a member of a "controlled group" of which the
Company is a member or (y) under "common control" with the Company within the
meaning of Section 414(b) and (c) of the Code.
(b) Each Employee Benefit Plan maintained by the Company, any of its
subsidiaries or an ERISA Affiliate that is intended to qualify under Section
401(a) of the Code has received a favorable letter of determination from the
Internal Revenue Service that it so qualifies and that its related trust is
exempt from taxation under Section 501(a) of the Code. No event has occurred
that will or could give rise to disqualification or loss of tax-exempt status of
any such Employee Benefit Plan or trust under Sections 401(a) or 501(a) of the
Code.
(c) No Company, any subsidiary or ERISA Affiliate benefit plan is a
"defined benefit plan" within the meaning of Section 3(35) of ERISA, a
"multiemployer plan" within the meaning of Section 3(37) of ERISA, or a
"multiple employer plan" within the meaning of Section 413 of the Code.
(d) Except as set forth in Section 4.10 of the Schedule of Exceptions,
neither the approval or execution of this Agreement nor the consummation of the
transactions contemplated by this Agreement will (i) entitle any individual to
severance pay or (ii) accelerate the time of payment or vesting of, or increase
the amount of, compensation due to any individual.
4.11 Litigation. Except as set forth in Section 4.11 of the Schedule of
Exceptions, there is no pending or, to the Company's knowledge and belief,
threatened action, suit, proceeding or claim, whether or not purportedly on
behalf of the Company or any of its subsidiaries, to which the Company or any of
its subsidiaries is or may be named as a party or to which its property is or
may be subject which is reasonably likely, individually or in the aggregate with
all such actions, suits, proceedings or claims, to have a material adverse
effect on the condition, financial or otherwise, or operations of the Company
and its subsidiaries, taken as a whole; and the Company has no knowledge of
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any unasserted claim, the assertion of which is likely and which is reasonably
likely, individually or in the aggregate with all such unasserted claims, to
have a material adverse effect on the condition, financial or otherwise, or
operations of the Company and its subsidiaries, taken as a whole.
4.12 Consents. No consent, approval, qualification, order or
authorization of, or filing with, any governmental authority is required in
connection with the Company's valid execution, delivery or performance of this
Agreement, or the offer, issue or sale of the Shares by the Company, the
issuance of Common Shares upon conversion of the Shares, or the consummation of
any other transaction contemplated on the part of the Company hereby, except the
filing of the Certificates with the Secretary of State of the State of Florida
and other filings required under federal securities laws or state "blue sky"
laws.
4.13 Properties; Liens and Encumbrances. The Company has a valid and
indefeasible ownership interest in all its real and personal property and
assets, free from all Liens, except (i) as listed in Section 4.13 of the
Schedule of Exceptions; and (ii) tax, materialmen's or like liens for
obligations not yet due or payable or being contested in good faith by
appropriate proceedings. The Company maintains insurance which is reasonably
adequate to protect the Company and its financial condition against the risks
involved in the business conducted by the Company.
4.14 Intellectual Property, etc. (a) Section 4.14 of the Schedule of
Exceptions sets forth a complete list of all material intellectual property and
proprietary rights owned or used by the Company and its subsidiaries, including,
without limitation, all franchises, permits, licenses, software, trademarks,
service marks, domain names, trade rights, trade dress, patents, patent
applications and copyrights (together with all inventions, know-how and other
confidential information, "Intellectual Property"). The Company or its
subsidiaries have all franchises, permits, licenses and other similar authority
necessary for the conduct of its business as now being conducted by it and as
planned to be conducted, the lack of which could materially and adversely affect
the operations or condition, financial or otherwise, of the Company and its
subsidiaries, taken as a whole, and it is not in default under any of such
franchises, permits, licenses or other similar authority which default is
reasonably likely to have a material adverse effect on the Company and its
subsidiaries, taken as a whole. The Company or its subsidiaries are the
exclusive owner of all right, title and interest in and or have the valid and
legal right to use all Intellectual Property necessary to conduct their business
as now being conducted and as planned to be conducted without conflict with or
infringement upon any valid rights of others except for infringements or
conflicts which are not reasonably likely
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to materially and adversely affect the operations or condition, financial or
otherwise, of the Company and its subsidiaries, taken as a whole. Neither the
Company nor any of its subsidiaries has received any written notice that the
conduct of the business infringes upon or conflicts with the asserted
intellectual property or proprietary rights of others and has no knowledge that
any person is infringing upon or in conflict with its asserted rights.
(b) Except as set forth in Section 4.14(b) of the Schedule of
Exceptions, to the Company's knowledge, all software used in its and its
subsidiaries' business that contains or calls on a calendar function, provides
specific dates or calculates spans of dates is able to record, store, process
and provide true and accurate dates and calculations for dates and spans of
dates including and following January 1, 2000.
4.15 Minute Books. The minute books of the Company and its subsidiaries
provided to the special counsel for the Purchasers contain a reasonably complete
summary of all meetings of directors and stockholders since the time of
incorporation and reflect all material transactions referred to in such minutes
accurately in all material respects.
4.16 Offering. Neither the Company nor anyone acting on its behalf in
connection with the offering or sale of the Shares or any similar securities of
the Company has directly or indirectly offered the Shares or any part thereof or
any similar securities for sale to, or solicited any offer to buy any of the
same from, or otherwise approached or negotiated in respect thereof with, anyone
other than you. The offer, issuance and sale of the Shares as contemplated by
this Agreement (including, without limitation, the conversion of any of the
Shares into shares of Common Stock in accordance with the Certificates) are
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), and from any registration or filing requirements
of any applicable state securities laws, and neither the Company nor anyone
acting on its behalf will take any action hereafter that would cause the loss of
such exemption.
4.17 Compliance with Other Instruments. Neither the Company nor any of
its subsidiaries is in violation of any term of its Articles of Incorporation or
By-Laws, in each case, as in effect on the date hereof. Neither the Company nor
any of its subsidiaries is (and consummation of the transactions contemplated by
this Agreement will not cause the Company to be) in violation of any term of any
mortgage, indenture, contract, agreement, instrument, judgment, decree, order,
statute, rule or regulation to which the Company or any such subsidiary is
subject and which violation is reasonably
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likely to have a material adverse effect on the condition, financial or
otherwise, or operations of the Company and its subsidiaries, taken as a whole.
4.18 Registration Rights. Except as provided for in this Agreement and
as set forth in Section 4.18 of the Schedule of Exceptions, the Company is not
under any obligation to register (as defined in Section 11.1 below) any of its
currently outstanding securities or any of its securities which may hereafter be
issued.
4.19 Environmental and Safety Laws. Neither the Company nor any of its
subsidiaries is in material violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety, and to
the Company's knowledge, no material expenditures are or will be required in
order to comply with any such existing statute, law or regulation.
4.20 Disclosure. This Agreement and the Schedule of Exceptions do not
contain any untrue statement of a material fact and do not omit to state a
material fact necessary in order to make the statements contained therein or
herein not misleading.
SECTION 5.
Representations and Warranties of Purchasers
Each Purchaser hereby severally represents and warrants to the Company
as follows:
5.1 Organization and Standing. Such Purchaser is a corporation or
partnership, as the case may be, duly organized or formed, validly existing and
in good standing under the laws of its jurisdiction of organization or
formation.
5.2 Power and Authority. Such Purchaser has all requisite power and
authority to enter into this Agreement and to carry out and perform its
obligations under the terms of this Agreement.
5.3 Authorization. All action on the part of such Purchaser necessary
for the due authorization, execution, delivery and performance by such Purchaser
of this Agreement and the consummation of the transactions contemplated herein
has been taken or will be taken prior to the Closing. This Agreement is a legal,
valid and binding obligation of such Purchaser, enforceable against it in
accordance with its terms, subject
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to applicable bankruptcy, insolvency, reorganization and moratorium laws and
other laws of general application affecting enforcement of creditors' rights
generally and subject to general principles of equity. The execution, delivery
and performance by such Purchaser of this Agreement and compliance herewith does
not and will not result in any violation of or be in conflict with, or result in
a breach of, or constitute a default under, any term or provision of any state
or Federal law, ordinance, rule or regulation to which such Purchaser is
subject, or such Purchaser's organizational documents, as in effect on the date
hereof, or any mortgage, indenture, agreement, instrument, judgment, decree,
order or other restriction to which such Purchaser is a party or by which it is
bound.
