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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ________________
COMMISSION FILE NUMBER: 1-11883
EMB CORPORATION
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(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
HAWAII 95-3811580
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
3200 BRISTOL AVENUE, 8/TH/ FLOOR, COSTA MESA, CALIFORNIA 92626
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
ISSUER'S TELEPHONE NUMBER: (714) 437-0715
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
- -------------------------------------- --------------------------------------
N/A N/A
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
COMMON STOCK, NO PAR VALUE
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 requirements for the past 90 days. Yes X
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No ___
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $4,156,193
The aggregate market value of voting stock held by non-affiliates of the
registrant as of January 9, 1998:
Common stock, no par value: $11,795,818
The number of shares of the registrant's common stock outstanding as of
December 31, 1997: 8,641,42 shares
Documents incorporated by reference: Certain exhibits to the Form 10-KSB
for the fiscal year ended September 30, 1996, and the Registration Statement on
Form SB-2 (File No. 333-21719) and amendments thereto of the registrant are
incorporated herein by reference.
Transitional Small Business Disclosure Format:
Yes _______ No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
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GENERAL. The Company, formerly called "Pacific International, Inc.", a
Hawaii corporation, was incorporated in 1960, and was originally organized to
acquire and manage developed and undeveloped real estate. However, the Company
had not conducted significant operations for a number of years until it agreed
to acquire substantially all of the assets and assume certain liabilities of
Sterling Alliance Group, Ltd. ("SAG") in December, 1995. Subsequently, the
Company changed its name to EMB Corporation to reflect the change in the purpose
and nature of its business. For accounting purposes, this was treated as a
recapitalization of SAG, with the historical financial information prior to the
acquisition merger being that of the Company.
The principal business of the Company is the origination and
processing of residential mortgage loans using a service which the Company calls
Video InteractiveMortgage Process ("VIP"). Mortgages originated and/or
purchased by the Company have been resold primarily to ICI Funding Corporation,
a division of Imperial Credit Industries, Inc.; although mortgages in the future
may be held for investment, sold to third parties, or securitized and issued as
mortgage backed securities. The Company also recently commenced the origination
and processing of commercial mortgage loans.
The Company originates loans through its executive office in Costa
Mesa, California and through its branch offices located in California, Colorado,
Connecticut, Florida, Nevada and Texas. The Company's strategy of originating,
as compared to purchasing, a substantial portion of its loan volume results in
the generation of origination fees, service release fees, and other fees which
is the principal source of revenue to the Company. The Company sells all of its
mortgage loans, and does not retain any servicing rights.
INTERACTIVE MORTGAGE SOFTWARE-VIP. The VIP software of the Company
is an interactive video-based computer software system that is designed to
facilitate mortgage loan applications and their prompt approval directly with
mortgage lenders, to prepare and submit applications for title and property
insurance, credit review, title research and escrow ordering and review. The
system is linked to the ProShare(R) software system developed by Intel(R)
Corporation that provides direct videoconferencing and interaction between the
prospective borrower/real estate agent and mortgage lenders. The software has
been modified and adapted to operate with the exclusive VIP software
applications of the Company.
VIP provides the opportunity to prospective borrowers to review and
evaluate a broad range of available mortgages of varying interest rates and
terms from various lenders, and to select those specifically suited to their
financial objective for further analysis. VIP then enables the borrower/agent
to complete a loan application of the selected mortgage lender, permits an
immediate review of the borrower's credit history and qualifications, and
facilitates prompt approval of the loan application by EMB's staff underwriters
or through the automated underwriting systems employed by Fannie Mae and Freddie
Mac, the primary secondary-market purchasers of mortgages. Thus, in
approximately one hour, a borrower can receive loan approval, subject only to
verification of financial information and appraisal of the subject property.
VIP also permits the contemporaneous ordering and review of preliminary title
reports and escrow instructions. A remote printer creates hard copies of
documents for signing by the borrower.
The computer system of EMB is installed with Intel's Pentium(R)
operating system utilizing Intel's ProShare video personal conferencing 200
system which permits the borrower to see and talk directly to the loan officer
for a personal pre-qualification interview from any remote location. The
interview may conclude with the complete loan application being submitted and
approved.
The Company is continuing the development and refinement of its VIP
software system and continuing evaluation of electronic information gathering
and communication equipment. The Company intends to continue to focus on its
technology and marketing relationship with Intel Corporation. This relationship
has accelerated the development of the Company's software and has enhanced its
marketing program through exhibitions,
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trade shows and seminars with real estate brokers, credit unions, residential
real estate developers, mortgage brokers, and others. An objective of the
Company is to become a leader in advanced mortgage software and video
communications to facilitate mortgage loans. To the extent that the Company
achieves its objective in this technological area, the Company believes that it
will complement and increase its mortgage lending business.
LICENSES OF VIP. The Company licenses its VIP mortgage software
system to real estate brokerage firms, credit unions, real estate developers,
mortgage brokers and others. As of September 30, 1997, EMB had approximately
400 licensees and mortgage brokers who are served by 17 Company loan officers.
Each licensee has their own computer systems with VIP and ProShare software with
video videoconferencing capability.
The direct relationship with real estate brokers, credit unions, land
developers and other organizations enables the Company to establish point-of-
sale opportunities to originate and process mortgage loans. The business of the
licensee is improved because of the substantial savings of time and effort in
securing pre-qualification of their customers for mortgage financing and for
prompt loan approvals, and also provides an opportunity to enhance the quality
and timeliness of its services to its customers. Because the mortgage services
of EMB are available seven days a week, the licensees always have on-line access
to current interest rates and fees which can be downloaded at any time to any
computer utilized by a licensee. Similarly, the status of loans and processing
or underwriting can be determined at any time. The borrower or his agent at any
remote site can also utilize VIP to connect with escrow, title or credit
reporting agencies with the Intel video conferencing system. This one-stop
electronic and video connection between and among all of the important parties
to a residential real estate transaction is a highly efficient and convenient
system for the licensee and provides prompt quality service for the borrower.
PRICING. The Company's VIP software is priced based on a number of
factors, including the application configuration, the modules licensed and the
number of licensed users. The list price for licenses of the VIP software is
presently $500 with a $100 fee for additional office sites. The Company also
charges an additional continuing license fee calculated on each loan originated
by the licensee equal to 50% to 70% of the loan origination fee and yield spread
pricing of each loan, depending upon the loan production volume of the
licensee's office. The Company may offer discounts to customers based on the
scope of the customer's commitment and other commercial considerations.
Additionally, the Company may in the future offer new or different
configurations at significantly lower or higher prices.
CUSTOMER SERVICE AND SUPPORT. The Company's customer service and
support organization provides customers with technical support, training,
consulting and implementation services. All of the Company's current customers
have software maintenance agreements with the Company that provide for one or
both of the following services:
Customer Education and Training. The Company offers training courses
designed to meet the needs of end users, integration experts and system
administrators. The Company also trains customer personnel who in turn may
train end users in larger deployments. Training classes are provided at the
customers' offices. Fees for education and training services are in addition to
and separate from the fees for software products and are typically charged
either per student and per class, or on a per diem basis.
Software Maintenance and Support. The Company offers telephone,
electronic mail and facsimile customer support through its central technical
support staff at the Company's headquarters. The Company also provides
customers with product documentation and release notes that describe features in
new products, known problems and workarounds, and application notes. Software
product license fees do not cover maintenance. Each customer is entitled to
receive certain software upgrades, maintenance releases and technical support
for an annual fee. The annual subscription service fee for the Company's
products covers all updates and maintenance on an ongoing basis for the term of
the subscription.
SALES AND MARKETING. The Company markets and sells its software and
services primarily through a direct sales force based in Costa Mesa, California.
The Company's sales and marketing organization consisted of 21 employees as of
September 30, 1997. The Company currently has regional marketing
representatives based in
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California, Colorado, Connecticut, Florida, Nevada, Texas and Connecticut. To
support its sales force, the Company conducts a number of marketing programs,
which includes public relations, telemarketing, seminars, and trade shows.
The Company's strategy is to expand its marketing efforts to reach a
broad customer base in its targeted mortgage industry. The Company's field
sales force conducts multiple presentations and demonstrations of the Company's
software to users at the customer site as a part of the direct sales effort.
The Company believes that in order to increase sales opportunities and
profitability, it may expand into international sales. The Company intends to
continue to expand its direct and indirect sales and marketing activities, which
will require significant management attention and financial resources.
The Company may commit significant time and financial resources to
developing international sales and support channels. There will be a number of
risks inherent in the Company's international business activities, including
unexpected changes in regulatory requirements, tariffs and other trade barriers,
costs and risks of localizing products for foreign countries, longer accounts
receivable payment cycles, potentially adverse tax consequences, currency
fluctuations, repatriation of earnings and the burdens of complying with a wide
variety of foreign laws. In addition, revenues of the Company earned in various
countries where the Company does business may be subject to taxation by more
than one jurisdiction, thereby adversely affecting the Company's earnings.
There can be no assurance that such factors will not have an adverse effect on
the revenues from the Company's future international sales and, consequently,
the Company's business, financial condition or results of operations.
The Company licenses its VIP software system to customers pursuant to
license agreements which are generally standard in form, although each license
is individually negotiated and may contain variations. The standard form
agreements allow the customer to use the Company's software solely on the
customer's computer equipment for the customer's internal purposes, and the
customer is generally prohibited from sublicensing or transferring the licensed
materials. The agreements generally provide that the Company's warranty of its
software is limited to correction or replacement of the affected software, and
in most cases the Company's warranty liability may not exceed the licensing fees
from the customer. The Company's form agreement also includes a confidentiality
clause protecting proprietary information relating to the Company's software
system.
The Company generally ships its products within a short period of time
after execution of a license. As a result, the Company typically does not have
a material backlog of unfilled license orders at any given time, and the Company
does not consider backlog to be a meaningful indicator of future performance.
STRATEGIC RELATIONSHIPS. The Company believes that, in order to
provide comprehensive component and supplier management solutions, it will be
necessary to develop, maintain and enhance close associations with vendors of
hardware, software, database, and professional services. The Company has
established marketing and strategic relationships with Intel Corporation. The
Company's relationship with Intel Corporation has enabled it to integrate its
software with standard hardware platforms. The Company meets with Intel
Corporation to enhance integration between their complementary products and the
Company's software. The Company believes this relationship can enhance the
Company's ability to deliver mortgage software that support customers' existing
management architecture and that is tailored to the specific requirements of the
mortgage industry. Although the Company seeks to maintain a close relationship
with Intel Corporation, if the Company is unable to develop and retain
effective, long-term relationships with other third parties, the Company's
competitive position could be adversely affected.
RESEARCH AND DEVELOPMENT. The Company has committed resources for its
software product development. Research and development efforts are directed at
increasing software functionality, improving its performance and expanding the
capability of the software to interoperate with third party software. The
Company intends to release new software and enhancements to existing software.
Although the Company expects that certain of its new software will be developed
internally, the Company may, based on timing and cost considerations, acquire
technology and products from third parties.
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The Company supplements its software development efforts by reviewing
customer feedback on existing software and working with customers and potential
customers to anticipate future functionality requirements. To assist this
effort, the Company intends to organize a customer advisory board made up of
representatives from its key customers which will meet periodically to provide
feedback regarding the Company's current and future product plans.
The Company's future success may depend in part upon its ability to
enhance its current software and to develop and introduce new software on a
timely basis that keep pace with technological developments, emerging industry
standards and the increasingly sophisticated needs of its customers. There can
be no assurance that the Company will be successful in developing or marketing
software enhancements or new software that respond to technological change or
evolving industry standards, that the Company will not experience difficulties
that could delay or prevent the successful development, introduction and
marketing of these products or that its new software or software enhancements
will adequately meet the requirements of the marketplace and achieve market
acceptance. If the Company is unable, for technological or other reasons, to
develop and introduce new software or enhancements, the Company's business,
financial condition or results of operations could be materially adversely
affected.
In addition, applications software products as complex as those
offered by the Company frequently contain undetected errors or failures when
first introduced or when new versions are released. The Company has in the past
discovered software errors in certain of its products and enhancements, both
before and after initial shipments, and has experienced delays or lost revenues
during the period required to correct these errors. There can be no assurance
that, despite testing by the Company and by current and potential customers,
errors will not occur in software or releases after commencement of commercial
shipments, resulting in loss of or delay in market acceptance, which could have
a material adverse effect upon the Company's business, financial condition or
results of operations.
COMPETITION. The Company will face intense competition in the
origination, acquisition and liquidation of its mortgage loans. Such
competition can be expected from banks, savings and loan associations and other
entities, including REITs. Many of the Company's competitors have greater
financial resources than the Company.
PROPRIETARY RIGHTS AND LICENSING. The Company's success is dependent
upon proprietary technology. The Company may rely on a combination of copyright
and trademark laws, trade secrets, confidentiality procedures and contractual
provisions with its employees, consultants and business partners and in its
license agreements to protect its proprietary rights. The Company may seek to
protect its software, documentation and other written materials under trade
secret and copyright laws, which afford only limited protection. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's mortgage software or to obtain and use
information that the Company regards as proprietary. While the Company is not
aware that any of its software infringes upon the proprietary rights of third
parties, there can be no assurance that third parties will not claim
infringement by the Company with respect to current of future products.
In addition, the Company relies on certain software that it licenses
from third parties, including software is used in the Company's products to
perform certain functions. There can be no assurance that such firms will
remain in business, that they will continue to support their products or that
their products will otherwise continue to be available to the Company on
commercially reasonable terms. The loss or inability to maintain any of these
software or data licenses could result in delays or cancellations in product
shipments until equivalent software can be identified and licensed or developed
and integrated with the Company's products. Any such delay or cancellation
could materially adversely affect the Company's business, financial condition or
results of operations.
The Company's products are generally provided to customers in object
code (machine-readable) format only. From time to time, in limited
circumstances, the Company has licensed source code (human-readable) format
subject to customary protections such as use restrictions and confidentiality
agreements. In addition, certain customers may enter into source code escrow
arrangements with the Company, pursuant to which the Company's source code will
be released to the customer upon the occurrence of certain events, such as the
commencement of bankruptcy or insolvency proceedings by or against the Company,
or certain material breaches of the agreement. In the event of
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any release of the source code from escrow, the customer's license is generally
limited to use of the source code to maintain, support and configure the
Company's software products.
RESIDENTIAL MORTGAGE LENDER
GENERAL. EMB has been a retail mortgage broker regarding residential
mortgage loans for approximately four years, and commenced its business as a
wholesale mortgage banker, approximately one year ago. EMB recently commenced
retail mortgage lending operations regarding commercial properties. EMB
originates its own loans and those of its licensees on a retail basis and
provides wholesale lending services to approved mortgage brokers. It has
entered into a correspondent lending relationship with ICI Funding Corporation,
a division of Imperial Credit Industries, Inc. ("ICI"), a national mortgage
lender. Initially, EMB underwrites and funds its mortgage loans through a
wholesale line of credit from Imperial Warehouse Lending Group Inc., and then
resells such loans to ICI. In the future, the Company intends to develop
associations with other mortgage lenders to participate in the secondary
marketing of mortgages. EMB expects to negotiate servicing fees for servicing
its mortgage loans, or to obtain service release fees upon the resale of
mortgages. The Company may also package and resell mortgage loans as asset-
backed securities in the future.
LOAN STANDARDS. Mortgage loans made by EMB will be loans with fixed
or adjustable rates of interest secured by first mortgages, deeds of trust or
security deeds on residential properties with original principal balances that
do not exceed 95% of the value of the mortgaged properties, unless such loans
are FHA-insured or VA-guaranteed. Generally, each mortgage loan having a loan-
to-value ratio, as of the cut-off-date, in excess of 80%, or which is secured by
a second or vacation home, will be covered by a Mortgage Insurance Policy, FHA
Insurance Policy or VA Guaranty insuring against default all or a specified
portion of the principal amount thereof.
The Company recently commenced the origination of home equity loans in
an amount of up to 125% of a property's appraised value. Home equity loans are
secured by a second mortgage or second deed of trust. Home equity loans
originated or purchased by the Company are presently sold to ContiMortgage
Corporation, a subsidiary of ContiFinancial Corporation.
The mortgage loans will be "one to four-family" mortgage loans, which
means permanent loans (as opposed to construction or land development loans)
secured by mortgages on non-farm properties, including attached or detached
single-family or second/vacation homes, two to four-family primary residences
and condominiums or other attached dwelling units, including individual
condominiums, row houses, townhouses and other separate dwelling units even when
located in buildings containing five or more such units. Each mortgage loan
must be secured by an owner occupied primary residence or second/vacation home,
or by a nonowner occupied residence. The mortgaged property may not be a mobile
home.
No mortgage loan is expected to have an original principal balance
less than $30,000. While most loans may be less than $700,000, EMB may fund
loans of up to $2,000,000 through its own wholesale credit lines or by brokering
such loans to unaffiliated third-party mortgage lenders. Fixed rate mortgage
loans must be repayable in equal monthly installments which reduce the principal
balance of the loans to zero at the end of the term.
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CREDIT, APPRAISAL AND UNDERWRITING STANDARDS. Each mortgage loan must
(i) be an FHA-insured or VA-guaranteed loan meeting the credit and underwriting
requirements of such agency, or (ii) meet the credit, appraisal and underwriting
standards established by the Company. For certain mortgage loans which may be
subject to a mortgage pool insurance policy, the Company may delegate to the
issuer of the mortgage pool insurance policy the responsibility of underwriting
such mortgage loans, in accordance with the Company's credit appraisal and
underwriting standards. In addition, the Company may delegate to one or more
lenders the responsibility of underwriting mortgage loans offered to the Company
by such lenders, in accordance with the Company's credit, appraisal and
underwriting standards. In connection with any such delegation of underwriting
responsibility to a lender, the Company will require that the lender (i) make
certain representations and warranties to the Company which shall be the basis
for certain of the Company's representations and warranties to the trustee; (ii)
agree to repurchase any mortgage loan which is discovered at any time not to be
in conformance with such representations and warranties, if such defect cannot
be cured within 60 days of discovery of such breach; and (iii) agree to provide
the Company within 10 days of request the credit file for any mortgage loan the
Company desires to audit for compliance with the terms of the Company's loan
purchase program. It is anticipated that the Company will select for audit
certain of the credit files after purchase of the related mortgage loans.
The Company's underwriting standards are intended to evaluate the
prospective mortgagor's credit standing and repayment ability, and the value and
adequacy of the proposed mortgaged property as collateral. In the loan
application process, prospective mortgagors will be required to provide
information regarding such factors as their
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assets, liabilities, income, credit history, employment history and other
related items. Each prospective mortgagor will also provide an authorization to
apply for a credit report which summarizes the mortgagor's credit history. With
respect to establishing the prospective mortgagor's ability to make timely
payments, the Company will require evidence regarding the mortgagor's employment
and income, and of the amount of deposits made to financial institutions where
the mortgagor maintains demand or savings accounts. In some instances, mortgage
loans may be made by the Company under a Limited Documentation Origination
Program. For a mortgage loan to qualify for the Limited Documentation
Origination Program, the prospective mortgagor must have a good credit history
and be financially capable of making a larger cash down payment in a purchase,
or be willing to finance less of the appraised value, in a refinancing, than
would otherwise be required by the Company. Currently, only mortgage loans with
certain loan-to-value ratios will qualify for the Limited Documentation
Origination Program. If the mortgage loan qualifies, the Company waives some of
its documentation requirements and eliminates verification of income and
employment for the prospective mortgagor. The Limited Documentation Origination
Program has been implemented relatively recently and accordingly its impact, if
any, on the rates of delinquencies and losses experienced on the mortgage loans
so originated cannot be determined at this time.
The Company's underwriting standards generally follow guidelines
acceptable to FNMA and FHLMC. The Company's underwriting policies may be varied
in appropriate cases. In determining the adequacy of the property as
collateral, an independent appraisal is made of each property considered for
financing. The appraiser is required to inspect the property and verify that it
is in good condition and that construction, if new, has been completed. The
appraisal is based on the appraiser's judgment of values, giving appropriate
weight to both the market value of comparable homes and the cost of replacing
the property.
Certain states where the mortgaged properties may be located are
"anti-deficiency" states where, in general, lenders providing credit on one to
four-family properties must look solely to the property for repayment in the
event of foreclosure. See "Certain Legal Aspects of the Mortgage Loans-Anti-
Deficiency Legislation and Other Limitations on Lenders". The Company's
underwriting standards in all states (including anti-deficiency states) require
that the underwriting officers be satisfied that the value of the property being
financed, as indicated by the independent appraisal, currently supports and is
anticipated to support in the future the outstanding loan balance, and provides
sufficient value to mitigate the effects of adverse shifts in real estate
values.
LENDER WARRANTIES AND INDEMNIFICATION OF THE COMPANY. With respect to
the mortgage loans sold by it, each lender will make representations and
warranties to the Company which the Company deems sufficient to permit it to
make its representations and warranties in respect of such mortgage loans to the
Trustee and the certificateholders under the Pooling Agreement. Additional
representations and warranties will be made by each lender which has been
delegated the responsibility to underwrite mortgage loans on behalf of the
Company. See "-Credit, Appraisal and Underwriting Standards" above. Each
lender will also make certain other representations and warranties regarding
mortgage loans sold by it.
Each lender will agree to indemnify the Company against any loss or
liability incurred by the Company on account of any breach of any representation
or warranty made by the lender, any failure to disclose any matter that makes
any such representation and warranty misleading, or any inaccuracy in
information furnished by the lender to the Company.
Upon the breach of any misrepresentation or warranty made by a lender,
the Company may require the lender to repurchase the related mortgage loan.
TITLE INSURANCE POLICIES. The servicing agreement regarding the
mortgage loans originated by the Company will usually require that, at the time
of the origination of the mortgage loans and continuously thereafter, a title
insurance policy be in effect on each of the mortgaged properties and that such
title insurance policy contain no coverage exceptions, except those permitted
pursuant to the guidelines heretofore established by FNMA.
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COMMERCIAL LOANS
The Company recently commenced the origination of mortgage loans on
commercial properties. The Company presently intends to sell its commercial
mortgage loans to IMH Commercial Holding, Inc., a REIT organized by Imperial
Credit Mortgage Holding, Inc.
CURRENT MARKETS AND EXPANSION PLANS
The Company is licensed to originate loans and/or is presently exempt
from such requirements in 33 states through its six retail offices. The Company
believes that its strategy of originating loans through a retail branch office
network represents the most profitable loan origination strategy due to the
significant level of loan origination and other fees. Additionally, such a
strategy allows the Company to maintain its underwriting quality standards when
compared to competitors that rely primarily on independent mortgage brokers.
Although the Company is presently licensed to originate loans in 26
states, it has historically concentrated its business in California. While this
concentration has recently declined significantly, California remains a
significant part of the Company's business and has contributed approximately 70%
and 95% of the Company's total loan originations and purchases for the years
ended September 30, 1997 and year ended September 30, 1996, respectively.
Expansion outside California began in late 1996 when the Company began to
establish or acquire additional branch offices.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
GENERAL. The mortgages originated by the Company and its licensed
affiliates will be either mortgages or deeds of trust, depending upon the
prevailing practice in the state in which the property subject to a mortgage
loan is located. A mortgage creates a lien upon the real property encumbered by
the mortgage. It is not generally prior to liens for real estate taxes and
assessments. Priority between mortgages depends on their terms and generally on
the order of filing with a state or county office. There are two parties to a
mortgage, the mortgagor, who is the borrower and homeowner (the "Mortgagor"),
and the mortgagee, who is the lender. Under the mortgage instrument, the
Mortgagor delivers to the mortgagee a note or bond and the mortgage. Although a
deed of trust is similar to a mortgage, a deed of trust formally has three
parties, the borrower-homeowners called the trustor (similar to a Mortgagor), a
lender (similar to a mortgagee) called the beneficiary, and a third-party
grantee called the Trustee. Under a deed of trust, the borrower grants the
property, irrevocably until the debt is paid, in trust, generally with a power
of sale, to the Trustee to secure payment of the obligation. The Trustee's
authority under a deed of trust and the mortgagee's authority under a mortgage
are governed by law, the express provisions of the deed of trust or mortgage,
and, in some cases, the directors of the beneficiary.
FORECLOSURE. Foreclosure of a deed of trust is generally accomplished
by a non-judicial Trustee's sale under a specific provision in the deed of trust
which authorizes the Trustee to sell the property to a third party upon any
default by the borrower under the terms of the note or deed of trust. In some
states, the Trustee must record a notice of default and send a copy to the
borrower-trustor and to any person who has recorded a requests for a copy of a
notice of default and notice of sale. In addition, the Trustee must provide
notice in some states to any other individual having an interest in the real
property, including any junior lienholders. The borrower, or any other person
having a junior encumbrance on the real estate, may, during a reinstatement
period, cure the default by paying the entire amount in arrears plus the costs
and expenses incurred in enforcing the obligation. Generally, state laws
require that a copy of the notice of sale be posted on the property and sent to
all parties having an interest in the real property.
Foreclosure of a mortgage is generally accomplished by judicial
action. The action is initiated by the service of legal pleadings upon all
parties having an interest in the real property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties defendant. Judicial foreclosure proceedings are often not contested by
any of the parties defendant. However, even when the mortgagee's right to
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foreclose is contested, the court generally issues a judgment of foreclosure and
appoints a referee or other court officer to conduct the sale of the property.
In the case of foreclosure under either a mortgage or a deed of trust,
the sale by the referee or other designated officer or by the Trustee is a
public sale. However, because of the difficulty a potential buyer at the sale
would have in determining the exact status of title and because the physical
condition of the property may have deteriorated during the foreclosure
proceedings, it is uncommon for a third party to purchase the property at the
foreclosure sale. Rather, it is common for the lender to purchase the property
from the Trustee or referee for an amount equal to the principal amount of the
mortgage or deed of trust, accrued and unpaid interest and the expense of
foreclosure. Thereafter, the lender will assume the burdens of ownership,
including obtaining casualty insurance and making such repairs at its own
expense as are necessary to render the property suitable for sale. The lender
will commonly obtain the services of a real estate broker and pay the broker's
commission in connection with the sale of the property. Depending upon market
conditions, the ultimate proceeds of the property may not equal the lender's
investment in the property. Any loss may be reduced by the receipt of any
mortgage insurance proceeds.
RIGHTS OF REDEMPTION. In some states, after sale pursuant to a deed
of trust or foreclosure of a mortgage, the borrower and foreclosed junior
lienors are given a statutory period in which to redeem the property from the
foreclosure sale. In some states, redemption may occur only upon a payment of
the entire principal balance of the loan, accrued interest and expenses of
foreclosure. In other states, redemption may be authorized if the former
borrower pays only a portion of the sums due. The effect of a statutory right
of redemption is to diminish the ability of the lender to sell the foreclosed
property. The rights of redemption would defeat the title of any purchaser from
the lender subsequent to foreclosure or sale under a deed of trust.
Consequently, the practical effort of the redemption right is to force the
lender to retain the property and pay the expenses of ownership until the
redemption period has run.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS. Certain
states have imposed statutory prohibitions which limit the remedies of a
beneficiary under a deed of trust of a mortgage. In some states, statutes limit
the right of the beneficiary or mortgagee to obtain a deficiency judgment
against the borrower following foreclosure or sale under a deed of trust. A
deficiency judgment would be a personal judgment against the former borrower
equal in most cases to the difference between the net amount realized upon the
public sale of the real property and the amount due to the lender. Other
statutes require the beneficiary or mortgagee to exhaust the security afforded
under a deed of trust or mortgage by foreclosure in an attempt to satisfy the
full debt before bringing a personal action against the borrower. Finally,
other statutory provisions limit any deficiency judgment against the former
borrower following a judicial sale to the excess of the outstanding debt over
the fair market value of the property at the time of the public sale. The
purpose of these statutes is generally to prevent a beneficiary or a mortgagee
from obtaining a large deficiency judgment against the former borrower as a
result of low or no bids at the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including the federal bankruptcy laws and
state laws affording relief to debtors, may interfere with or affect the ability
of the secured mortgage lender to realize upon collateral and/or enforce a
deficiency judgment. For example, with respect to federal bankruptcy law, a
court with federal bankruptcy jurisdiction may permit a debtor through his or
her Chapter 11 or Chapter 13 rehabilitative plan to cure a monetary default in
respect of a mortgage loan on a debtor's residence by paying arrears within a
reasonable time period and reinstating the original Mortgage Loan payment
schedule even though the lender accelerated the mortgage loan and final judgment
of foreclosure had been entered in state court (provided no sale of the
residence had yet occurred) prior to the filing of a debtor's petition. Some
courts with federal bankruptcy jurisdiction have approved plans based on the
particular facts of the reorganization case, that effected the curing of a
mortgage loan default by paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that
the terms of a mortgage loan secured by property of the debtor may be modified.