5.4 Experience. Such Purchaser is an "accredited investor" within the
meaning of Rule 501(a) under the Securities Act or an entity in which all of the
equity owners or partners, as the case may be, are accredited investors within
the meaning of Rule 501(a) under the Securities Act. Such Purchaser is
experienced in evaluating and investing in companies such as the Company.
5.5 Investment. Such Purchaser is acquiring the Shares, and will
acquire the shares of Common Stock issuable upon conversion of the Shares, for
investment for its own account and not with the view to, or for resale in
connection with, any distribution thereof, provided that the disposition of such
Purchaser's property shall at all times be within such Purchaser's control. Such
Purchaser understands that the Shares and the Common Stock issuable upon
conversion of the Shares have not been registered under the Securities Act by
reason of specified exemption from the registration provisions of the Securities
Act which depends upon, among other things, the bona fide nature of such
Purchaser's investment intent as expressed herein.
5.6 Access to Data. Such Purchaser has had an opportunity to discuss
the Company's business, management and financial affairs with its management and
have had the opportunity to review the Company's facilities.
SECTION 6.
Conditions to Closing of Purchasers
Each Purchaser's obligation to purchase the Class A Preferred Shares to
be purchased by such Purchaser at the Closing is subject to the fulfillment to
such
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Purchaser's satisfaction on or prior to the date of the Closing of each of the
following conditions:
6.1 Representations and Warranties Correct. The representations and
warranties made by the Company herein and pursuant hereto shall have been true
and correct in all material respects when made, and shall be true and correct in
all material respects on the date of the Closing with the same force and effect
as if they had been made at and as of the date of the Closing.
6.2 Performance. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Company on or prior to
the Closing shall have been performed or complied with in all material respects
and at such time the Company shall not be in default in the performance of or
compliance with any of the provisions of this Agreement or of its Articles of
Incorporation.
6.3 Opinion of Company's Counsel. You shall have received from Kramer,
Levin, Naftalis & Frankel and Mitchell W. Legler, P.A., counsel to the Company,
an opinion addressed to you, dated the date of the Closing, and in substantially
the form attached as Exhibits C and D hereto, respectively.
6.4 Compliance Certificate. The Company shall have delivered to you a
certificate of the Chief Financial Officer of the Company, dated the date of the
Closing, certifying to the fulfillment of the conditions specified in Sections
6.1 and 6.2 hereof and other matters you reasonably request.
6.5 Certificate of Designation. The Company shall have duly filed with
the Secretary of State of the State of Florida the Certificates and the Articles
of Incorporation, as so amended, shall be in full force and effect and shall not
have been further amended.
6.6 Consents. All consents set forth in Section 6.6 of the Schedule of
Exceptions shall have been obtained without any term or condition materially
adverse to the Company and all material governmental consents or approvals
required to be made or obtained by the Company in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby shall have been made or obtained.
6.7 No Material Adverse Change. There shall have been no material
adverse change in the condition of the Company and its subsidiaries, taken as a
whole,
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nor shall the Company or any of its subsidiaries have suffered any material
damage, destruction or loss (whether or not covered by insurance) that
materially adversely affects the condition or prospects of the Company and its
subsidiaries, taken as a whole.
6.8 Consulting and Fee Agreement. Each of GSCP, Inc. ("Greenwich
Street") and Travelers shall have entered into a Consulting and Fee Agreement
with the Company, substantially in the form of Exhibit E hereto, providing for,
among other things, a monitoring fee of $400,000 and $100,000 paid annually in
advance by the Company to Greenwich Street and to Travelers respectively. Each
such agreement shall remain in effect for as long as Greenwich II and Travelers,
as the case may be, "beneficially owns" (within the meaning of Rule 13d-3 under
the Exchange Act) at least 25% of the shares of Common Stock beneficially owned
by such Purchaser on the Closing Date, in each case after giving effect to any
stock dividend, stock split, reverse split, combination, reclassification,
recapitalization, merger, consolidation or like event with respect to or
affecting such Common Stock (as to each such Purchaser, the "Minimum
Percentage").
6.9 Satisfactory Review of the Company. The Purchasers and their
accountants, legal counsel and other authorized representatives shall have been
given reasonable access during normal business hours to and been permitted to
review the assets, books and records of the Company and its subsidiaries and
such other information as shall have been reasonably requested by and provided
to the Purchasers in order that the Purchasers may have the opportunity to make
such investigation as they shall desire to make of the affairs of the Company
and its subsidiaries and the assets and the Company and its subsidiaries.
6.10 General. All instruments and legal and corporate proceedings in
connection with the transactions contemplated by this Agreement shall be
reasonably satisfactory in form and substance to the Purchasers, and the
Purchasers shall have received counterpart original, or certified or other
copies, of all documents, including records of proceedings, that it may
reasonably request in connection therewith.
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SECTION 7.
Conditions to Closing of Company
The Company's obligation to sell the Shares to be purchased at the
Closing is subject to the fulfillment to its satisfaction on or prior to the
Closing Date of each of the following conditions:
7.1 Representations and Warranties Correct. The representations and
warranties made by the Purchasers herein and pursuant hereto shall have been
true and correct in all material respects when made, and shall be true and
correct in all material respects on the date of the Closing with the same force
and effect as if they had been made at and as of the date of the Closing.
7.2 Performance. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Purchasers on or prior to
the Closing shall have been performed or complied with in all material respects
and at such time the Purchasers shall not be in default in the performance of or
compliance with any of the provisions of this Agreement.
7.3 Opinion of Purchasers' Counsel. The Company shall have received
from Debevoise & Plimpton, counsel to the Purchasers, an opinion addressed to
you, dated the date of the Closing, and in substantially the form attached as
Exhibit F hereto.
7.4 Compliance Certificate. The Purchasers shall have delivered to the
Company a certificate, dated the date of the Closing, certifying to the
fulfillment of the conditions specified in Sections 7.1 and 7.2 hereof and other
matters the Company reasonably requests.
7.5 General. All instruments and legal and corporate proceedings in
connection with the transactions contemplated by this Agreement shall be
reasonably satisfactory in form and substance to the Company, and the Company
shall have received counterpart original, or certified or other copies, of all
documents, including records of proceedings, that it may reasonably request in
connection therewith.
SECTION 8.
Covenants of the Company
The Company hereby covenants and agrees, so long as the Purchasers own
any Shares or any Common Stock issued upon conversion of Shares, as follows:
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8.1 Basic Financial Information. The Company will furnish the following
reports to each Purchaser so long as such Purchaser beneficially owns the
Minimum Percentage applicable to it:
(a) Copies of its annual reports on Form 10-K and its quarterly reports
on Form 10-Q, respectively promptly upon filing thereof with the Commission;
(b) As soon as practicable after the end of each month and in any event
within thirty days thereafter, a consolidated balance sheet of the Company and
its subsidiaries, if any, as at the end of such month, and consolidated
statements of income and of sources and applications of funds of the Company and
its subsidiaries, for each month and for the current fiscal year of the Company
to date, prepared in accordance with generally accepted accounting principles
consistently applied, together with a comparison of such statements to the
Company's operating plan then in effect and approved by its Board of Directors
(the "Board"), or the Executive Committee thereof, and a comparison of such
statements to the statements for the corresponding periods of the Company's
previous fiscal year, and certified, subject to changes resulting from year-end
audit adjustments, by the principal financial or accounting officer of the
Company; and
(c) As soon as available (but in any event within sixty days prior to
the commencement of its fiscal year) a summary of the business plan and
financial plan of the Company for the next fiscal year, as contained in its
operating plan approved by the Board. Any material changes in such financial
plan shall be submitted as promptly as practicable after such changes have been
approved by the Board; provided that the Company shall be required to furnish to
any Purchaser any of the information referred to in the preceding clauses (b)
and (c) of this Section 8.1 only at the same time and to the same extent it is
required to furnish such information to its banks or other lenders pursuant to
any of the Company's financing arrangements; and provided further, that each
Purchaser agrees to keep all non-public information furnished to it pursuant to
this Agreement confidential and not to take any actions with respect thereto
which violate any applicable laws.