These courts have suggested that such modification may include reducing the
amount of each monthly payment, changing the rate of interest, altering the
repayment schedule, and reducing the lender's security interest to the value of
the residence, thus leaving the lender a general unsecured creditor for the
difference between the value of the residence and the outstanding balance of the
loan.
10
<PAGE>
The Internal Revenue Code of 1986, as amended, provides priority to
certain tax liens over the lien of a mortgage. In addition, substantive
requirements are imposed upon mortgage lenders in connection with the
origination and the servicing of mortgage loans by numerous federal and some
state consumer protection laws. These laws include the federal Truth-In-Lending
Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair
Credit Billing Act, Fair Credit Reporting Act, and related statutes. These
federal laws impose specific statutory liabilities upon lenders who originate
mortgage loans and who fail to comply with the provisions of the law. In some
cases, this liability may affect assignees of the mortgage loans.
ENFORCEABILITY OF CERTAIN PROVISIONS. Certain of the mortgage loans
will contain due-on-sale clauses. These clauses permit the lender to accelerate
the maturity of the loan if the borrower sells, transfer or conveys the
property. The enforceability of these clauses has been the subject of
legislation and litigation in many states, and in some cases the clauses have
been upheld, while in other cases their enforceability has been limited or
denied.
Upon foreclosure, courts have imposed general equitable principles.
These equitable principles are generally designed to relieve the borrower form
the legal effect of his defaults under the loan documents. Examples of judicial
remedies that have been fashioned including judicial requirements that the
lender undertake affirmative and expensive actions to determine the causes for
the borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right of
the lender to foreclose if the default under the mortgage instrument is not
monetary, such as the borrower failing to adequately maintain the property or
the borrower executing a second mortgage or deed of trust affecting the
property. Finally, some courts have been faced with the issue of whether or not
federal or state constitutional provisions reflecting due process concerns for
adequate notice require that borrowers under deeds of trust or mortgages receive
notices in addition to the statutorily-prescribed minimum. For the most part,
these cases have upheld the notice provision as being reasonable or have found
that the sale by a Trustee under a deed of trust, or under a mortgage having a
power of sale, does not involve sufficient state action to afford constitutional
protections to the borrowers.
APPLICABILITY OF USURY LAWS. Title V of the Depository Institutions
Deregulation and Monetary Control Act of 1980 ("Title V"), provides that state
usury limitations not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. The Federal Home Loan Bank
Board is authorized to issue rules and regulations and to publish
interpretations governing implementation of Title V, the statute authorizes any
state to reimpose interest rate limits by adopting a law or constitutional
provision which expressly rejects application of the federal law. In addition,
even where Title V is not so rejected, any state is authorized by the law to
adopt a provision limiting discount points or other charges on mortgage loans
covered by Title V. As of the date hereof, certain states have taken action to
reimpose interest rate limits and/or to limit discount points or other charges.
INTERACTIVE MORTGAGE SOFTWARE. The software of the Company is an
interactive video-based computer software system that is designed to facilitate
mortgage loan applications and their prompt approval directly with mortgage
lenders, to prepare and submit applications for title and property insurance,
credit review, title research and escrow ordering and review. The system is
linked to the ProShare(R) software system developed by Intel(R) Corporation that
provides direct videoconferencing and interaction between the prospective
borrower/real estate agent and mortgage lenders. The software has been modified
and adapted to operate with the exclusive software applications of the Company.
The software provides the opportunity to prospective borrowers to
review and evaluate a broad range of available mortgages of varying interest
rates and terms from various lenders, and to select those specifically suited to
their financial objective for further analysis. The software then enables the
borrower/agent to complete a loan application of the selected mortgage lender,
permits an immediate review of the borrower's credit history and qualifications,
and facilitates prompt approval of the loan application by EMB's staff
underwriters or through the automated underwriting systems employed by Fannie
Mae and Freddie Mac, the primary secondary-market purchasers of mortgages. Thus,
in approximately one hour, a borrower can receive loan approval, subject only to
verification of financial information and appraisal of the subject property. The
software also permits the contemporaneous ordering
11
<PAGE>
and review of preliminary title reports and escrow instructions. A remote
printer creates hard copies of documents for signing by the borrower.
The computer system of EMB is installed with Intel's Pentium(R)
operating system utilizing Intel's ProShare video conferencing system which
permits the borrower to see and talk directly to the loan officer for a personal
pre-qualification interview from any remote location. The interview may
conclude with the complete loan application being submitted and approved.
The Company is continuing the development and refinement of its V.I.P.
software system and continuing evaluation of electronic information gathering
and communication equipment. The Company intends to continue to focus on its
technology and marketing relationship with Intel Corporation. This relationship
has accelerated the development of the Company's software and has enhanced its
marketing program through exhibitions, trade shows and seminars with real estate
brokers, credit unions, residential real estate developers, mortgage brokers,
and others. An objective of the Company is to become a leader in advanced
mortgage software and video communications to facilitate mortgage loans. To the
extent that the Company achieves its objective in this technological area, the
Company believes that it will complement and increase its mortgage lending
business.
LICENSES OF V.I.P. The Company licenses its V.I.P. mortgage software
system to real estate brokerage firms, credit unions, real estate developers,
mortgage brokers and others. As of September 30, 1997, EMB had approximately 400
licenses and mortgage broker/representatives who are served by 17 Company loan
officers. Each licensee has its own computer systems with the Company's software
and ProShare software with videoconferencing capability.
The direct relationship with real estate brokers, credit unions, land
developers and other organizations enables the Company to establish point-of-
sale opportunities to originate and process mortgage loans. The business of the
licensee is improved because of the substantial savings of time and effort in
securing pre-qualification of their customers for mortgage financing and for
prompt loan approvals, and also provides an opportunity to enhance the quality
and timeliness of its services to its customers. Because the mortgage services
of EMB are available seven days a week, the licensees always have on-line access
to current interest rates and fees which can be downloaded at any time to any
computer utilized by a licensee. Similarly, the status of loans and processing
or underwriting can be determined at any time. The borrower or his agent at any
remote site can also utilize the Company's software to connect with escrow,
title or credit reporting agencies with the Intel video conferencing system.
This one-stop electronic and video connection between and among all of the
important parties to a residential real estate transaction is a highly efficient
and convenient system for the licensee and provides prompt quality service for
the borrower.
PRICING. The Company's software is priced based on a number of
factors, including the application configuration, the modules licensed and the
number of licensed users. The list price for licenses of the software is
presently $500 with a $100 fee for additional office sites. The Company also
charges an additional continuing license fee calculated on each loan originated
by the licensee equal to 50% to 70% of the loan origination fee and yield spread
pricing of each loan, depending upon the loan production volume of the
licensee's office. The Company may offer discounts to customers based on the
scope of the customer's commitment and other commercial considerations.
Additionally, the Company may in the future offer new or different
configurations at significantly lower or higher prices.
STRATEGIC RELATIONSHIPS. The Company believes that, in order to
provide comprehensive component and supplier management solutions, it will be
necessary to develop, maintain and enhance close associations with vendors of
hardware, software, database, and professional services. The Company has
established marketing and strategic relationships with Intel Corporation. The
Company's relationship with Intel Corporation has enabled it to integrate its
software with standard hardware platforms. The Company meets regularly with
Intel Corporation to enhance integration between their complementary products
and the Company's software. The Company believes this relationship can enhance
the Company's ability to deliver mortgage software that support customers'
existing management architecture and that is tailored to the specific
requirements of the mortgage industry. Although the
12
<PAGE>
Company seeks to maintain a close relationship with Intel Corporation, if the
Company is unable to develop and retain effective, long-term relationships with
other third parties, the Company's competitive position could be adversely
affected.
ENVIRONMENTAL MATTERS
The Company has not been required to perform any investigation or
clean up activities, nor has it been subject to any environmental claims. There
can be no assurance, however, that this will remain the case in the future.
In the course of its business, the Company has acquired and may
acquire in the future properties securing loans that are in default. Although
the Company primarily lends to owners of residential properties, there is a risk
that the Company could be required to investigate and clean up hazardous or
toxic substances or chemical releases at such properties after acquisition by
the Company, and may be held liable to a governmental entity or to third parties
for property damage, personal injury and investigation and cleanup costs
incurred by such parties in connection with the contamination. In addition, the
owner or former owners of a contaminated site may be subject to common law
claims by third pies based on damages and costs resulting from environmental
contamination emanating from such property.
TRADE NAMES AND SERVICE MARKS
The Company intends to register its service marks "EMB" and other
marks on the principal register of the United States Patent and Trademark
Office. The Company intends to register its service marks in such states as it
deems necessary and desirable. These names and marks are to be licensed to
licensees under license agreement provisions strictly regulating their use.
The Company will devote substantial time, effort and expense toward
developing name recognition and goodwill for its tradenames for its operations.
The Company intends to maintain the integrity of its trade names, service marks
and other proprietary names against unauthorized use and to protect the
licensees' use against claims of infringement and unfair competition where
circumstances warrant. Failure to defend and protect such trade name and other
proprietary names and marks could adversely affect the Company's sales of
licenses under such trade name and other proprietary names and marks. The
Company knows of no current materially infringing uses.
EXECUTIVE OFFICES
The Company currently leases its executive offices located at 3200
Bristol, 8th Floor, Costa Mesa, California 92626. The lease covers
approximately 15,000 square feet at a monthly rental of approximately $16,024
per month during its initial year, which increases to $18,937 per month during
the second year, $20,394 per month in the third year, and $21,851 per month
during the fourth and fifth year of the lease. The lease expires in 2002. The
Company believes that its facilities are adequate for its needs, and that,
should it be needed, suitable additional or alternative space will be available
in the future on commercially reasonable terms.
EMPLOYEES
As of September 30, 1997, the Company employed a total of 49 persons.
Of the total, 33 officers and employees are employed at the principal executive
offices of the Company of which 13 were engaged in sales and marketing, 12 loan
processing support staff, 1 was in product development and technical support and
7 were in finance and administration. There were 16 employees in the 6 branch
offices of the Company of which 5 were engaged in sales and marketing, 10 in
loan processing support, and 1 in administration. In addition to its retail
branch office employees, the Company has approximately 400 mortgage broker
representatives in the State of Florida who are licensed real estate agents that
originate mortgage loans on a commission basis as wholesale buyers. None of the
Company's employees are represented by a labor union with respect to his or her
employment by the Company.
13
<PAGE>
The Company has experienced no organized work stoppages and believes
its relationship with its employees is good. The Company believes that its
future success will also depend to a significant extent upon its ability to
attract, train and retain highly skilled technical, management, sales, marketing
and consulting personnel. Competition for such personnel in the computer
software and mortgage industry in the United States is intense. The Company has
from time to time experienced difficulty in locating candidates with appropriate
qualifications. There can be no assurance that the Company will be successful in
attracting or retaining such personnel, and the failure to attract or retain
such personnel could have a material adverse effect on the Company's business or
results of operations.
BANKING ARRANGEMENTS
The Company is considering several national banks to obtain a line of
credit for the purpose of assuring the availability of financing in the event
the Company determines bank financing to be necessary or desirable in the
future.
ITEM 2. DESCRIPTION OF PROPERTY.
-----------------------
EXECUTIVE OFFICES. The Company currently leases its executive offices
located at 3200 Bristol, 8/th/ Floor, Costa Mesa, California 92626. The lease
covers approximately 15,000 square feet at a monthly rental of approximately
$16,024 per month during its initial year, which increases to $18,937 per month
during the second year, $20,394 per month in the third year, and $21,851 per
month during the fourth and fifth year of the lease. The lease expires in 2002.
The Company believes that its new facilities are adequate for its needs, and
that, should it be needed, suitable additional or alternative space will be
available in the future on commercially reasonable terms.
UNDEVELOPED LAND AND WATER RIGHTS. The Company previously owned
approximately 61 acres of undeveloped real property with extensive water and
electrical improvements, and extensive water producing wells, located on Paris
Valley Road in the San Ardo area of Monterey County, California. This property
was appraised at an estimated market value of the fee simple interest as of
April 20, 1996, at $3,860,000. The property is located close to Highway 101, a
major California highway. The area is rural in nature, used primarily for cattle
and sheep raising and agricultural purposes, including vineyards and wineries to
the north and to the south. The property is comprised of two parcels separated
by Paris Valley Road. The zoning for the property is for agriculture/grazing in
the lower half, and for heavy mineral extraction on the upper half. The water
and electrical improvements provide primarily for farming use. Because of the
producing water wells on the property, commercial water production for
agricultural use is available to provide adjacent farms with excess water. The
property formerly produced crude oil; but such wells have been shut-in and the
power plant substation, natural gas pipeline system, pumps, tanks and used pipe
on the property are considered obsolete. The water producing wells, as described
in the appraisal, are capable of producing approximately 2,700,000 gallons per
24 hour production period. The water is naturally replenished annually from the
run-off of the surrounding mountains. Because this property was held for resale,
the Company made no efforts nor expended any material funds to commercially
develop or market the water resources of the property. Effective December 30,
1996, this property was sold by the Company for $4,000,000, payable by a
downpayment of $800,000, and an installment contract for $3,200,000, with annual
payments amortized over 20 years, due and payable in 10 years. The Company
received the $800,000 down payment on December 31, 1996.
The Company has an 4.89 acre undeveloped property in Riverside County,
California, that was appraised as of December 7, 1994, at a value of $170,000.
This property is held subject to a Trust Deed Note dated March 15, 1995, in the
principal amount of $65,000. This property owned by the Company is held for
resale and not for development purposes. The Company may also hold real estate
for sale from time to time as a result of its foreclosure on mortgage loans that
may become in default.
ITEM 3. LEGAL PROCEEDINGS.
-----------------
In November 1997, the Company was named as a defendant in a civil
action filed by Greenhouse Group, Inc. in the Superior Court of the State of
California, Orange County (Case No. 786468). The plaintiff alleged
14
<PAGE>
that the Company breached a contract with the plaintiff which was to provide
public relations and marketing services for 200,000 shares of the common stock
of the Company. The plaintiff is seeking $540,000 in damages, interest and
costs. The Company has denied the allegations of the plaintiff, and intends to
vigorously defend this civil action.
The Company is not engaged in any other legal proceedings except
litigation in the ordinary course of its business. In the opinion of management,
the amount of ultimate liability with respect to those proceedings will not be
material to the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
No matters were submitted during the fourth quarter of the fiscal
year ended September 30, 1997, of the Company.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
--------------------------------------------------------
Market for Common Equity. The Common Stock of the Company is currently
------------------------
quoted in the over-the-counter market on the electronic bulletin board
maintained by the National Association of Securities Dealers, Inc. under the
symbol "EMBU".
When the trading price of the Company's Common Stock is below $5.00
per share, the Common Stock is considered to be "penny stocks" that are subject
to rules promulgated by the Securities and Exchange Commission (Rule 15g-1
through 15g-9) under the Securities Exchange Act of 1934. These rules impose
significant requirements on brokers under these circumstances, including: (a)
delivering to customers the Commission's standardized risk disclosure document;
(b) providing to customers current bid and offers; (c) disclosing to customers
the brokers-dealer and sales representatives compensation; and (d) providing to
customers monthly account statements.
For several years prior to January 1, 1996, the market price of the
Common Stock of the Company was either nominal or non-existent because the
Company had no substantial assets and had little or no operations. However,
after the Company entered into an acquisition agreement regarding the purchase
of certain assets of Sterling Alliance Group, Ltd. in December 1995, the Common
Stock of the Company began actively trading.
The following table sets forth the range of high and low closing bid
prices per share of the Common Stock as reported by National Quotation Bureau,
L.L.C. for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996: HIGH BID/(1)(2)/ LOW BID/(1)(2)/
- ----------------------------- ---------------- ---------------
<S> <C> <C>
1st Quarter................................ $ 21.00 $ 1.00
2nd Quarter................................ $ 15.00 $ 7.50
3rd Quarter................................ $ 12.00 $ 3.25
4th Quarter................................ $ 5.125 $ 2.375
YEAR ENDED DECEMBER 31, 1997:
- -----------------------------
1/st/ Quarter.............................. $ 3.75 $ 2.125
2/nd/ Quarter.............................. $ 3.25 $ 1.375
3/rd/ Quarter.............................. $ 3.3125 $ 1.375
4/th/ Quarter.............................. $ 3.25 $ 1.75
</TABLE>
________________
(1) The Company is unaware of the factors which resulted in the significant
fluctuations in the bid prices per share during the periods being
presented, although it is aware that there is a thin market for the Common
Stock, that there are frequently few shares being traded and that any sales
significantly impact the market.
(2) During September, 1996, the Company effectuated a one for four (1:4)
reverse stock split. The above prices for the first three quarters of 1996
have been revised to reflect this split.
15
<PAGE>
On January 9, 1998, the closing bid and ask prices of the Common Stock of the
Company were $2.188 bid and $2.34 asked per share. The foregoing prices
represent inter-dealer quotations without retail mark-up, mark-down or
commission, and may not necessarily represent actual transactions. On December
31, 1997, there were approximately 11 broker-dealers publishing quotes for the
Common Stock of the Company.
As of September 30, 1997, there were 7,535,942 shares of Common Stock
issued and outstanding which were held by approximately 681 holders of record;
and 648,649 shares of 8% Convertible Preferred Stock, Series A held by one owner
of record which are not traded in any market.
DIVIDENDS. The Company has not paid any dividends on its Common Stock
---------
and does not expect to do so in the foreseeable future. The Company intends to
apply its earnings, if any, in expanding its operations and related activities.
The payment of cash dividends in the future will be at the discretion of the
Board of Directors and will depend upon such factors as earnings levels, capital
requirements, the Company's financial condition and other factors deemed
relevant by the Board of Directors, and is subject to the dividend rights of the
8% Convertible Preferred Stock, Series A of the Company to the extent such
shares are not converted into the Common Stock of the Company. In addition, the
Company's ability to pay dividends may be limited under future loan agreements
of the Company which restrict or prohibit the payment of dividends.
SALES OF UNREGISTERED SECURITIES. During October 1996, the Company
--------------------------------
issued 25,000 shares of Common Stock in reliance upon Rule 701 under the
Act under the terms of the Compensatory Benefit Plan of the Company to
consultants for services.
During July 1997, the Company issued 69,250 restricted shares of
Common Stock as stock bonuses to certain employees; and issued 135,209 shares of
Common Stock in exchange for cancellation of debt in reliance upon Section 4(2)
under the Act.
In August 1997, the Company issued 648,649 shares of its 8%
Convertible Preferred Stock, Series A, and a warrant to purchase 150,000 shares
of its Common Stock exercisable at $1.85 per share, for $1,200,000 in a private
offering made in reliance upon Rule 506 of Regulation D under the Act. The
warrant expires at the close of business on August 31, 2000.
In June, 1997, the Company issued 100,000 shares of common stock to
Willbro Nominees, Ltd. in exchange for services in reliance upon Section 4(2) of
the Securities Act of 1933.
In July, 1997, the Company issued 12,500 shares of common stock to
Finex Investments, L.L.C. for services in reliance upon Section 4(2) of the
Securities Act of 1933.
During July, 1997, the Company issued 100,000 shares of common stock
to Martin Janis & Company, Inc. for public relations services in reliance upon
Section 4(2) of the Securities Act of 1933.
During August, 1997, the Company agreed to issue 1,000,000 shares of
common stock as its contribution to a joint venture (Technik & Trade, Inc.),
owned 50% by the Company, to engage in the real estate mortgage business in
Europe, Australia and New Zealand, in reliance upon Section 4(2) of the
Securities Act of 1933.
During fiscal 1997, the Company agreed to issue 360,000 shares of
common stock to Capital Communications Ltd. for public relations services in
reliance upon Section 4(2) of the Securities Act of 1933.
During fiscal 1997, the Company agreed to issue 105,000 shares of
common stock to ICI Funding Corporation in consideration of mortgage lending
commitments, in reliance upon Section 4(2) of the Securities Act of 1933.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
---------------------------------------------------------
The following discussion is intended to assist in an understanding of
the Company's financial position for the fiscal years September 30, 1997 and
September 30, 1996 and the results of its operations for the periods then ended.
GENERAL
The Company, formerly called "Pacific International, Inc.", a Hawaii
corporation, was incorporated in 1960, and was originally organized to acquire
and manage developed and undeveloped real estate. However, the Company had not
conducted significant operations for a number of years until it agreed to
acquire substantially all of the assets and assume certain liabilities of
Sterling Alliance Group, Ltd. ("SAG") in December, 1995. Subsequently, the
Company changed its name to EMB Corporation to reflect the change in the purpose
and nature of its business. For accounting purposes, this was treated as a
recapitalization of SAG, with the historical financial information prior to the
acquisition merger being that of the Selling Stockholder.
The principal business of the Company is the origination and
processing of residential mortgage loans using a service which the Company calls
Video InteractiveMortgage Process ("VIP"). Mortgages originated and/or purchased
by the Company have been resold primarily to ICI Funding Corporation, a division
of Imperial Credit
16
<PAGE>
Industries, Inc.; although mortgages in the future may be held for investment,
sold to third parties, or securitized and issued as mortgage backed securities.
The Company recently entered into a correspondent lending relationship with
ContiMortgage Corporation regarding home equity mortgage loans secured by a
second deed of trust or second mortgage. See "Liquidity and Capital Resources",
below.
The Company recently commenced the origination of mortgage loans on
commercial properties. The Company has entered into agreements to sell its
commercial loans to IMH Commercial Holdings, Inc., a REIT organized by Imperial
Credit Mortgage Holding, Inc.
The Company originates loans through its executive office in Costa
Mesa, California and through its branch offices located in California, Colorado,
Connecticut, Florida, Nevada and Texas. The Company's strategy of originating,
as compared to purchasing, a substantial portion of its loan volume, results in
the generation of increased origination fees, service release fees, and other
fees which is the principal source of revenue to the Company. However, the
Company also purchases loans from unaffiliated and qualified mortgage bankers,
and originates loans referred by unaffiliated mortgage brokers. The Company
sells all of its mortgage loans, and does not retain any servicing rights.
Fiscal year ended September 30, 1997 compared with the fiscal year ended
- ------------------------------------------------------------------------
September 30, 1996
- ------------------
RESULTS OF OPERATIONS. The following table sets forth certain
operating information regarding the Company:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
Mortgage loan revenues and
product sales........................... $ 276,419 $ 4,156,193
Operating expenses:
Loan original costs, commissions and
other fees............................ $ -- $ 2,331,815
General and administrative expense...... $ 3,375,244 $ 4,347,247
Depreciation............................ $ 31,056 $ 71,461
---------- ----------
Total operating expenses................. $ 3,406,300 $ 6,750,523
Loss from operations..................... $(3,159,517) $ (2,594,330)
Other income (expenses).................. $ (67,081) $ 44,105
---------- ----------
Loss before income taxes................. $(3,226,598) $ (2,550,225)
Income taxes............................. $ 1,600 $ 1,600
---------- ----------
Net Loss................................. $(3,228,198) $ (2,551,825)
========== ==========
Net loss per share....................... $ (.89) $ (.42)
</TABLE>
REVENUES. Revenues increased 1.404% to $4,156,193 in fiscal 1997 from
$276,419 in 1996. Revenues were generated from the loan process services and
product sales. During fiscal 1997, the Company funded residential mortgage loans
of $139,851,291 compared to approximately $26,487,800 during fiscal 1996, an
increase of approximately 528%. No real estate was sold during either year.
LOAN ORIGINATIONS AND PURCHASES. Mortgage volume increased 311% to
$316,187,800 during the year ended September 30, 1997, from $101,612,900 during
the year ended September 30, 1996. This
17
<PAGE>
increase in mortgage loan volume appears to be continuing primarily due to the
expansion of the Company's marketing activities and the opening of additional
retail offices.
OPERATING EXPENSES. Operating expenses increased 98% to $6,750,523 in
fiscal 1997 from $3,406,300 in 1996. This increase can be attributable to
increased activity in the loan processing segment of the business and the
acquisition of additional computer equipment.
NET LOSS FROM OPERATIONS. The net loss from operations decreased 18%
to $2,594,330 in fiscal 1997 as compared with $3,159,517 in 1996 due primarily
to the increase in revenues in 1997 over 1996.
CAPITAL EXPENDITURES. The Company has incurred capital expenditures
for equipment and office furniture used in its loan process service. Capital
expenditures during the fiscal years ended September 30, 1997 and 1996 totaled
$377,240 and $96,046, respectively.
CAPITAL EXPENDITURES, CAPITAL RESOURCES AND LIQUIDITY
CASH FLOWS. The following summary table presents comparative cash
flows of the Company for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------
1996 1997
--------------- -------------
<S> <C> <C>
Net cash used in operating
activities..................... $ (1,085,286) $ (8,194,411)
Net cash used in investing
activities..................... $ (171,644) $ (67,708)
Net cash provided by financing
activities..................... $ 1,231,254 $ 8,323,233
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES. The Company's capital resources have
historically been provided by cash from operations, by the sale of its
securities and by short term loans. The Company's ability to implement its
business strategy will depend upon its ability to continue to establish
alternative long-term financing arrangements, maintain sufficient financing
under warehousing facilities upon acceptable terms and to access the public or
private capital markets in connection with the issuance of its equity or debt
securities. There can be no assurance that such financing will be available to
the Company on favorable terms, if at all. If such financing were not available
or the Company's capital requirements exceed anticipated levels, then the
Company would be required to obtain additional financing. The Company cannot
presently estimate the amount and timing of additional financing requirements
because such requirements are dependent upon, among other things, the growth of
the Company. If the Company were unable to raise such additional capital, its
results of operations and financial condition would be adversely affected.
The Company anticipates that it may continue operating on a negative
cash flow basis as long as it continues its rapid growth rate. The Company's
primary operating cash requirements include the funding or payment of: (i)
originations and purchases of mortgage loans; (ii) fees and expenses incurred in
connection with the origination and purchase of mortgage loans; (iii) interest
expense incurred on borrowings under its warehouse facilities; (iv) income
taxes; (v) capital expenditures; and (vi) other operating and administrative
expenses. The Company funds these cash requirements primarily through capital
market transactions, warehouse financing and other corporate borrowings.
During fiscal 1997, the Company increased its liquidity and capital by
its sale of 648,649 shares of its 8% Convertible Preferred Stock, Series A and a
warrant to purchase 150,000 shares of Common Stock of the Company, for
$1,200,000; $313,188 realized from the exercise of warrants to purchase common
stock; and $137,500 from the sale of common stock.
18
<PAGE>
At September 30, 1997, the Company had current assets of $7,808,152
and current liabilities of $7,991,923, resulting in working capital deficit of
($183,771) as compared to a working capital deficit of $(529,482) at September
30, 1996. Working capital increased by $345,711.
Net cash used in operating activities increased to ($8,194,411) for
the year ended September 30, 1997, from ($1,085,286) for the year ended
September 30, 1996, or a difference of $7,109,125. The decrease in net cash
used in operating activities was primarily attributable to the increase of other
assets and notes receivable.
During fiscal 1997, the Company completed the opening of four (4)
additional branch retail offices, located in Las Vegas, Nevada; Houston, Texas;
Daytona Beach, Florida and Ft. Lauderdale, Florida.
The Company has increased the amount of its outstanding liabilities to
$11,342,843 from $688,879 during the year ended September 30, 1997, an increase
of $10,653,964. This outstanding indebtedness is due primarily to the warehouse
line of credit of $7,029,738 and deferred gain on sale of land of $3,200,000. An
undeveloped property continues to be subject to a deed of trust in the amount of
$65,000.
The warehouse lines of credit of the Company are available for the
funding of loans which will be sold not only to ICI Funding Corporation, but
also to other investors, including Resource Bancshares Mortgage Group, Inc., The
Mortgage Authority, Inc., First Union National Bank of North Carolina, and
Resource Bancshares Mortgage Group, Inc. During the time period following
funding of a loan, but prior to resale of the loan, the Company realizes either
interest income or expense depending upon the note rate for the underlying
mortgage vis a vis the interest rate on the warehouse line of credit, i.e.,
presently, prime + 1/2%.
The Company relies significantly upon its access to warehouse credit
facilities in order to fund new originations and purchases. The Company has a
$3,000,000 warehouse line of credit. The Company expects to be able to extend
and maintain its existing warehouse lines of credit (or to obtain replacement or
additional financing) as the current arrangements expire or become fully
utilized; however, there can be no assurance that such financing will be
obtainable on favorable terms, if at all. To the extent that the Company is
unable to maintain its warehouse lines of credit, the Company may have to
curtail loan origination and purchasing activities, which could have a material
adverse effect on the Company's operations and financial condition.