8.2 Additional Information. So long as any Purchaser beneficially owns
the Minimum Percentage applicable to it, the Company will permit such Purchaser
to visit and inspect any of the properties of the Company, including its books
of account, and to discuss its affairs, finances and accounts with the Company's
officers and its
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independent public accountants on reasonable notice, all at such reasonable
times during normal business hours and as often as any such person may
reasonably request.
8.3 Availability of Common Stock for Conversion. The Company will
reserve 6,200,000 shares of Common Stock for issuance upon conversion of the
Shares. The Company will not issue or agree to issue any shares of Common Stock
or options, rights or warrants to purchase Common Stock or securities
convertible into or exchangeable for Common Stock or take any other action if,
after giving effect thereto, the number of shares of Common Stock remaining
unissued and duly reserved for issuance upon conversion of the Shares shall be
insufficient to permit conversion of all of the Shares (including all Shares
subject to the Options), provided that the Company shall not be so required to
continue to reserve any shares of Common Stock with respect to any Class B
Preferred Shares which are not purchased prior to the expiration of the Options.
8.4 Use of Proceeds. The Company will use the proceeds from the sale of
the Shares for the reduction of outstanding indebtedness and general corporate
purposes.
SECTION 9.
Covenants of the Purchasers
9.1 Certain Actions. In the event that during the three-year period
following the Closing, any of Greenwich II, GSCP Offshore or GF (collectively,
the "Greenwich Purchasers") beneficially own any Common Stock or any other
securities of the Company eligible to vote at shareholder meetings of the
Company (all such Common Stock and securities, the "Voting Securities"), such
Greenwich Purchaser shall (i) be present in person or represented by proxy at
all such stockholder meetings so that all such Voting Securities shall be
counted for the purpose of determining the presence of quorum at such meetings,
(ii) shall vote or cause to be voted all such Voting Securities for the election
as Directors of the Company those persons recommended for election by the Board,
(iii) with respect to all other matters submitted to a vote of the Company's
common stockholders, shall vote or cause to be voted all such Voting Securities
in favor and against any such matter, pro rata, to the percentages of "in favor"
and "against" votes with respect to such matter made by all outstanding Voting
Securities not beneficially owned by Greenwich II, provided that the provisions
of this Section 9.1 shall not apply to any such matter relating to any proposed
or existing stock option, stock incentive, employee benefit or other like plan
or arrangement and (iv) shall not, directly or
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indirectly, without having been specifically requested to do so in writing by
the Company or the Board vote any Voting Securities in favor of the removal of,
or otherwise seek to remove from the Board, any person whose removal is not
recommended by the Board. In addition, during the three-year period following
the Closing, the Greenwich Purchasers shall not (i) propose or disclose an
intent to propose any form of business combination, acquisition, restructuring,
recapitalization or other similar transaction relating to the Company, (ii)
acquire or agree, offer, seek or propose to acquire, or make any proposal with
respect to the possible acquisition of, ownership (including, without
limitation, beneficial ownership) of any securities or business or any
substantial part of the assets of the Company or any of its subsidiaries or any
rights or options to acquire such ownership from a third party or otherwise,
except any such acquisition resulting from the exercise of their respective
Options or their respective conversion of any Shares into Common Stock or for
any other acquisitions which, after giving effect thereto, do not in the
aggregate exceed 1% of the Company's issued and outstanding Common Stock as of
the date of such acquisition, (iii) seek or propose to control the Company's
management or policies (except by virtue of the exercise of their respective
approval rights set forth in Section 10.3 hereof), (iv) except as approved by
the Board, make, or in any way participate in, directly or indirectly, any
"solicitation" of "proxies" (as such terms are used in the Commission Rules) to
vote, or seek to advise or influence any person or entity with respect to the
voting of, any Voting Securities of the Company, (v) enter into any discussions,
negotiations, arrangements or understandings with any third party with respect
to any of the foregoing, (vi) disclose any intention, plan or arrangement
inconsistent with the foregoing, or (vii) request the Company, directly or
indirectly, to amend or waive any provisions of this Section 9.1.
9.2 Right of First Offer. (a) Each Purchaser shall, prior to selling
any Shares or Common Stock issued upon conversion of any Shares (collectively,
the "Offered Shares"), to a third party or parties, other than to one another or
to an affiliate of such Purchaser, deliver to the Company a written letter
setting forth:
(i) the number of Offered Shares such Purchaser wishes to
sell;
(ii) whether such sale shall be a public sale pursuant to the
Purchaser's exercise of its registration rights under Section 11 hereof
or otherwise (each, a "Public Sale") or a private sale (a "Private
Sale"), respectively;
(iii) the material terms and conditions on which such
Purchaser wishes to sell such Shares, including the purchase price per
Offered Share and the name
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or names of the purchaser(s) of such Offered Shares, to the extent then
known to such Purchaser; and
(iv) such Purchaser's offer (irrevocable by its terms for 5
business days following receipt, in the case of a Public Sale, and for
10 business days following receipt in the case of a Private Sale) to
sell to the Company all (but not less than all) of the Offered Shares,
for a purchase price per Offered Share, and on the other terms and
conditions set forth pursuant to subparagraph (iii) of this Section
9.2, provided that in the case of any Public Sale, such purchase price
shall equal the average of the closing prices of the Common Stock as
reported on NASDAQ for the ten consecutive trading days immediately
preceding the closing date of such Public Sale (the "Purchaser Offer").
(b) Notwithstanding anything in this Agreement to the contrary, it is
understood and agreed that a Purchaser may satisfy its obligations under Section
9.2(a) hereof with respect to any Public Sale that it proposes to effect by
exercising its registration rights under Section 11 hereof by delivering a
Purchase Offer to the Company 5 business days in advance of its exercise of any
such registration rights.
(c) The Company may accept a Purchaser Offer with respect to all, but
not less than all, of such shares by delivering to such Purchaser a written
acceptance of such Purchaser Offer within 5 business days of its receipt of such
Purchase Offer, in the case of any Public Sale, and within 10 business days of
its receipt of such Purchase Offer, in the case of a Private Sale. Such written
acceptance by the Company shall set forth closing arrangements and a closing
date not more than 3 days after the date of such written acceptance, in the case
of any Public Sale, and 30 days after the date of such written acceptance, in
the case of any Private Sale. At the time of such written acceptance by the
Company of such Purchaser Offer, the Company shall demonstrate to the reasonable
satisfaction of such Purchaser its financial capacity to consummate the purchase
of such Offered Shares and that there are no contractual or other like
restrictions on such purchase (or that any such restrictions, if they do exist,
will be waived prior to such proposed closing date). If the Company accepts the
Purchaser Offer, the closing of the purchase and sale of the Offered Shares
subject to the Purchaser Offer shall take place at the principal offices of such
Purchaser or at such other place on which such Purchaser and the Company may
agree, on the closing date specified by the Company in its written acceptance or
such other date on which such Purchaser and the Company may agree. If the
Company does not accept a Purchaser Offer with respect to any proposed Private
Sale, it may, prior to the 10th day following its receipt thereof, deliver to
the applicable
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Purchaser a written list specifying those entities with which the Company
believes it directly competes at such time (the "Competitor List"); it being
understood and agreed that any such Competitor List (i) may contain only those
entities who are engaged, directly or indirectly, at the time in question, in
the business of making, acquiring and securitizing "sub-prime" mortgage loans
and (ii) shall in any event be reasonably acceptable to the applicable
Purchaser. If any Competitor List so delivered to such Purchaser is not
reasonably acceptable to such Purchaser, the Company and the Purchaser shall
seek in good faith to resolve any differences which they may have with respect
to the entities specified in the Competitor List and such revised list shall
thereafter constitute the applicable "Competitor List" for purposes of this
Article IX.