As of September 30, 1997, the Company has notes payable to unrelated
parties in the total amount of approximately $7,274,379, including a $65,000
deed of trust amount on its undeveloped land. The Company believes that this
remaining indebtedness will be paid primarily from its cash flow from
operations, sale of mortgages and proceeds from the sale of its equity
securities.
ITEM 7. FINANCIAL STATEMENTS.
--------------------
Information with respect to this Item is set forth in "Index to
Financial Statements".
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE.
--------------------
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
-------------------------------------------------------------
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
--------------------------------------------------
The directors and executive officers of the Company are as follows:
19
<PAGE>
<TABLE>
<CAPTION>
Name(1)(2) Age Position
- ---------- --- --------
<S> <C> <C>
Joseph K. Brick 59 Director, and Vice President of EMB
Mortgage Corporation
Bruce J. Brosky(3) 42 Director and Vice President-
Marketing and Public Relations
Peter Elliott 61 Controller
William V. Perry(3)(4) 73 Director and Executive Vice
President, and President of EMB
Mortgage Corporation
Ann L. Petersen 59 Director
Michael P. Roth 58 Director and Vice President
James E. Shipley(4) 61 Director and President
B. Joe Wimer(4) 41 Director, Secretary and Treasurer
</TABLE>
_______________________
(1) The Company presently has no executive committee, nominating committee or
audit committee of the Board of Directors.
(2) The officers of the Company hold office until their successors are elected
and qualified, or until their death, resignation or removal.
(3) Member of the Company's Stock Option Committee. See "1996 Stock Option, SAR
and Stock Bonus Plan", below.
(4) Member of the Company's Compensation Committee. See "Compensation
Committee", below.
The background and principal occupations of each director and
executive officer of the Company are as follows:
Mr. Brick became a director of the Company at the 1997 Annual Meeting
of Stockholders in March 1997. In January 1997, he became the President of EMB
Mortgage Corporation, the principal operating subsidiary of the Company until
May 1997, when he became the Vice President of EMB Mortgage Corporation. From
May 1981 to January 1997, Mr. Brick was a mortgage portfolio consultant
regarding the evaluation of commercial, multi-family and residential mortgage
products, and the servicing and conversion of mortgage portfolios. From August
1988 to April 1991, he was employed by Countrywide Funding Corporation and
managed its mortgage operations for all states east of the Mississippi. From
1984 to 1987, he was employed by Money Market Mortgage Corporation as operations
manager for its eastern region for commercial, multi-family and residential
mortgages. From 1983 to 1984, Mr. Brick was employed by M & I Mortgage
Corporation as its Vice President and Production Manager and supervised its
start-up of a national bank's mortgage subsidiary. Mr. Brick attended Marquette
University.
Mr. Brosky has been a director and Vice President-Marketing and Public
Relations of the Company since April 29, 1996, and became a director of the
Company on May 21, 1996. From 1993 to 1995, he was the Director of Marketing of
ERA Sterling Real Estate. From 1993 to the present, Mr. Brosky has been the
Director of Marketing and Public Relations of Sterling Alliance Group, Ltd. From
1984 to 1992, Mr. Brosky was employed by GTE of California as operator services
supervisor, CAG analyst and systems analyst. Mr. Brosky received a B.A. degree
from the University of Dubuque in 1978, and received a MBA degree from Loras
College in 1979.
Mr. Elliott became the acting Controller of the Company on September
1, 1997. From 1983 to the present, he has been the owner and President of Peter
Elliott Accountancy Corporation, Inc., a certified public accounting firm in
Rancho Cucamonga, California. From 1972 to 1983, Mr. Elliott has been the owner
and President of Government Contracts Advisory and Litigation Support Services
Corporation. Mr. Elliott received a BS degree in accounting from California
State Polytechnic University in 1964.
Mr. Perry has been the Executive Vice President of the Company since
April 29, 1996, and became a director of the Company on May 21, 1996. He is also
the Chairman of the Board and President of EMB Mortgage
20
<PAGE>
Corporation, a wholly owned subsidiary of the Company. From 1994 to the present,
he has been a director and Vice President of Sterling Alliance Group, Ltd. From
October 1993 to the present, Mr. Perry has been associated with ERA Sterling
Real Estate. From 1990 to October 1993, he was a director and Vice President of
Ameri-West Funding, Inc., engaged in residential, multi-family and commercial
mortgages. From 1988 to 1990, Mr. Perry was the President of First Marine
Mortgage Company. From 1985 to 1987, he was the Chief Financial Officer of
Mobile Medical Group, Inc.; and was the Chief Financial Officer and a director
of Oceanic Opera, Inc. from 1984 to 1985. From 1970 to 1984, Mr. Perry was
engaged in the real estate brokerage business with several real estate brokerage
companies. From 1962 to 1970, he was an electronics engineer with Lockheed
Missle and Space Corporation. Mr. Perry graduated from Pacific States University
in 1948 with a degree in electrical engineering.
Mrs. Petersen became a director of the Company on November 25, 1992.
She is a resident of Hawaii and has been a housewife since being married in
1958. She attended Marquette University for two years. Mrs. Petersen is an
active volunteer in various charitable organizations, including the American
Cancer Association.
Mr. Roth became a director of the Company at the 1997 Annual Meeting
of the Stockholders of the Company in March 1997, and became a Vice President of
the real estate division of the Company on June 16, 1997. From 1993 to the
present, he has been the Assistant Branch Manager and Sales Associate with
Coldwell Banker Real Estate, Inc., a real estate brokerage company, at its
branch office in South Laguna, California. From 1981 to 1992, Mr. Roth was the
President of Food Service Concept Marketing Inc., a marketing consulting firm.
From 1975 to 1981, he was the Vice President Management Supervisor of Wells,
Rich, Green Advertising. From 1974 to 1975, Mr. Roth was a Vice President of
Shakey's Pizza Parlors. From 1969 to 1975, he was Vice President of Marketing of
Bonanza Steakhouses, and was President of its International Division. From 1963
to 1968, Mr. Roth was engaged in franchise marketing for McDonald's Corporation
in charge of marketing in 12 western states and Hawaii. Mr. Roth received a B.S.
degree from U.C.L.A. in 1962.
Mr. Shipley has been a director of the Company since January 15, 1996,
and became the President of the Company on April 29, 1996. From 1993 to the
present, he has been a director and the President of Sterling Alliance Group,
Ltd., an affiliate of the Company which recently sold substantially all of its
assets and operations to the Company in exchange for Common Stock. He was the
Managing Director of EMB Mortgage Corporation, a wholly owned subsidiary of the
Company engaged in the real estate mortgage business, from October 1993 to April
1996. Mr. Shipley has served as the Managing Director of ERA Sterling Real
Estate, a real estate brokerage firm, from 1987 to the present. From 1968 to
1987, he was engaged in the real estate development business with several
companies. In 1988, Mr. Shipley became subject to two felony convictions for
forgery endorsement of a check and appropriation of property entrusted to him in
the Superior Court of the State of California. Mr. Shipley received a Bachelor
of Science degree from Eastern Illinois University in 1960.
Mr. Wimer has been the Secretary and Treasurer of the Company since
April 29, 1996, and became a director of the Company on May 21, 1996. From April
1993 to September 1995, he was the director of business promotion of City Lights
Escrow, Inc.; and from October 1992 to April 1993, was the owner and President
of Better Service Escrow, Inc. From October 1990 to October 1992, Mr. Wimer was
employed by Escrow Masters Inc. regarding business promotion; and held a similar
position with Melrose Escrow Inc. from 1988 to October 1990. In each of these
positions, he was also responsible for all banking and money management
functions. From 1985 to 1988, he was the Chief Financial Officer of Sierra
Mortgage Corporation. Mr. Wimer attended California State University-Fullerton
and Clark College.
COMPLIANCE WITH SECTION 16(A) OF EXCHANGE ACT. To the best of the
knowledge of the Company, its directors, officers and 10% beneficial owners have
filed all reports in compliance with the reporting requirements of Section 16(a)
of the Exchange Act during the fiscal year ended September 30, 1997.
ITEM 10. EXECUTIVE COMPENSATION.
----------------------
21
<PAGE>
No executive officer or director of the Company received compensation
in excess of $100,000 during its fiscal year ended September 30, 1997.
COMPENSATION COMMITTEE. The Compensation Committee of the Board of
Directors is comprised of Messrs. James E. Shipley, B. Joe Wimer, and William V.
Perry. The Committee makes decisions regarding the Company's employee stock plan
and makes decisions concerning salaries and incentive compensation for the
executive officers, employees and consultants of the Company.
1996 STOCK OPTION, SAR AND STOCK BONUS PLAN. The Company has reserved
a total of 1,250,000 shares of Common Stock for issuance under the Company's
1996 Stock Option, SAR and Stock Bonus Plan (the "Plan"). At September 30, 1997,
no options or stock bonuses covering shares of Common Stock have been granted
and issued under the Plan. Options may be granted to employees (including
officers), consultants, advisors and directors, although only employees and
directors and officers who are also employees may receive "incentive stock
options" intended to qualify for certain tax treatment. The exercise price of
non-qualified stock options must equal at least 85% of the fair market value of
the Common Stock on the date of grant, and in the case of incentive stock
options must be no less than the fair market value. Options granted under the
Plan are immediately exercisable but generally vest over four years and must be
exercised within 10 years. The members of the Stock Option Committee that
administer the Plan are presently James E. Shipley, Bruce J. Brosky and William
V. Perry.
401(K) PLAN. In August 1997, the Company adopted a Section 401(k)
Retirement Savings Plan (the "401(k) Plan"). The 401(k) Plan is a tax-qualified
plan covering Company employees who, as of the enrollment eligibility dates
under the 401(k) Plan, have completed at least six months of service with the
Company and elect to participate in the 401(k) Plan. The Company may make
discretionary matching cash contributions to each participant based upon his or
her elective deferrals in a percentage determined by the Company prior to the
end of each plan year, and may make additional contributions in its sole
judgment. All employee contributions are fully vested at all times and
contributions by the Company to the 401(k) Plan vest over a six-year period
based upon years of service. Benefits will normally be distributed to an
employee upon (i) the employee reaching age 65, (ii) the employee's retirement
with the Company, (iii) the employee's death or disability, (iv) the termination
of the employee's employment with the Company, or (v) the termination of the
401(k) Plan.
BOARD COMPENSATION. Directors of the Company may be compensated by the
Company for meeting attendance by an annual directors' fee of $2,500, and are
entitled to reimbursement for their travel expenses. From time to time,
directors who are not employees of the Company, will receive grants of options
to purchase the Company's Common Stock or stock bonuses. The Company does not
pay additional amounts for committee participation or special assignments of the
Board of Directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------------------------------------
The total number of shares of Common Stock of the Company beneficially
owned by each of the officers and directors, and all of such directors and
officers as a group, and their percentage ownership of the outstanding capital
stock of the Company as of September 30, 1997, are as follows:
<TABLE>
<CAPTION>
SHARES PERCENT OF
MANAGEMENT BENEFICIALLY OUTSTANDING
SHAREHOLDERS(1) OWNED(1) STOCK
- --------------- ------------ -----------
<S> <C> <C>
Joseph K. Brick ......................................... 0 0%
1420 North Atlantic Avenue
Suite 1704
Daytona Beach, Florida 32118
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
SHARES PERCENT OF
MANAGEMENT BENEFICIALLY OUTSTANDING
SHAREHOLDERS (1) OWNED (1) STOCK
- ----------------- ------------ -----------
<S> <C> <C>
Bruce J. Brosky ............................................ 88,763 1.0%
3200 Bristol, 8/th/ Floor
Costa Mesa, California 92626
Peter Elliott .............................................. 0 0%
9567 Arrow Route, Suite L
Rancho Cucamonga, California 91730
William V. Perry ........................................... 290,470 (2) 3.55%
3200 Bristol, 8/th/ Floor
Costa Mesa, California 92626
Ann L. Petersen ............................................ 6,250 .08%
Star Route 5080
Keaau, Hawaii 96749
Michael P. Roth ............................................ 0 0%
3200 Bristol, 8/th/ Floor
Costa Mesa, California 92626
James E. Shipley ........................................... 813,375 (3) 9.94%
3200 Bristol, 8/th/ Floor
Costa Mesa, California 92626
B. Joe Wimer ............................................... 6,250 .08%
3200 Bristol, 8/th/ Floor
Costa Mesa, California 92626
Directors and officers as a group
(7 persons, including the above) ......................... 1,205,108 14.7%
========= ==========
</TABLE>
___________________________________
(1) Except as otherwise noted, it is believed by the Company that all persons
have full voting and investment power with respect to the shares, except as
otherwise specifically indicated. Under the rules of the Securities and
Exchange Commission, a person (or group of persons) is deemed to be a
"beneficial owner" of a security if he or she, directly or indirectly, has
or shares the power to vote or to direct the voting of such security, or
the power to dispose of or to direct the disposition of such security.
Accordingly, more than one person may be deemed to be a beneficial owner of
the same security. A person is also deemed to be a beneficial owner of any
security which that person has the right to acquire within 60 days, such as
warrants or options to purchase the Common Stock of the Company.
(2) Represents shares of the Company owned by Win, Win, Solver Group, Inc., a
corporation owned by Mr. Perry. It also includes 13,688 shares held by a
trust of which Mr. Perry is the trustee. He is not a beneficiary of the
trust, and disclaims any ownership of its securities.
(3) Represents shares of the Company owned by World Trends Financial, Ltd., a
corporation beneficially owned by Mr. Shipley.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
----------------------------------------------
Effective March 12, 1997, the Company issued a promissory note in the
principal amount of $100,000 to James E. Shipley for advances made to the
Company. The note bears interest at 7% per annum and is due on March 12, 1998.
Mr. Shipley also made additional advances to the Company. As a result, the
Company was indebted to Mr. Shipley in the amount of $130,405 as of September
30, 1997.
During the fiscal year ended September 30, 1997, the Company incurred
unreimbursed expenses regarding ERA Sterling Alliance Real Estate, a real estate
brokerage company owned by the family of James E. Shipley, a director and
officer of the Company, in the amount of $166,212.
During the fiscal year ended September 30, 1997, the Company made
loans to Bruce J. Brosky, a director and Vice President of the Company in the
total amount of $77,000, with interest at 7% per annum.
23
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------
(a) Exhibits:
--------
3.1 Restated Articles of Incorporation of EMB Corporation are
incorporated by reference to Exhibit 3(i) to the Registrant's
registration statement on Form 10-SB (No. 1-11883), filed with
the Commission on June 28, 1996 (the "Form 10-SB").
3.2 The Bylaws of the Registrant are incorporated by referenced to
Exhibit 3(ii) of Form 10-SB of the Registrant.
10(a) The Asset Acquisition Agreement dated December 16, 1995, with
Sterling Alliance Group, Ltd. is incorporated herein by
reference to Exhibit 10(a) to the Form 10-SB of the Registrant.
10(b) The Appraisal Report dated April 22, 1996, of real property (61
acres) in County of Monterey, California by National Appraisal
Service is incorporated herein by reference to Exhibit 10(b) to
the Form 10-SB of the Registrant.
10(c) The Appraisal Report as of December 7, 1994, of 4.89 acres in
Counter of Riverside, California, by Tyna M. Stopnik is
incorporated herein by reference to Exhibit 10(c) to the Form
10-SB of the Registrant.
10(d) The License Agreement with Virtual Lending Technology, Inc. is
incorporated herein by reference to Exhibit 10(d) to the Form
10-SB of the Registrant.
10(e) The Seller Agreement between ICI Funding Corporation and EMB
Mortgage Banc, Ltd. is incorporated herein by reference to
Exhibit 10(e) to the Form 10-SB of the Registrant.
10(f) The 1996 Stock Option, SAR and Stock Bonus Plan is incorporated
herein by reference to Exhibit 10(f) to the Form 10-SB of the
Registrant.
10(g) The Sublease covering the executive offices of the Registrant
expiring March, 1997 is incorporated herein by reference to
Exhibit 10(g) to the Form 10-SB of the Registrant.
10(h) The form of license agreement with customers of the Registrant
is incorporated herein by reference to Exhibit 10(h) to the
Form 10-SB of the Registrant.
10(i) Residential Mortgage Loan Origination Agreement dated July 31,
1996, with Orange County Federal Credit Union is incorporated
by reference to Exhibit 10(i) of Amendment No. 1 to the Form
10-SB of the Registrant.
10(j) The Long Form Security (Installment) Land Contract with Power
of Sale dated December 30, 1996, is incorporated herein by
reference to Exhibit 7(c)(1) to the Form 8-K report of the
Registrant filed on January 9, 1997.
10(k)* Stock Purchase Agreement dated November 1, 1997, regarding
acquisition of Investment Consultants, Inc.
10(l)* ICI Master Commitment to purchase loans under ConformPlus
program dated October 21, 1997.
10(m)* ICI Master Commitment to purchase second deed trust mortgage
deeds dated September 12, 1997.
24
<PAGE>
10(n)* ICI Master Commitment to purchase jumbo and conforming
residential mortgages dated September 4, 1997.
10(o)* Master agreement for sale of mortgages with ContiMortgage
Corporation.
10(p)* Sale agreement for purchase of mortgage loans with the Mortgage
Authority, Inc. dated April 3, 1997.
10(q)* Mortgage loan Seller/Servicer Agreement with First Union
National Bank of North Carolina dated March 16, 1997.
10(r)* Mortgage Purchase Agreement with Resource Bancshares Mortgage
Group, Inc. dated March 10, 1997.
10(s)* Stock Purchase Agreement with Linda K. Gregg dated November 1,
1997, regarding agreement of Preferred Holding Group,
Incorporated.
11 Statement re: computation of per share earnings --Reference is
made to the Statements of Operations of the Registrant for its
fiscal year ended September 30, 1997, which are incorporated by
reference herein.
21.1 Description of the subsidiaries of the Registrant: The Company
has four (4) wholly owned subsidiaries, (i) EMB Mortgage
Corporation, a California corporation; (ii) Investment
Consultants, Inc., a Colorado corporation; (iii) EMB
Financial Services, Inc., a Colorado corporation; and (iv)
America Teleconferencing Services, Inc., a Nevada corporation.
23.1* Consent of Harlan & Boettger
27.* Financial Data Schedule.
_____________________
*Filed herewith
(b) Reports on Form 8-K. The Registrant did not file any reports on
-------------------
Form 8-K during the last quarter of the period covered by this report.
25
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Registrant: EMB CORPORATION
By: /s/ James E. Shipley
_______________________________________
James E. Shipley, President
In connection with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
Date: January 12, 1998
By: /s/ James E. Shipley /s/ William V. Perry
----------------------------- -------------------------------------
James E. Shipley William V. Perry
Director and President Director and Executive Vice President
/s/ B. Joe Wimer /s/ Bruce J. Brosky
----------------------------- -------------------------------------
B. Joe Wimer Bruce J. Brosky
Director, Secretary, Treasurer, Director and Vice President-Marketing
Chief Financial Officer and and Public Relations
Principal Accounting Officer
/s/ Joseph K. Brick /s/ Michael P. Roth
----------------------------- -------------------------------------
Joseph K. Brick Michael P. Roth
Director and Vice President Director and Vice President
of EMB Mortgage Corporation
26
<PAGE>
EMB CORPORATION AND SUBSIDIARY
AUDITED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1997 AND 1996
<PAGE>
C O N T E N T S
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1997 AND 1996 F-2
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
SEPTEMBER 30, 1997, 1996 AND 1995 F-3
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED
SEPTEMBER 30, 1997, 1996 AND 1995 F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 1997,
1996 AND 1995 F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6 - F-19
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
EMB CORPORATION AND SUBSIDIARY:
We have audited the accompanying consolidated balance sheets of EMB Corporation
(a Hawaii corporation) and subsidiary as of September 30, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity (deficit),
and cash flows for the years ended September 30, 1997, 1996 and 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EMB Corporation and
subsidiary as of September 30, 1997 and 1996, and the results of their
operations and their cash flows for the years ended September 30, 1997, 1996 and
1995, in conformity with generally accepted accounting principles.
Harlan & Boettger, LLP
San Diego, California
December 3, 1997
F-1
<PAGE>
EMB CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS September 30,
September 30, 1996
1997 (As restated)
------------ --------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 61,409 $ 395
Restricted cash (Note J) 34,000 -
Accounts receivable (net of allowance of $17,958 and $0, respectively) 8,890 14,582
Mortgage loans held for sale (Note K) 7,092,238 -
Inventory - 35,324
Notes receivable - officers (Note D) 227,600 -
Current portion of note receivable (Notes G and H) 165,574 14,000
Prepaid expenses and other (Note C) 218,441 -
----------- -----------
TOTAL CURRENT ASSETS 7,808,152 64,301
PROPERTY AND EQUIPMENT, net (Note F) 462,992 149,363
NOTE RECEIVABLE, less current portion (Notes G and H) 3,161,133 -
RELATED PARTY RECEIVABLE (Note M) 166,212 129,687
LAND HELD FOR SALE (Note G) 43,000 843,000
INTANGIBLE ASSETS, net (Note I) 105,885 -
OTHER ASSETS (Note J) 1,275,210 4,128
----------- -----------
$13,022,584 $ 1,190,479
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 539,488 $ 195,374
Warehouse line of credit (Note K) 7,029,738 -
Bank overdrafts - 27,177
Accrued expenses 170,743 48,886
Notes payable - current portion (Note L) 227,487 293,793
Capital lease obligations - current portion (Note O) 24,467 28,553
----------- -----------
TOTAL CURRENT LIABILITIES 7,991,923 593,783
RELATED PARTY PAYABLE (Note M) 130,405 -
NOTES PAYABLE, net of current portion (Note L) 17,154 65,000
CAPITAL LEASE OBLIGATIONS, net of current portion (Note O) 3,361 30,096
DEFERRED GAIN (Note H) 3,200,000 -
----------- -----------
TOTAL LIABILITIES 11,342,843 688,879
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note O) - -
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 shares authorized; 648,648
and 0 shares issued and outstanding, respectively 1,009,000 -
Common stock, no par value, 30,000,000 shares authorized;
7,535,942 and 5,311,817 shares issued and outstanding, respectively 6,955,482 3,910,391
Common stock to be issued 160,875 585,000
Common stock subscribed (net of allowance of $187,875 and $0, respectively) (100,000) (200,000)
(Note X)
Retained deficit (6,345,616) (3,793,791)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 1,679,741 501,600
----------- -----------
$13,022,584 $ 1,190,479
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
EMB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended September 30,
---------------------------------------
1996
1997 (As restated) 1995
----------- ----------- ----------
<S> <C> <C> <C>
REVENUES
Loan origination and other fees, net of commitment fees $ 4,156,193 $ 244,874 $ 97,400
Product sales - 31,545 -
----------- ----------- ----------
TOTAL REVENUES 4,156,193 276,419 97,400
COST OF SALES - 29,636 -
----------- ----------- ----------
Gross profit 4,156,193 246,783 97,400
----------- ----------- ----------
OPERATING EXPENSES
Loan origination costs, commissions and other fees 2,331,815 - -
General and administrative 4,347,247 3,375,244 531,818
Depreciation and amortization 71,461 31,056 2,662
----------- ----------- ----------
TOTAL OPERATING EXPENSES 6,750,523 3,406,300 534,480
----------- ----------- ----------
LOSS FROM OPERATIONS (2,594,330) (3,159,517) (437,080)
----------- ----------- ----------
OTHER INCOME (EXPENSES)
Interest income 15,146 - -
Interest expense (36,979) (64,393) (2,164)
Other 65,938 (2,688) 9,989
----------- ----------- ----------
TOTAL OTHER INCOME (EXPENSES) 44,105 (67,081) 7,825
----------- ----------- ----------
LOSS BEFORE INCOME TAXES (2,550,225) (3,226,598) (429,255)
Provision for income taxes (Note N) 1,600 1,600 800
----------- ----------- ----------
NET LOSS $(2,551,825) $(3,228,198) $ (430,055)
=========== =========== ==========
NET LOSS PER COMMON SHARE $(.42) $(.89) $(.29)
=========== =========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 6,114,176 3,641,421 1,469,225
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
EMB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Common Total
Common Stock Preferred Stock Stock Stock to be Retained Shareholders'
------------ ----------------
Shares Amounts Shares Amount Subscribed Issued Deficit Equity (Deficit)
------ ------- ------ ------ ---------- ------ ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1994 1,288,600 $ 150,000 - $ - $ - $ - $(135,538) $ 14,462
Shares issued for
Riverside land 8,250 33,000 - - - - - 33,000
Shares issued for services 172,500 155,250 - - - - - 155,250
Shares issued to founders
for services 175,000 7,000 - - - - - 7,000
Net loss - - - - - - (430,055) (430,055)
---------- ---------- ------- ------- ------- ------- ---------- ----------
BALANCE, SEPTEMBER 30, 1995 1,644,350 345,250 - - - - (565,593) (220,343)
Proceeds from sale of
shares 412,707 1,017,914 - - - - - 1,017,914
Shares issued for services 836,389 1,279,460 - - - - - 1,279,460
Shares issued to founders
for services 893,712 35,749 - - - - - 35,749
Shares issued for Monterey
land 200,000 800,000 - - - - - 800,000
Shares issued for note
receivable 50,000 200,000 - - (200,000) - - -
Shares issued for debt 116,009 232,018 - - - - - 232,018
Shares issued for net
assets of Sterling
Alliance Group, Ltd. 1,158,650 - - - - - - -
Shares to be issued for
services - - - - - 585,000 - 585,000
Net loss - - - - - - (3,228,198) (3,228,198)
---------- ---------- ------- ---------- --------- ---------- ---------- ----------
BALANCE, SEPTEMBER 30, 1996 5,311,817 $3,910,391 - $ - $(200,000) $ 585,000 $(3,793,791) $ 501,600
(As restated)
Proceeds from sale of
shares 50,000 137,500 - - - - - 137,500
Shares issued for services 991,750 1,456,903 - - - (585,000) - 871,903
Shares issued for exercise
of warrants 96,250 140,938 - - - - - 140,938
Warrants exercised
for subscription receivable 86,125 172,250 - - (212,875) - - (40,625)
Shares issued for
investment in joint venture 1,000,000 1,137,500 - - - - - 1,137,500
Proceeds from private
placement of preferred stock
net of issuance costs - - 648,648 1,009,000 - - - 1,009,000
Shares to be issued for
services - - - - - 160,875 - 160,875
Payment of stock
subscription receivable - - - - 125,000 - - 125,000
Set up bad debt reserve - - - - 187,875 - - 187,875
Net loss - - - - - - (2,551,825) (2,551,825)
---------- ---------- ------- ---------- --------- ---------- ---------- ----------
BALANCE, SEPTEMBER 30, 1997 7,535,942 $6,955,482 648,648 $1,009,000 $(100,000) $ 160,875 $(6,345,616) $ 1,679,741
========== ========== ======= ========== ========= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
EMB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended September 30,
----------------------------------------------
1996
1997 (As restated) 1995
-------------- ------------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,551,825) $(3,228,198) $(430,055)
Adjustments to reconcile net loss to net cash
used in operating activities:
Common stock issued for services 785,236 1,315,209 162,250
Common stock to be issued for services 53,625 585,000 -
Related party note payable issued for services 63,750 - -
Increase in reserves 493,833 - -
Depreciation and amortization 71,461 31,056 2,662
Changes in operating assets and liabilities:
(Increase) decrease in:
Restricted cash (129,809) - -
Accounts receivable (12,266) (14,582) -
Inventory 35,324 (35,324) -
Mortgage loans held for sale (7,092,238) - -
Prepaid expenses and other assets (350,297) (2,951) (1,177)
Increase in:
Accounts payable 316,937 217,867 349
Accrued expenses 121,858 46,637 1,449
----------- ----------- ---------
NET CASH USED IN OPERATING ACTIVITIES (8,194,411) (1,085,286) (264,522)
----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (377,240) (96,846) (6,720)
Payment for land purchase - - (10,000)
Purchases of intangible assets (113,736) - -
Loans made on notes receivable - officers (227,600) - -
Loans made on notes receivable (112,707) - (14,000)
Loans made on related party receivable (36,525) (74,798) (29,092)
Proceeds from sale of land held for investment 800,000 - -
----------- ----------- ---------
NET CASH USED IN INVESTING ACTIVITIES (67,808) (171,644) (59,812)
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on line of credit, net 7,029,738 - -
Proceeds from issuance of notes payable - 268,893 355,776
Payments under capital lease obligations (30,821) (17,300) -
Payments on borrowings (154,777) (38,253) -
Proceeds from sale of common stock 278,438 1,017,914 -
Proceeds from related party borrowings 66,655 - -
Proceeds from preferred stock private placement (net of issuance costs) 1,009,000 - -
Proceeds from common stock subscribed 125,000 - -
----------- ----------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,323,233 1,231,254 355,776
----------- ----------- ---------
NET INCREASE (DECREASE) IN CASH 61,014 (25,676) 31,442
CASH, BEGINNING 395 26,071 (5,371)
----------- ----------- ---------
CASH, ENDING $ 61,409 $ 395 $ 26,071
=========== =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
EMB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Nature of Operations
EMB Corporation (formerly called Pacific International, Inc.) (the
"Company") was incorporated under the laws of the State of Hawaii on May 5,
1960. Effective December 16, 1995, the Company acquired the net assets of
Sterling Alliance Group, Ltd ("SAG") which included 100% ownership in
Electronic Mortgage Banc, Ltd. ("EMB") and land held for sale. For
financial statement purposes the transaction has been recorded as a
recapitalization of SAG and the issuance of shares for the net assets of
the Company due to the fact that SAG provides substantially all of the
historic and on-going operations (See Note B). The historical and on-going
financial statements primarily represent the assets, liabilities and
operations which were acquired from SAG.