(d) If, upon the expiration of such 5 or 10 business day period, as the
case may be, the Company has not accepted the Purchaser Offer, or if the Company
has not demonstrated to the reasonable satisfaction of such Purchaser the
Company's financial and contractual capacity to consummate the purchase of the
Offered Shares, such Purchaser may sell such shares to any third party at any
time within the 180-day period thereafter (the "Purchaser Sales Period"),
provided that (i) in the case of any Private Sale only, the price at which the
Offered Shares are sold to such third-party purchaser shall not be less than an
amount equal to 90% of the price at which the Offered Shares were offered to the
Company in the Purchaser Offer, (ii) the other terms and conditions on which the
Offered Shares are sold to any such third party shall not be materially less
favorable to such Purchaser than those contained in the Purchaser Offer and
(iii) in the case of any Private Sale to any entity on any Competitor List
delivered by the Company with respect to such Purchaser Offer, the applicable
Purchaser shall have first given the Company a "right of first refusal" to
purchase such Offered Shares on the same basis as is set forth in Sections
9.2(a), (c) and (d) hereof, except that the Company shall have 15 business days
(instead of 10) to accept or decline such opportunity. Prior to consummating any
such sale, such Purchaser shall, upon request from the Company, provide the
Company with reasonable supporting documentation with respect to the terms and
conditions of any such sale so as to demonstrate to the Company's reasonable
satisfaction that such Purchaser has complied with the provisions of the
preceding proviso.
(e) If the Offered Shares subject to a Purchaser Offer have not been
sold to a third-party purchaser in accordance with subsection (d) of this
Section 9.2 by the expiration of the Purchaser Sales Period, such shares may not
thereafter be sold or transferred by such Purchaser unless the procedures set
forth in this Section 9.2 have again been complied with.
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SECTION 10.
Approval Rights; Board Representation;
Notice Requirements
10.1 Board Representation. For so long as either the Greenwich
Purchasers, collectively, on the one hand, or Travelers, on the other, own at
least 25% of the Shares owned by such group or entity, as the case may be, on
the Closing Date (after giving effect to any stock dividend, stock split,
reverse split, combination, reclassification, merger, consolidation or like
event with respect to or affecting such Shares), the Company shall take all
action necessary to cause two persons designated by the Purchasers to be
nominated for election to the Board (the "Purchasers' Designees") at each annual
meeting of stockholders, and the Company shall use its best efforts to cause the
Purchasers' Designees to be elected to the Board at such meetings. The Company
shall cause Purchasers' Designees who are elected directors of the Company to be
covered by the Company's directors' and officers' insurance and indemnification
policies and arrangements to the same extent that such policies and arrangements
provide such insurance and indemnification for all other persons who are
directors and officers of the Company.
10.2 Notice Requirement. In addition to any notice requirements imposed
by applicable law, the Company shall give the Purchaser Designees (or if, for
any reason, there are no such designees, the Purchasers) at least seven days'
advance notice of all meetings of the Board and of all meetings of all
committees of the Board, except where seven days' notice is not practicable (in
which case, the Company will give the Purchaser Designees, or the Purchasers, as
the case may be, as much advance notice as is practicable), provided that, for
so long as the Company is obligated to nominate the Purchaser Designees pursuant
to Section 10.1 hereof, at any time during which there are no Purchasers'
Designees on the Board, representatives of the Purchasers shall have the right
to attend any meetings of the Board, and provided, further that the executive
committee of the Board may act by written consent with respect to routine
matters taken in the ordinary course of business of the Company so long as a
copy of such action is provided to the Purchasers' Designees or the Purchasers,
as the case may be, immediately following the taking of such action.
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10.3 Approval Rights. (a) Subject to Section 10.3(b) hereof, for so
long as the Company is obligated to nominate the Purchaser Designees pursuant to
Section 10.1 hereof, the Company shall not take, and shall not permit any of its
subsidiaries to take, any of the following actions (each a "Major Event")
without the written consent of at least one of the Purchasers' Designees (or if,
for any reason, there are no such designees at such time, the written consent of
the Purchasers then holding a majority of all Shares then held by all the
Purchasers):
(i) declare or pay any dividend on, or make any payment on
account of, or set apart any assets (other than setting aside Common
Stock for exercise of options or conversion rights) for a sinking or
other analogous fund for, the purchase, redemption, defeasance,
retirement, or other acquisition of, any shares of any class of capital
stock of the Company or any warrants or options to purchase any such
capital stock, whether now or hereafter outstanding, or make any other
distribution in respect thereof, either directly or indirectly, whether
in cash or in obligations or other securities of the Company, except
that the Company may:
(A) make cash payments of up to $10,000,000 in any fiscal year
of the Company to redeem any shares of any class of
capital stock of the Company or any warrants or options to
purchase any such capital stock, whether now or hereafter
outstanding; and
(B) make any redemptions of any shares of any class of capital
stock of the Company or any warrants or options to
purchase any such capital stock to the extent such
redemption is expressly permitted pursuant to any of the
agreements listed in Section 10.3 of the Schedule of
Exceptions or the Company's Executive Restricted Stock
Plan or pursuant to any amendment to any such agreement or
any other agreement which is expressly approved by the
Purchasers' Designees (or if, for any reason, there are no
such designees at such time, the Purchasers holding the
majority of the Shares);
(ii) (i) merge or consolidate with or into any other
corporation or entity, or (ii) convey, sell, lease or otherwise dispose
of in any transaction or related series of transactions all or
substantially all of the property, business or
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assets of the Company and its subsidiaries (including the capital stock
or assets of its subsidiaries);
(iii) acquire by purchase the business, assets or stock of any
business for an aggregate purchase price (as determined in good faith
by the Board) of more than $100 million; or
(iv) effect any voluntary liquidation, dissolution or winding
up of the Company.
(b) If there is a proposed Major Event which is not approved by or
otherwise consented to by the Purchasers' Designees or the Purchasers, as the
case may be, pursuant to Section 10.1 hereof, the Company and the Purchasers
shall thereafter consult with one another in good faith for a period of at least
one week to attempt to resolve their differences concerning such Major Event. If
the parties are unable to resolve such differences during such one-week period,
the Company shall have the option of either not proceeding with such Major
Event, in which case the remaining provisions of this Section 10.3 shall not
apply, or proceeding with such Major Event, in which case the Company may
consummate such Major Event if (and only if) (i) such Major Event is
re-authorized by a majority of the members of the Board (any such
re-authorization being referred to herein as a "Triggering Event"), and (ii)
prior to the taking or consummation of such Major Event, the Company makes a
Dispute Resolution Offer with respect to such Major Event in the manner required
by Section 10.3(c) hereof and purchases all of the Shares which are duly
tendered to it by any Purchaser in response to such Dispute Resolution Offer.
(c) Upon the occurrence of a Triggering Event, each Purchaser shall
have the right to require the Company to repurchase all or any part of such
Purchaser's Shares at a purchase price in cash equal to 107% of the aggregate
liquidation value of such shares, as further described below.
(i) Within 10 days following any Triggering Event and, in any
event, prior to the taking or consummation of the Major Event to which
such Triggering Event relates, the Company shall mail a notice (a
"Dispute Resolution Offer") to each Purchaser stating (1) that a
Triggering Event has occurred and that such Purchaser therefore has the
right to require the Company to purchase all or any part of such
Purchaser's Shares at a purchase price in cash equal to 107% of the
aggregate liquidation value thereof, (2) the circumstances and relevant
facts
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regarding such Triggering Event and the related Major Event and (3) the
repurchase date (which shall be no earlier than 15 days nor later than
30 days from the date such notice is mailed).
(ii) Purchasers electing to have all or any portion of its
Preferred Stock purchased shall be required to surrender such Preferred
Stock to the Company at the address specified in the Dispute Resolution
Offer at least two business days prior to the purchase date. Purchasers
shall be entitled to withdraw their election if the Company receives
not later than one business day prior to the purchase date a facsimile
transmission or letter setting forth the name of the Purchaser, the
number of Shares which were previously delivered for purchase by such
Purchaser and a statement specifying the portion of such Shares for
which such Purchaser is withdrawing its election to have such Shares
purchased.