The Company has an interactive software system for the origination and
processing of mortgage loans which it calls Video Interactive Mortgage
Process ("VIP"). This system has been linked to the ProShare video personal
conferencing 200 software developed by Intel Corporation that provides
direct teleconferencing and interaction between prospective mortgage
borrowers and mortgage lenders. The Company licenses its mortgage software
system to real estate brokers, builders, credit unions, mortgage brokers
and others. The Company also independently originates and processes
mortgage loans, and intends to engage in the secondary placement of real
estate mortgages. The Company has sales offices located in the western,
southeastern, and southern regions of the United States.
Basis of Consolidation
The consolidated financial statements include the accounts of EMB
Corporation and its subsidiary company (together, "the Company") after
elimination of material intercompany accounts and transactions.
Basis of Accounting
The Company's policy is to use the accrual method of accounting and to
prepare and present financial statements which conform to generally
accepted accounting principles.
Significant Estimates
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities, and reported revenues and expenses. Significant estimates used
in preparing these financial statements include the valuation allowance for
deferred tax assets, reserves for interest receivable relating to the note
receivable and the common stock subscribed, deferred loan origination
costs, and discounted value of restricted stock issued for services and
investment in joint venture. It is at least reasonably possible that a
change in the estimates will occur in the near term.
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Cash
F-6
<PAGE>
EMB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash includes cash on hand and cash in checking and savings accounts. The
balance, at times, may exceed federally insured limits. At September 30,
1997 the Company exceeded the insured limits by an immaterial amount.
Mortgage Loans Held for Sale
Mortgage loans held for sale represent the Company's security interest in
mortgage loans funded on their Imperial Warehouse Lending Group, Inc. line
of credit, which have not yet been purchased by ICI Funding (ICI), in
accordance with their Master Repurchase Agreement. (See Note K). Such
purchases are typically made within 10 days from the date the Company funds
a loan.
Mortgage loans held for sale are stated at lower of cost or market
determined on an aggregate loan basis. Market value for mortgage loans
covered by investor commitments is based on commitment prices. Mortgage
loans held for sale include deferred loan origination costs of $62,750 and
$0 at September 30, 1997 and 1996, respectively. Credit is granted to
individuals located throughout the United States. The loans are
collateralized and secured by first deeds on real property. The interest
rates on these mortgage loans are at market, which generally ranges from
7.0% to 9.5%.
Mortgage Servicing Rights
Included with the mortgage loans that are held for sale is the mortgage
servicing rights which are sold with the mortgage loans.
Inventory
Inventory is stated at the lower of cost or market, cost being determined
on the first-in, first-out (FIFO) method. Inventory consists of mortgage
loan processing and teleconferencing software and equipment. As of
September 30, 1997 the inventory was written off as the equipment and
software were determined to be worthless.
Property and Equipment
Property and equipment is stated at cost, and depreciated using the
straight-line method over the estimated useful lives of the assets, which
range from five to ten years. In the year of acquisition of property and
equipment, one-half year's depreciation is taken regardless of the actual
date placed into service. Maintenance and repairs are charged to operations
as incurred, and major improvements are capitalized. Upon retirement, sale,
or other disposition, the related cost and accumulated depreciation are
eliminated from the respective accounts and any gain or loss on disposition
is reflected in operations.
Intangible Assets
Intangible assets subject to amortization include the design and copyright
of the corporate logo and computer software. The logo design and copyright
is amortized on a straight-line basis over twenty years, and the computer
software is amortized on a straight-line basis over five years.
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
F-7
<PAGE>
EMB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loan Origination Fees
Loan origination fees and costs are shared with the brokers who bring the
loan to the Company. The Company's portion of the loan origination fee is
included in the loan production revenue when the loan is sold.
Revenue Recognition
Origination fees, service release fees and other fees, net of direct costs,
are deferred and recognized at the time the loan is sold.
Revenue and Cost Recognition - Land Held for Sale
The Company expects that it will from time to time hold real estate for
sale. Land acquisition costs have been capitalized and they will be charged
to earnings when the related revenue is recognized. Other costs incurred in
connection with the land are charged to earnings when incurred.
Deferred Commitment Fees
Deferred commitment fees, included in Prepaid Expenses and Other, consist
of fees paid to permanent investors to ensure the ultimate sale of loans.
Fees paid to permanent investors are recognized as an adjustment to the
sales price when the loans are sold.
Advertising
The Company expenses advertising costs as incurred. Advertising expenses
included in general and administrative expenses were $18,043, $3,085, and
$512, for the fiscal years ended September 30, 1997, 1996, and 1995,
respectively.
Income Taxes
Income taxes, are provided for using the liability method of accounting in
accordance with Statement of Financial Accounting Standards No. 109 (SFAS
109), "Accounting for Income Taxes." A deferred tax asset or liability is
recorded for all temporary differences between financial and tax reporting
and net operating loss carryforwards. Deferred tax expense (benefit)
results from the net change during the year of deferred tax assets and
liabilities.
Per Share Information
Net loss per common share amounts are computed by dividing net loss by the
weighted average number of common and common equivalent shares outstanding
in the period. Common stock equivalents consist of warrants granted. For
the net loss per common share calculation there were no dilutive common
stock equivalents.
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with
Statement of Financial Accounting
F-8
<PAGE>
EMB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation."
During the year ended September 30, 1997, the Company issued shares of its
restricted stock, valued at $101,278, to officers and employees for
services rendered. During the years ended September 30, 1997, 1996 and
1995, the Company issued shares of its restricted stock, valued at
$1,456,903, $1,279,460, and $155,250, respectively, to unrelated parties
for services rendered. The value of the shares was based on the fair value
of the stock determined by market prices, discounted for the stock
restriction.
Financial Statement Reclassifications
Certain amounts reflected in the consolidated financial statements for the
years ended September 30, 1996 and 1995 have been reclassified to conform
to the presentation for the year ended September 30, 1997.
B. RECAPITALIZATION:
Effective December 16, 1995, the Company acquired the net assets of
Sterling Alliance Group, Ltd. for 3,375,000 shares of the Company's common
stock.
The Company previously did not have an operating business and, accordingly,
has treated the transaction as a recapitalization of SAG and recorded the
transaction at historical cost. Accordingly, the net assets acquired were
accounted for in a manner similar to a pooling of interest.
C. PREPAID EXPENSES AND OTHER :
Prepaid expenses and other are summarized as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Deferred commitment fees $ 193,917 $ -
Other 24,524 -
------------- -------------
Total prepaid expenses and other $ 218,441 $ -
============= =============
</TABLE>
D. NOTES RECEIVABLE - OFFICERS:
The Company has notes receivable from officers totaling $227,600 at
September 30, 1997. These notes bear interest at 7.0% per annum and are
payable in one installment including interest in January 1998 and September
1998. During 1997, interest income on these notes was $10,909.
E. RESTATEMENT:
An error, resulting in the understatement of net loss, common stock to be
issued, operating expenses and retained deficit in the Company's previously
issued financial statements for the year ended September 30, 1996, has
resulted in the restatement of those financial statements. The changes to
retained deficit as of September 30, 1996 and the related statement of
operations for the year then ended are summarized as follows:
Retained
F-9
<PAGE>
EMB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Deficit Net Loss
------------ ------------
<S> <C> <C>
As previously reported, September 30, 1996 $(3,208,791) $(2,643,198)
Omission of stock for services transaction (585,000) (585,000)
----------- -----------
As restated, September 30, 1996 $(3,793,791) $(3,228,198)
=========== ===========
</TABLE>
The income tax effect of this error was to increase the deferred income tax
asset and the valuation allowance $234,600 at September 30, 1996.
F. PROPERTY AND EQUIPMENT:
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Machinery and equipment $ 363,041 $ 112,532
Furniture & fixtures 142,552 71,317
Leasehold improvements 55,496 -
------------- -------------
561,089 183,849
Less accumulated depreciation 98,097 34,486
------------- -------------
Property and equipment, net $ 462,992 $ 149,363
============= =============
</TABLE>
G. LAND HELD FOR SALE:
SAG acquired approximately five acres of undeveloped land in Riverside
County, California on February 24, 1995 from Rancho Brisa Corp., an
unrelated third party. SAG paid $10,000 cash, and issued 8,250 shares of
their common stock valued at $4.00 per share as consideration. The land was
subsequently collateralized against a $65,000 note payable (See Note L).
SAG also acquired approximately 61 acres of undeveloped land with water
producing rights and three wells in Monterey County, California on December
11, 1995 from Golden River Corp., an unrelated third party. Each well can
produce approximately 900,000 gallons of water per 24 hour period and the
water supply is replenished annually from the run-off of the surrounding
mountains. SAG issued 200,000 shares valued at $4.00 per share of its
common stock as consideration. This land was sold on December 30, 1996 to
an unrelated party for $4,000,000. The Company received a down payment of
$800,000 and a note receivable for $3,200,000 with interest at 12% per
annum. The Company has reported this sale on the deposit method, recovering
the initial cost of the land with the down payment. Future payments will be
recognized as income when received (see Note H).
H. NOTE RECEIVABLE:
Note receivable at September 30, 1997, consists of $3,200,000 due from the
sale of the Monterey Land for $4,000,000. The note is secured by the
property and payable in nine annual payments of $422,867 commencing
December 1997, including interest at 12% per annum, with a final payment of
remaining principal and any accrued interest due December 2006.
In accordance with Statement of Financial Accounting Standards No. 66 (SFAS
66), "Accounting for Sales of Real Estate", the Company has provided for
the recognition of profit based on the Deposit Method and, accordingly, has
F-10
<PAGE>
EMB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
recorded a Deferred Gain of $3,200,000 as of September 30, 1997 (see Note
G).
I. INTANGIBLE ASSETS:
Intangible assets are summarized as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Logo and copyrights $ 87,371 $ -
Computer software 26,365 -
------------- -------------
113,736 -
Less accumulated amortization 7,851 -
------------- -------------
Intangible assets, net $ 105,885 $ -
============= =============
</TABLE>
J. OTHER ASSETS:
Other assets are summarized as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Investment in joint venture $ 1,137,500 $ -
Interest receivable, net of allowance 15,146 -
Deposits - other 26,755 4,128
Restricted cash 129,809 -
Less: current portion, restricted cash (34,000) -
------------- -------------
Total other assets $ 1,275,210 $ 4,128
============= =============
</TABLE>
Investment in joint venture relates to the Company's 50% interest in an
international joint venture to further its real estate mortgage business
throughout Europe, Australia and New Zealand. The Company contributed
1,000,000 restricted common shares to fulfill its investment. The
investment, which was acquired August 29, 1997, is valued at 65% of the
stock's market value per management's estimate of a reasonable discount. As
of December 3, 1997, the Company's capital contribution was being held in
escrow pending finalization of incorporation. However, as of September 30,
1997, the joint venture has commenced operations.
J. OTHER ASSETS: (CONTINUED)
Restricted cash reflects monies held in a certificate of deposit pursuant
to the terms of the Company's lease agreement for its corporate office
space. These monies are being held by the landlord as security for the
Company's adherence to the terms, covenants and conditions of the lease.
The agreement stipulates that $34,000 will be released beginning April 1998
and each year thereafter, provided the Company isn't in default under the
lease. The remaining restricted cash relates to an agreement the Company
has with ICI wherein the Company is required to fund two percent of loan
balances which are being financed by the ICI warehouse credit line but
purchased by another investor. This account is used to fund the Company's
share of these loans.
K. WAREHOUSE LINE OF CREDIT:
F-11
<PAGE>
EMB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has a $3,000,000 line-of-credit with Imperial Warehouse Lending
Group, Inc. (IWLGI) which can be used solely for the purpose of funding
mortgage loans. Borrowings bear interest at Bank of America's prime + .5%.
The line is secured by a personal guarantee and the original mortgage
notes. The Company must maintain an average daily balance of $1,500,000. As
of September 30, 1997 the outstanding balance was $7,029,738, $4,029,738 in
excess of the lending limit. The Company has recorded a corresponding
asset, Mortgage Loans Held For Sale, representing the Company's security
interest in the underlying properties. The line of credit expired September
26, 1997. Since that date, IWLGI has accommodated the Company's credit
needs pending a formal extension of the agreement.
L. NOTES PAYABLE:
<TABLE>
<CAPTION>
Notes payable are summarized as follows:
September 30, September 30,
1997 1996
------------- ------------
<S> <C> <C>
Note payable due to Frederic R. Weeth, interest at 10%,
no established repayment schedule, note past due, principal
and any unpaid interest due on demand, unsecured $ 24,375 $ 26,250
Note payable due to Thomas J. Donahue, interest at 10%
no established repayment schedule, note past due, principal
and any unpaid interest due on demand, unsecured 24,375 26,250
Note payable to Howard C. Kuhle, interest at 12%, interest
only payable monthly, principal and any unpaid interest due
March 1998, secured by deed of trust on Riverside County
land 65,000 65,000
Note payable to Baronin Enterprises, Inc., interest at 8%,
principal and any unpaid interest due on demand 50,000
Note payable to Havon Funding, L.P., interest at 10.5%, 24
monthly payments of $480 including interest, unsecured, final
payment including any unpaid interest due November 1998 21,191 -
Various notes payable to unrelated parties, no established
repayment schedule, unsecured, non-interest-bearing 109,700 191,293
------------- ------------
244,641 358,793
Less current portion 227,487 293,793
------------- ------------
Notes payable, net of current portion $ 17,154 $ 65,000
============= ============
</TABLE>
L. NOTES PAYABLE: (CONTINUED)
Aggregate maturities required on long-term debt at September 30, 1997 are
as follows:
<TABLE>
<S> <C>
1998 $227,487
1999 17,154
Thereafter -
--------
$244,641
========
</TABLE>
F-12
<PAGE>
EMB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
M. RELATED PARTY TRANSACTIONS:
Related party receivable at September 30, 1997 and 1996 consists of non-
interest bearing, unsecured amounts due on demand from a related
corporation of $166,212 and $129,687, respectively.