(iii) On the purchase date, all Shares purchased by the
Company under this Section shall be delivered to the Company for
cancellation or purchase, properly endorsed and free of any Liens and
with full warranties of title, and the Company shall pay the purchase
price, together with any amounts payable pursuant to Section 12.10
hereof, to the Purchasers entitled thereto in immediately available
funds to an account or accounts previously specified by the Purchasers.
SECTION 11.
Restrictions on Transferability of
Shares; Compliance with Securities Act
11.1 Certain Definitions. As used in this Section 11, the following
terms shall have the following respective meanings:
"Holder" shall mean any holder of the outstanding Shares or Registrable
Securities which have not been sold to the public.
"Initiating Holders" shall mean each Purchaser and its assignees under
Section 11.12 hereof who in the aggregate are Holders of more than 19.9% of the
Registrable Securities which have not been sold to the public, but in no event
less than 50,000 Shares or the number of shares of Common Stock into which
50,000 Shares were converted (in each case, after giving effect to any stock
dividend, stock split, reverse split,
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combination, reclassification, recapitalization, merger, consolidation or like
event with respect to or affecting such Shares or Common Stock, as the case may
be).
"Registrable Securities" shall mean (i) Common Stock issued or issuable
upon conversion of the Shares and (ii) any Common Stock issued in respect of
securities issued pursuant to the conversion of the Shares upon any stock split,
stock dividend, recapitalization or similar event.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company
in compliance with Sections 11.4 and 11.5 hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, reasonable fees and
disbursements, not to exceed $25,000, of one counsel for all the selling Holders
and other security holders, and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees of the Company, which shall be paid in any event by the Company).
"Restricted Securities" shall mean the securities of the Company
required to bear or bearing the legends set forth in Section 11.2 hereof.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and transfer taxes applicable to the sale of Registrable Securities,
which shall be paid by the selling Holders.
11.2 Restrictive Legend. Each certificate representing (i) the Shares,
(ii) the Company's Common Stock issued upon conversion of the Shares, or (iii)
any other securities issued in respect of the Shares or the Common Stock issued
upon conversion of the Shares upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event, shall (unless
otherwise permitted or unless the securities evidenced by such certificate shall
have been registered under the Securities Act or sold pursuant to Rule 144 or
Regulation A thereunder) be stamped or otherwise imprinted with legends in the
following form (in addition to any legends required under applicable state
securities laws):
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THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN
EXEMPTION FROM SUCH REGISTRATION UNDER SAID ACT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER, A VOTING AGREEMENT AND OTHER CONDITIONS, AS
SPECIFIED IN THE PREFERRED STOCK PURCHASE AND OPTION AGREEMENT, COPIES
OF WHICH ARE ON FILE AT THE OFFICE OF THE COMPANY AND WILL BE FURNISHED
WITHOUT CHARGE TO THE HOLDER OF SUCH SECURITIES UPON WRITTEN REQUEST.
Upon request of a holder of such a certificate, the Company shall
remove the first foregoing legend from the certificate or issue to such holder a
new certificate therefor free of any transfer legend, if, with such request, the
Company shall have received either the opinion referred to in Section 11.3 to
the effect that any transfer by such holder of the securities evidenced by such
certificate will not violate the Securities Act and applicable state securities
laws.
11.3 Notice of Proposed Transfers. The holder of each certificate
representing Shares or shares of Common Stock into which such Shares have been
converted by acceptance thereof agrees to comply in all respects with the
provisions of this Section 11.3. Prior to any proposed transfer of any such
securities (other than under circumstances described in Sections 11.4 and 11.5
hereof), the holder thereof shall give written notice to the Company of such
holder's intention to effect such transfer. Each such notice shall describe the
manner and circumstances of the proposed transfer in sufficient detail, and
shall be accompanied (except in transactions in compliance with Rule 144) by a
written opinion of Debevoise & Plimpton or legal counsel who shall be reasonably
satisfactory to the Company, addressed to the Company and the Company's transfer
agent and reasonably satisfactory in form and substance to the Company's
counsel, to the effect that the proposed transfer of such securities may be
effected without registration under the Securities Act. Each certificate
evidencing securities transferred as above provided shall bear the appropriate
restrictive legend set forth in Section 11.2 above, except that such certificate
shall not bear such restrictive legend if the opinion of
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counsel referred to above is to the further effect that such legend is not
required or appropriate in order to establish compliance with any provisions of
the Securities Act.
11.4 Requested Registration.
(a) Request for Registration. If the Company shall receive from
Initiating Holders a written request that the Company effect any registration
with respect to all or a part of the Registrable Securities, the Company will:
(i) promptly give written notice of the proposed registration
to all other Holders; and
(ii) as soon as practicable, use its diligent best efforts to
effect such registration (including, without limitation, the execution
of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws,
appropriate compliance with applicable regulations issued under the
Securities Act and listing on appropriate exchanges) as may be so
requested and as would permit or facilitate the sale and distribution
of all or such portion of such Registrable Securities as are specified
in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are
specified in a written request given within thirty days after receipt
of such written notice from the Company; provided that the Company
shall not be obligated to effect, or to take any action to effect, any
such registration pursuant to this Section 11.4 (A) in any jurisdiction
in which the Company would be required to execute a general consent to
service of process in effecting such registration, qualification or
compliance, or in which the cost of the foregoing is unreasonable in
light of the number of Registrable Securities requested to be sold in
such jurisdiction, unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities Act
or applicable rules or regulations thereunder, and (B) after the
Company has effected three such registrations pursuant to this Section
11.4(a), and such registrations have been declared or ordered effective
and the sales of such Registrable Securities shall have closed, and
provided further that the Company may defer the filing (but not the
preparation) of any registration otherwise required pursuant to this
Section 11.4 (X) if another registration of equity securities of the
Company under the Securities Act is then pending or has been duly and
validly demanded by any holder of securities of the Company who is
entitled, by contract with the Company, to have securities included in
such a registration (such persons
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collectively, the "Other Shareholders") and such contractual
arrangement prohibits the Company from effecting such registration at
such time pursuant to this Agreement, or (Y) if a period of less than
three months shall have elapsed from the effective date of the most
recent registration previously effected by the Company. Subject to the
foregoing clauses, the Company shall file a registration statement
covering the Registrable Securities so requested to be registered as
soon as practicable, after receipt of the request or requests of the
Initiating Holders.
Notwithstanding the foregoing, if the Company shall at any time furnish
to the Holders a certificate of the Company stating that counsel to the Company,
which counsel shall be reasonably satisfactory to the Holders, or the Board
shall have determined that the Company has pending or in progress a material
transaction or other development, the disclosure of which would, in the good
faith judgment of the Company, materially and adversely affect the Company,
then, the Company may defer the filing (but not the preparation) of a
registration statement, and may withhold efforts to cause the registration
statement to become effective if the registration has been filed, for up to 120
days, but the Company shall use all reasonable efforts to resolve the
transaction and, in accordance with Section 11.7, to file the registration
statement and cause it to become effective as soon as possible. If the Company
shall so defer the filing of any such registration statement, or so withhold
efforts to cause the registration statement to become effective, the Holders
shall have the right to withdraw the demand for registration by giving written
notice to the Company from the Initiating Holders within 20 days after receipt
of the applicable notice of deferment (and, in the event of such withdrawal,
such demand shall not be counted for purposes of determining the number of
demands for registration to which the holders of Registrable Securities are
entitled pursuant to this Section 11.4). Notwithstanding anything else to the
contrary in this Section 11, the aggregate number of days during which otherwise
qualifying Holders shall be prohibited from registering and selling Registrable
Securities under this Section 11.4 shall not exceed 180 days during any
consecutive 12-month period.
The registration statement filed pursuant to the request of the
Initiating Holders may, subject to the provisions of Section 11.4(b) below,
include other securities of the Company which are held by Other Shareholders,
but except as provided in the last sentence of Section 11.4(b) below the Company
shall have no right to include any of its securities in any such registration.
(b) Underwriting. If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so
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advise the Company as a part of their request made pursuant to Section 11.4 and
the Company shall include such information in the written notice referred to in
Section 11.4(a)(i) above. The right of any Holder to registration pursuant to
Section 11.4 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder with respect to such participation and
inclusion) to the extent provided herein. A Holder may elect to include in such
underwriting all or a part of the Registrable Securities he holds.
If Other Shareholders request such inclusion, the Initiating Holders
shall, on behalf of all Holders, offer to include the securities of such Other
Shareholders in the underwriting and may condition such offer on their
acceptance of the further applicable provisions of this Section 11. The Company
shall (together with all Holders and Other Shareholders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form (including, without limitation, customary indemnification and
contribution provisions on the part of the Company) with the representative of
the underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders and reasonably acceptable to the Company;
provided that such underwriting agreement shall not provide for indemnification
or contribution obligations on the part of Holders greater than the obligations
of the Holders pursuant to Section 11.8(b). Notwithstanding any other provision
of this Section 11.4, if such representative advises the Initiating Holders in
writing that marketing factors require a limitation on the number of shares to
be underwritten, the securities of the Company held by Other Shareholders (other
than Registrable Securities) shall be excluded from such registration to the
extent so required by such limitation and if a limitation of the number of
shares is still required, the Initiating Holders shall so advise all Holders of
Registrable Securities whose securities would otherwise be underwritten pursuant
hereto, and the number of shares of Registrable Securities that may be included
in the registration and underwriting shall be allocated among all such Holders
in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities and other securities which they held at the time of the
request for registration made by the Initiating Holders pursuant to Section
11.4(a). No Registrable Securities or any other securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. If any Holder of Registrable Securities or Other
Shareholder who has requested inclusion in such registration as provided above
disapproves of the terms of the underwriting, such person may elect to withdraw
therefrom by written notice to the Company, the underwriter and the Initiating
Holders no later than ten days prior to the expected effective date of the
relevant registration statement. The
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securities so withdrawn shall also be withdrawn from registration. If the
underwriter has not limited the number of Registrable Securities or other
securities to be underwritten, the Company may include its securities for its
own account in such registration if the underwriter so agrees and if the number
of Registrable Securities and other securities which would otherwise have been
included in such registration and underwriting will not thereby be limited.
(c) The Initiating Holders may issue up to three written requests under
this Section 11.4, only one of which may be a shelf registration (a "Shelf
Registration") pursuant to Section 415 under the Securities Act (or any
successor rule or regulation).
11.5 Company Registration.
(a) If the Company shall determine to register any of its securities
either for its own account or the account of a security holder or holders
exercising their respective demand registration rights, other than a
registration relating solely to employee benefit plans, or a registration
relating solely to a Commission Rule 145 transaction or a registration on any
registration form which does not permit secondary sales or does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, the Company:
(i) will promptly give to each Holder written notice thereof
(which shall include a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under the applicable blue
sky or other state securities laws);
(ii) will include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified
in a written request or requests, made by any Holder within fifteen
days after receipt of the written notice from the Company described in
clause (i) above, except as set forth in Section 11.5(b) below. Such
written request may specify all or a part of a Holder's Registrable
Securities; and
(iii) may, at its sole election, withdraw such registration at
any time without penalty or liability.
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(b) Underwriting. If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company shall
so advise the Holders as a part of the written notice given pursuant to Section
11.5(a)(i). In such event the right of any Holder to registration pursuant to
Section 11.5 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein, including, without limitation, the
agreement to any lock-up agreement required by the underwriter or underwriters
selected for underwriting by the Company. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the Other Shareholders distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with such underwriter,
provided that such underwriting agreement shall not provide for indemnification
or contribution obligations on the part of Holders greater than the obligations
of the Holders pursuant to Section 11.8(b). Notwithstanding any other provision
of this Section 11.5, if the underwriter determines that marketing factors
require a limitation on the number of shares to be underwritten, the Company
will cause to be included in such registration to the extent of such limitation
on the number of shares to be underwritten, first, the securities being sold by
the Company, second, all securities proposed to be registered in such offering
by the Company for the accounts of Other Shareholders if such securities must be
included prior to the Registrable Securities to prevent a breach of any
applicable registration rights agreement between the Company and such Other
Shareholders, but only in such amount and to the extent required by such
agreement and third, the Registrable Securities proposed to be registered in
such offering by the Holders of such Registrable Securities and all such other
securities proposed to be registered in such offering by the Company for the
accounts of each Other Shareholder (not included in those securities to be
registered pursuant to clause second above), pro rata among the Holders of such
Registrable Securities and all such Other Shareholders on the basis of the
number of securities requested to be included by such Holders and such Other
Shareholders. If any Holder of Registrable Securities or Other Shareholder
disapproves of the terms of any such underwriting, he may elect to withdraw
therefrom by written notice to the Company and the underwriter no later than ten
days prior to the expected effective date of the relevant registration
statement. Any Registrable Securities or other securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration.
11.6 Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Section 11 shall be borne by the Company, and all Selling Expenses shall be
borne by the holders of
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the securities so registered pro rata on the basis of the number of their shares
so registered; provided, however, that the Company shall not be required to pay
any Registration Expenses if, as a result of the withdrawal of a request for
registration by Initiating Holders (other than due to a material adverse change
in the business of the Company or any refusal to proceed based upon the advice
of counsel that the registration statement, or any prospectus contained therein,
contains 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 light of the circumstances then existing), the registration
statement does not become effective, in which case the Holders and Other
Shareholders requesting registration shall bear such Registration Expenses pro
rata on the basis of the number of their shares so included in the registration
request, and provided, further, that such registration shall not be counted as a
registration pursuant to Section 11.4(a)(ii)(B).
11.7 Registration Procedures. In the case of each registration effected
by the Company pursuant to Section 11, the Company will keep each Holder advised
in writing as to the initiation of each registration and as to the completion
thereof. At its expense, the Company will:
(i) prepare, and as soon as practicable, but in any event
within 60 days thereafter file with the Commission, a registration
statement with respect to the Registrable Securities, make all required
filings with the National Association of Securities Dealers, Inc.
("NASD") and use its reasonable best efforts to cause such registration
statement to become effective;
(ii) prepare and promptly file with the Commission such
amendments and post-effective amendments and supplements to such
registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for
so long as is required to comply with the provisions of the Securities
Act and to complete the disposition of all securities covered by such
registration statement in accordance with the intended method or
methods of disposition thereof, but in no event for a period of more
than four months after such registration statement becomes effective;
(iii) furnish to counsel selected by the Holders copies of all
documents proposed to be filed with the Commission in connection with
such registration;
(iv) furnish to each seller of Registrable Securities, without
charge, such number of conformed copies of such registration statement
and of each such
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amendment and supplement thereto (in each case including all exhibits
and documents filed therewith) and such number of copies of the
prospectus included in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity
with the requirements of the Securities Act, and such other documents,
as such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such seller in
accordance with the intended method or methods of disposition thereof;
(v) use its reasonable best efforts to register or qualify
such Registrable Securities covered by such registration statement
under the securities or blue sky laws of such jurisdictions as each
seller shall reasonably request, and do any and all other acts and
things which may be necessary or advisable to enable such seller to
consummate the disposition of such Registrable Securities in such
jurisdictions in accordance with the intended method or methods of
disposition thereof, provided that the Company shall not for any such
purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified, subject
itself to taxation in any jurisdiction wherein it is not so subject, or
take any action which would subject it to general service of process in
any jurisdiction wherein it is not so subject;
(vi) use its reasonable best efforts to cause all Registrable
Securities covered by such registration statement to be registered with
or approved by such other governmental agencies, authorities or
self-regulatory bodies as may be necessary by virtue of the business
and operations of the Company to enable the seller or sellers thereof
to consummate the disposition of such Registrable Securities in
accordance with the intended method or methods of disposition thereof;
(vii) furnish to each seller of Registrable Securities a
signed counterpart, addressed to the sellers, of
(A) an opinion of counsel for the Company experienced
in securities law matters, dated the effective date of the
registration statement (and, if such registration includes an
underwritten public offering, the date of the closing under
the underwriting agreement); and
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(B) a "comfort" letter dated the effective date of
such registration statement (and if such registration includes
an underwritten public offering, dated the date of the closing
under the underwriting agreement), signed by the independent
public accountants who have issued an audit report on the
Company's financial statements included in the registration
statement, covering such matters as are customarily covered in
opinions of issuer's counsel and in accountants' letters
delivered to the underwriters in underwritten public offerings
of securities;
(viii) notify each seller of any Registrable Securities
covered by such registration statement at any time when the Company has
knowledge that a prospectus relating thereto is required to be
delivered under the Securities Act of the happening of any event or
existence of any fact 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 any material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing,
and, as promptly as is practicable, prepare and furnish to such seller
a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to
the purchasers of such securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(ix) otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably practicable,
an earnings statement of the Company (in form complying with the
provisions of Rule 158 under the Securities Act) covering the period of
at least 12 months, but not more than 18 months, beginning with the
first month after the effective date of the registration statement;
(x) notify each seller of any Registrable Securities covered
by such registration statement (i) when the prospectus or any
prospectus supplement or post-effective amendment has been filed, and,
with respect to such registration statement or any post-effective
amendment, when the same has become effective, (ii) of any request by
the Commission for amendments or supplements to such registration
statement or to amend or to supplement such prospectus or for
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additional information, (iii) of the issuance by the Commission of any
stop order suspending the effectiveness of such registration statement
or the initiation of any proceedings for that purpose of which the
Company has knowledge and (iv) of the suspension of the qualification
of such securities for offering or sale in any jurisdiction, or of the
institution of any proceedings for any of such purposes of which the
Company has knowledge;
(xi) use every reasonable effort to obtain the lifting of any
stop order that might be issued suspending the effectiveness of such
registration statement at the earliest possible moment;
(xii) use its reasonable best efforts (i) (A) to list such
Registrable Securities on any securities exchange on which the equity
securities of the Company are then listed or (B) if no such equity
securities are then listed, to secure designation of such securities as
a NASDAQ "national market system security" within the meaning of Rule
11Aa2-1 under the Exchange Act or, failing that, to secure NASDAQ
authorization for such Registrable Securities, and, without limiting
the foregoing, to arrange for at least two market makers to register as
such with respect to such Registrable Securities with the NASD, and
(ii) to provide a transfer agent and registrar for such Registrable
Securities not later than the effective date of such registration
statement;
(xiii) enter into such agreements and take such other actions
as the sellers of Registrable Securities or the underwriters reasonably
request in order to expedite or facilitate the disposition of such
Registrable Securities, including, without limitation, to the extent
that the offering in question is an underwritten offering, preparing
for, and participating in, such number of "road shows" and all such
other customary selling efforts as the underwriters reasonably request
in order to expedite or facilitate such disposition; and
(xiv) use its reasonable best efforts to take all other steps
necessary to effect the registration of such Registrable Securities
contemplated hereby.
The Company may require each seller of any Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding such seller, including, without limitation, its ownership
of Registrable Securities and the disposition of such Registrable Securities, as
the Company may from time to time reasonably request in writing and as shall be
required by law in connection
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therewith. Each such Holder agrees to furnish promptly to the Company all
information required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
The Company agrees not to file or make any amendment to any
registration statement with respect to any Registrable Securities, or any
amendment of or supplement to the prospectus used in connection therewith, which
refers to any seller of any Registrable Securities covered thereby by name, or
otherwise identifies such seller as the Holder of any Registrable Securities,
without the consent of such seller, such consent not to be unreasonably
withheld, unless such disclosure is required by law.
11.8 Indemnification.
(a The Company will, and hereby does, indemnify each Holder, each of
its officers, directors and partners, and each person controlling such Holder,
with respect to which registration, qualification or compliance has been
effected pursuant to this Section 11, and each underwriter, if any, and each
person who controls any underwriter, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus (including any related registration statement) incident to any
such registration, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein (in the case of such prospectus, in light of the
circumstances under which made) not misleading, or any violation by the Company
of the Securities Act or any rule or regulation thereunder applicable to the
Company and relating to action or inaction required of the Company in connection
with any such registration, qualification or compliance, and will reimburse each
such Holder, each of its officers, directors and partners, and each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company by such Holder or underwriter and stated to
be specifically for use therein.
(b Each Holder and Other Shareholder will, if Registrable Securities
held by him are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers
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and each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such underwriter
within the meaning of the Securities Act and the rules and regulations
thereunder, each other such Holder and Other Shareholder and each of their
officers, directors and partners, and each person controlling such Holder or
Other Shareholder, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement or prospectus, or any omission (or alleged omission) to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in the case of such prospectus, in light of the
circumstances under which made, not misleading, and will reimburse the Company
and such Holders, Other Shareholders, directors, officers, partners, persons,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement or prospectus in reliance upon
and in conformity with written information furnished to the Company by such
Holder or Other Shareholder and stated to be specifically for use therein;
provided, however, that the obligations of such Holders and Other Shareholders
hereunder shall be limited to an amount equal to the proceeds to each such
Holder or Other Shareholder of securities sold as contemplated herein.
(c Each party entitled to indemnification under this Section 11.8 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, but the
failure of any Indemnified Party to give notice shall not relieve the
Indemnifying Party of its obligation under this Section 11.8, except to the
extent of any actual prejudice resulting from such failure. The Indemnifying
Party will be entitled to participate in, and to the extent that it may elect by
written notice delivered to the Indemnified Party promptly after receiving the
aforesaid notice from such Indemnified Party, at its expense to assume, the
defense of any such claim or any litigation resulting therefrom, with counsel
reasonably satisfactory to such Indemnified Party, provided that the Indemnified
Party may participate in such defense at its expense, notwithstanding the
assumption of such defense by the Indemnifying Party, and provided, further,
that if the defendants in any such action shall include both the Indemnified
Party and the Indemnifying Party and the Indemnified Party shall have reasonably
concluded that there may be legal defenses available to it and/or other
Indemnified Parties which are different from or additional to those available to
the
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Indemnifying Party, the Indemnified Party or Parties shall have the right to
select separate counsel to assert such legal defenses and to otherwise
participate in the defense of such action on behalf of such Indemnified Party or
Parties and the fees and expenses of such counsel shall be paid by the
Indemnifying Party with respect to such different or additional defense. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation. Each
Indemnified Party shall furnish such information regarding itself or the claim
in question as an Indemnifying Party may reasonably request in writing and as
shall be reasonably required in connection with defense of such claim and
litigation resulting therefrom. No Indemnified Party shall consent to the entry
of any judgment nor enter into any settlement without the prior written consent
of the Indemnifying Party.
11.9 Information by Holder. Each Holder of Registrable Securities, and
each Other Shareholder holding securities included in any registration, shall
furnish to the Company such information regarding such Holder or Other
Shareholder and the distribution proposed by such Holder or Other Shareholder as
the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Section 11.
11.10 Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may permit the sale of
the Restricted Securities to the public without registration, the Company agrees
to use its reasonable best efforts to:
(a make and keep public information available as those terms
are understood and defined in Rule 144 under the Securities Act;
(b file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and
the Exchange Act at any time after it has become subject to such
reporting requirements; and
(c so long as you own any Restricted Securities, furnish to
you forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 and of the
Securities Act and the Exchange Act, a copy of the most recent annual
or quarterly report of the
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Company, and such other reports and documents so filed as you may
reasonably request in availing yourself of any rule or regulation of
the Commission allowing you to sell any such securities without
registration.
11.11 Transfer or Assignment of Registration Rights. The rights to
cause the Company to register your securities granted to you by the Company
under this Section 11 may, in your discretion, be transferred or assigned by you
to a transferee or assignee of any of your Restricted Securities, provided that
the Company is given written notice by you at the time of or within a reasonable
time after such transfer or assignment, stating the name and address of such
transferee or assignee and identifying the securities with respect to which such
registration rights are being transferred or assigned, and provided, further,
that the transferee or assignee of such rights assumes your obligations under
this Section 11.
11.12 "Market Stand-off" Agreement. You agree, if requested by the
Company and an underwriter of Common Stock (or other equity securities) of the
Company, not to sell or otherwise transfer or dispose of any Common Stock (or
other equity securities) of the Company held by you during the ninety-day period
following the effective date of a registration statement of the Company filed
under the Securities Act, provided that, if requested by such underwriter, all
Holders, all officers and directors and all other shareholders of the Company
who acquire equity securities of the Company in a privately negotiated
transaction after June 25, 1996 enter into similar agreements. Notwithstanding
the foregoing, shareholders of the Company who acquire such equity securities in
return for the equity securities of an entity acquired by the Company, and who
have no "demand" registration rights in respect thereof, shall not be required
to enter into such agreements.
Such agreement shall be in writing in a form satisfactory to the
Company and such underwriter. The Company may impose stop-transfer instructions
with respect to the shares (or securities) subject to the foregoing restriction
until the end of such ninety-day period.
11.13 Shelf Registrations. If, at any time when a Shelf Registration is
effective with respect to any Registrable Securities, the Company shall furnish
to the Holders a certificate of the Company stating that counsel to the Company,
which counsel shall be reasonably satisfactory to the Holders, or the Board,
shall have determined that the Company has pending or in progress a material
transaction or other development, the disclosure of which would, in the good
faith judgment of the Company, materially and adversely affect the Company, then
such Holders shall thereafter not dispose of any
41
<PAGE> 48
Registrable Securities under such Shelf Registration until the earlier of (i)
the time when such transaction or development is resolved in a manner that
allows, or renders unnecessary, appropriate disclosure with respect to such
transaction or development and (ii) the 121st day after the delivery of such
certificate, provided the Company shall at all times use all reasonable efforts
to resolve the transaction or other development in question so as to enable the
Purchaser to recommence selling under such Shelf Registration as promptly as
possible, and provided further that the four month period referred to in Section
11.7(ii) shall be suspended or "tolled" during any such period when the Holders
are unable to so utilize such Shelf Registration.
SECTION 12.
Miscellaneous
12.1 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of New York.
12.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive (i) any investigation made by you and (ii)
the Closing.
12.3 Use of Purchasers' Names. The Company agrees and acknowledges that
the Purchasers have no, and have not assumed any, responsibility for the
management, business or operations of the Company. Except as required by law,
the Company shall not use the name of either Purchaser or their respective
affiliates in (i) any publicly available or otherwise widely disseminated
document or communication and (ii) any other document used for marketing
products and services without the prior written consent of the Purchaser the
name of which or the name of the affiliate of which is to be disclosed.
12.4 Successors and Assigns. Except as otherwise expressly provided
herein or in any applicable assignment instrument, the provisions hereof shall
inure to the benefit of, and be binding upon, the successors, assigns, heirs,
executors and administrators of the parties hereto; provided, however, the
Company may not assign its rights hereunder.
42
<PAGE> 49
12.5 Substitution of Purchaser. You shall have the right to substitute
any of your affiliates as the purchaser of the Shares which you have agreed to
purchase hereunder, by written notice to the Company, which notice shall be
signed by both you and such affiliate, shall contain such affiliate's agreement
to be bound by this Agreement and shall contain a confirmation by such affiliate
of the accuracy with respect to it of the representations set forth in Section
5. Upon receipt of such notice, wherever the word "you" is used in this
Agreement (other than in this Section 12.4), such word shall be deemed to refer
to such affiliate in lieu of you. In the event that such affiliate is so
substituted as a purchaser hereunder and such affiliate thereafter transfers to
you all of the Shares then held by such affiliate, upon receipt by the Company
of notice of such transfer and confirmation by you of the continued accuracy
with respect to you of the representations set forth in Section 5, wherever the
word "you" is used in this Agreement, such word shall no longer be deemed to
refer to such affiliate, but shall refer to you, and you shall have all the
rights of an original holder of the Shares under this Agreement.
12.6 Entire Agreement; Amendment. This Agreement (including the
Schedules and Exhibits hereto) and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof. Neither this Agreement nor any
term hereof may be amended, waived, discharged or terminated, except by a
written instrument signed by the Company and you.
12.7 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first-class mail,
postage prepaid, or delivered either by hand or by messenger, addressed to the
addresses set forth at the beginning of this Agreement, or at such other address
as such Purchaser shall have furnished to the Company in writing, or (b) if to
any other holder of any Shares or any Common Stock issued upon conversion of
Shares, at such address as such holder shall have furnished the Company in
writing, or, until any such holder so furnishes an address to the Company, then
to and at the address of the last holder thereof who has so furnished an address
to the Company, or (c) if to the Company.
12.8 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party hereto, upon any breach or default of any
other party under this Agreement, shall impair any such right, power or remedy
of such party nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default
43
<PAGE> 50
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any party of any breach or default under
this Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement must be made in writing and shall be effective only
to the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any party, shall be cumulative
and not alternative.
12.9 Rights; Separability. In case any provision of the Agreement shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
12.10 Agent's Fees.
(a The Company hereby agrees to indemnify and to hold you harmless from
and against any liability for commission or compensation in the nature of an
agent's fee to any broker or other person or firm (and the costs and expenses of
defending against such liability or asserted liability) arising from any act by
the Company or any of its employees or representatives.
(b You (i) represent and warrant that you have retained no finder or
broker in connection with the transactions contemplated by this Agreement and
(ii) hereby agree to indemnify and to hold the Company harmless from any
liability for any commission or compensation in the nature of an agent's fee to
any broker or other person or firm (and the costs and expenses of defending
against such liability or asserted liability) for which you, or any of your
employees or representatives, are responsible.
12.11 Expenses. The Company shall bear its own expenses and legal fees
incurred on its behalf with respect to this Agreement and the transactions
contemplated hereby, and the Company will pay (i) up to $250,000 of the fees,
charges and disbursements incurred by the Purchasers (and their advisers,
counsel, accountants and other representatives) in connection with this
Agreement and the transactions contemplated hereby and (ii) in the event a
Dispute Resolution Offer is accepted by any Purchaser in accordance with Section
10.3 hereof, an amount equal to $1,500,000 multiplied by the ratio determined by
dividing (x) the number of Class A Preferred Shares originally owned by such
Purchaser by (y) 500,000.
44
<PAGE> 51
12.12 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
12.13 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument. Confirmation of execution by
electronic transmission of a facsimile signature page shall be binding upon any
party so confirming.
45
<PAGE> 52
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
IMC MORTGAGE COMPANY
By
----------------------------------
Name:
Title:
ACCEPTED AND AGREED TO:
GREENWICH STREET CAPITAL PARTNERS II, L.P.
GSCP OFFSHORE FUND, L.P.
GREENWICH FUND, L.P.
By: GREENWICH STREET
INVESTMENTS II, L.L.C.,
their General Partner
By:
-----------------------------------
Name:
Title: Managing Member
TRAVELERS CASUALTY AND SURETY COMPANY
By
-------------------------------------
Name:
Title:
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF IMC MORTGAGE COMPANY FOR THE SIX MONTHS ENDED JUNE 30,
1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
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<SECURITIES> 0
<RECEIVABLES> 51,146
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 16,586
<DEPRECIATION> 4,234
<TOTAL-ASSETS> 3,441,422
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0
0
<COMMON> 308
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<TOTAL-LIABILITY-AND-EQUITY> 3,441,422
<SALES> 131,139
<TOTAL-REVENUES> 181,173
<CGS> 0
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<OTHER-EXPENSES> 117,668
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<INTEREST-EXPENSE> 76,611
<INCOME-PRETAX> 53,332
<INCOME-TAX> 21,900
<INCOME-CONTINUING> 31,432
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,432
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