Related party payable at September 30, 1997 consists of loans (portion non-
interest bearing, due on demand, balance interest at 7% per annum, due
March 1998, all amounts unsecured) made to the Company by a
director/officer and amounts due (unsecured, account payable) to an entity
owned by another director for consulting services of $130,405 and $48,357,
respectively.
N. INCOME TAXES:
As discussed in Note A, the Company accounts for income taxes in accordance
with SFAS 109.
Provisions for income taxes are summarized as follows:
<TABLE>
<CAPTION>
Year ended September 30,
------------------------
1997 1996 1995
------ ------ -----
<S> <C> <C> <C>
Current income taxes $1,600 $1,600 $ 800
Deferred income taxes - - -
------ ------ -----
Provision for income taxes $1,600 $1,600 $ 800
====== ====== =====
</TABLE>
F-13
<PAGE>
EMB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
N. INCOME TAXES: (CONTINUED)
As a result of adopting SFAS 109, the Company has recognized deferred tax
assets for the tax effects of temporary differences for the years ended
September 30, 1997, 1996 and 1995 as follows:
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------
1996
1997 (As restated) 1995
------- ------------ ---------
<S> <C> <C> <C>
Deferred tax assets:
Net operating losses $ 2,212,800 $ 1,354,600 $ 120,000
Deferred gain 277,100 - -
Reserves 213,800 - -
----------- ----------- ---------
Gross deferred tax assets 2,703,700 1,354,600 120,000
Valuation adjustment (2,703,700) (1,354,600) (120,000)
----------- ----------- ---------
Net deferred tax assets $ - $ - $ -
=========== =========== =========
</TABLE>
The net change in the valuation allowance from September 30, 1997 to 1996
was $1,349,100 and $1,234,600 from September 30, 1996 to 1995.
The Company has net operating loss carryforwards remaining of approximately
$4,700,000. The regular net operating loss carryforwards, which are
approximately the same as the alternative net operating loss carryforwards,
if not utilized, will expire as follows:
<TABLE>
<CAPTION>
Federal State
---------- ----------
<S> <C> <C>
2000 $ - $1,314,000
2001 - 958,000
2009 100,000 -
2010 200,000 -
2011 2,500,000 -
2012 1,900,000 -
---------- ----------
$4,700,000 $2,272,000
========== ==========
</TABLE>
O. COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company leases its office facilities under operating leases from
unrelated third parties which expire at various dates, ranging from one to
five years. Rental expense for the years ended September 30, 1997, 1996 and
1995 was $155,022, $90,132 and $0, respectively.
Minimum future rental payments under the lease agreements are summarized as
follows:
<TABLE>
<S> <C>
1998 $333,400
1999 335,700
2000 357,200
2001 262,200
2002 131,100
----------
$1,419,600
==========
</TABLE>
F-14
<PAGE>
EMB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
O. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
The noncancelable operating leases provide that the Company pays for
property taxes, insurance and certain other operating expenses applicable
to the leased premises.
Capital Leases
The Company acquired part of its equipment and furniture under capital
lease obligations. The economic substance of the capital lease agreements
is that the Company finances the acquisition by making monthly payments
over a thirty-six month period. The assets are reflected as part of
property and equipment. The following is an analysis of the book value of
the leased assets included in property and equipment as of:
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
------------- --------------
<S> <C> <C>
Cost $ 75,949 $ 75,949
Accumulated depreciation (36,382) (23,450)
-------- --------
Net Book Value $ 39,567 $ 52,499
======== ========
</TABLE>
The future minimum lease payments under capitalized leases and the present
value of the net minimum lease payments are as follows:
<TABLE>
<CAPTION>
Year ending September 30,
-------------------------
<S> <C>
1998 $ 28,998
1999 2,916
--------
31,914
Less amount representing interest (4,086)
--------
27,828
Less current portion of capital lease (24,467)
--------
Long-term capital lease obligations $ 3,361
========
</TABLE>
Contingencies
The Company is involved in certain claims and legal proceedings in which
monetary damages and other relief are sought. The Company is vigorously
contesting these claims. However, these claims are preliminary, and their
ultimate outcome cannot presently be predicted. In any event, it is the
opinion of management that any liability of the Company for claims or
proceedings will not materially affect its financial position.
P. SUPPLEMENTAL CASH FLOW INFORMATION:
F-15
<PAGE>
EMB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supplemental disclosures of cash flow information are summarized as
follows:
<TABLE>
<CAPTION>
Years ended September 30,
-------------------------------------
1997 1996 1995
------------ --------- ----------
<S> <C> <C> <C>
Cash paid for interest and income taxes:
Interest $ 18,506 $ 52,232 $ 2,164
Income taxes $ 1,600 $ - -
Noncash investing and financing activities:
Capital lease obligations incurred $ - $ 57,881 $18,068
Common stock issued for land $ - $800,000 $33,000
Common stock issued for related party
payable $ - $232,018 $ -
Common stock issued for investment in
joint venture $1,137,500 $ - $ -
</TABLE>
Q. SHAREHOLDERS' EQUITY:
The Company amended its Articles of Incorporation on May 21, 1996, which
authorized the issuance of 35,000,000 shares of capital stock; 30,000,000
shares are no par value common stock and 5,000,000 shares are preferred
stock. The preferred stock may be divided into and issued in one or more
series. As of September 30, 1996 there were no shares of preferred stock
issued or outstanding.
On September 27, 1996 the Company effectuated a one for four (1:4) reverse
stock split. The effect of this event has been retroactively applied for
financial statement presentation on the statement of stockholders' equity
(deficit).
Common stock to be issued relates to remuneration in the form of common
stock, wherein the liability is accruable as of the balance sheet date but
the stock has not been issued.
R. PREFERRED STOCK:
In August 1997, the Company designated 1,066,666 shares of its authorized
preferred stock as Convertible Preferred Stock, Series A (the "Convertible
Preferred"). The Company sold a total of 648,648 shares of Convertible
Preferred (at a price of $1.85 per share) in a private placement that was
consummated in August 1997. As additional consideration, the Company issued
warrants to purchase 150,000 shares of the Company's common stock at an
initial exercise price of $1.85 per share. The Convertible Preferred has a
stated value of $1.85 and is entitled to receive cumulative dividends at an
annual rate of $.148 per share, payable quarterly when and if declared by
the Board of Directors and is convertible, at any time at the option of the
holder, into shares of the Company's common stock at a conversion price
equal to the lesser of (a) $1.85 per share or (b) 75% of the average
closing bid price of the Common Stock during the five trading days
immediately preceding such conversion. In the event of any noticed
conversion of the Convertible Preferred at a conversion price of less than
$1.125 per common share then the Company may, at its option, redeem the
shares of the Convertible Preferred, in whole or in part, at an amount
equal to 117% of the purchase price of the holder's Convertible Preferred
R. PREFERRED STOCK: (CONTINUED)
F-16
<PAGE>
EMB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
plus an amount equal to accrued and unpaid dividends, if any, to (and
including) the date fixed for redemption, whether or not earned or
declared. Each share of the Convertible Preferred is entitled to vote on
any matter submitted to the shareholders as if the Convertible Preferred
had been converted into common stock, and each share has a liquidation
preference equal to $2.16.
S. STOCK OPTION, SAR AND STOCK BONUS PLAN:
On April 29, 1996 the Board of Directors approved the "EMB Corporation 1996
Stock Option, SAR and Stock Bonus Plan." Options and SAR's may be granted
to employees and independent consultants. No options and SAR's shall be
exercisable within six months from date of grant or more than ten years
after date of grant. The option price of stock options shall in no event be
less than 85%, and for incentive stock options shall in no event be less
than 100% of the "fair market value" of the stock on the date of grant.
The Company has reserved a total of 250,000 shares of common stock for
issuances under the plan. As of September 30, 1997, no shares have been
granted under the plan.
T. COMMON STOCK WARRANTS:
The following table summarizes common stock warrant activity during the
years ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
For the years ended
September 30,
-----------------------
1997 1996
--------- --------
<S> <C> <C>
Beginning balance 108,750 -
Issued 286,125 108,750
Exercised (182,375) -
Expired - -
-------- -------
Ending Balance 212,500 108,750
======== =======
</TABLE>
As of September 30, 1997, the exercise price of outstanding warrants range
from $1.85 - $2.00 and the expiration dates range from March 1998 to August
2000.
U. RETIREMENT PLAN:
The Company adopted a 401(k) retirement plan effective August 1, 1997. As
of the adoption date, the plan covers all employees who are at least 21
years of age. Thereafter, an employee must have four months of service and
be at least 21 years of age to be eligible. Under the plan, the employees
may contribute up to 15% of their compensation. The Company holds the right
to make a discretionary contribution. There was no Company contribution for
the year ended September 30, 1997.
V. SIGNIFICANT CUSTOMER:
F-17
<PAGE>
EMB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A significant source of revenue for the Company is derived from the resale
of retail mortgage loans to a single national mortgage lender. The Company
sold approximately 90% of its mortgage loans to this one lender for the
year-ended September 30, 1997. There is no receivable balance due from the
lender at September 30, 1997. The line of credit which has been used to
fund these mortgage loans expired on September 26, 1997. The loss of this
line of credit and/or the loss of the national mortgage lender would have a
material adverse affect on the Company's ability to continue in business.
W. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following disclosure of estimated fair values of financial instruments
as of September 30, 1997 and 1996 is made by the Company using available
market information and appropriate valuation methodologies. However,
considerable judgment is required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts the Company could realize in a
current market exchange.
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
---------------------- --------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Assets
------
Accounts receivable $ 8,890 $ 8,890 $ 14,582 $ 14,582
Mortgage loans held for sale 7,092,238 7,092,238 - -
Notes receivable 3,554,307 3,554,307 14,000 14,000
Liabilities
-----------
Accounts payable 539,488 539,488 195,374 195,374
Bank overdraft - - 27,177 27,177
Notes payable 244,641 244,641 358,793 358,793
Warehouse line of credit 7,029,738 7,029,728 - -
</TABLE>
X. COMMON STOCK SUBSCRIBED:
Common stock subscribed represents the Company's issuance of common stock
to three unrelated parties in exchange for notes receivable. The notes are
unsecured, bear interest at rates ranging from 9% to 10% and are due in
January and February 1998. The Company has fully allowed for two of the
notes as they were non-performing over the original term of the note.
F-18
<PAGE>
EMB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Y. SUBSEQUENT EVENTS:
In November 1997, the Company entered into a stock purchase agreement
whereby it has agreed to acquire all of the issued and outstanding capital
stock of Investment Consultants, Inc. ("Sellers"), a Colorado corporation.
In exchange for acquiring all of the issued and outstanding capital stock
of Sellers, the Company will issue 400,000 shares of its common stock (the
"Shares"). If, as of the close of the business day eighteen months
following closing of this transaction, the aggregate fair market value of
the Shares is less than $2,000,000 the Sellers may elect one of two
options. Sellers may either elect: (1) that additional common shares are
issued equivalent to the difference between the sum of $2,000,000 and the
aggregate fair market value of the Shares, or (2) to rescind the
transaction, returning the parties to their respective positions prior to
consummation of the proposed transaction.
In November 1997, the Company entered into a stock purchase agreement
whereby it has agreed to purchase all of the outstanding shares of capital
stock of Preferred Holding Group, Inc. ("PHG"), a Colorado corporation. As
consideration for acquiring all of the issued and outstanding capital stock
of PHG, the Company will issue 100,000 shares of its common stock.
F-19
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
-----------------
=========================================================================================
SEQUENTIAL
NO. EXHIBIT PAGE NO.
- -----------------------------------------------------------------------------------------
<S> <C> <C>
10(k) Stock Purchase Agreement dated November 1, 1997, regarding
acquisition of Investment Consultants, Inc.
- -----------------------------------------------------------------------------------------
10(l) ICI Master Commitment to purchase loans under ConformPlus
program dated October 21, 1997.
- -----------------------------------------------------------------------------------------
10(m) ICI Master Commitment to purchase second deed trust mortgage
deeds dated September 12, 1997.
- -----------------------------------------------------------------------------------------
10(n) ICI Master Commitment to purchase jumbo and conforming
residential mortgages dated September 4, 1997.
- -----------------------------------------------------------------------------------------
10(o) Master agreement for sale of mortgages with ContiMortgage
Corporation.
- -----------------------------------------------------------------------------------------
10(p) Sale agreement for purchase of mortgage loans with the
Mortgage Authority, Inc. dated April 3, 1997.
- -----------------------------------------------------------------------------------------
10(q) Mortgage loan Seller/Servicer Agreement with First Union
National Bank of North Carolina dated March 16, 1997.
- -----------------------------------------------------------------------------------------
10(r) Mortgage Purchase Agreement with Resource Bancshares Mortgage
Group, Inc. dated March 10, 1997.
- -----------------------------------------------------------------------------------------
10(s) Stock Purchase Agreement with Linda K. Gregg dated November 1,
1997, regarding acquisition of Preferred Holding Group,
Incorporated.
- -----------------------------------------------------------------------------------------
23.1* Consent of Harlan & Boettger.
- -----------------------------------------------------------------------------------------
27.* Financial Data Schedule.
=========================================================================================
</TABLE>
28
<PAGE>
EXHIBIT 10(K)
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of November, 1997, by and among the following:
EMB MORTGAGE CORPORATION, a California corporation and a wholly owned
subsidiary (hereinafter "EMB Subsidiary") of EMB CORPORATION, a Hawaii
corporation (hereinafter "EMB Parent");
EMB Parent;
SCOTT SAX, an individual residing in Colorado (hereinafter "Mr. Sax");
and
JAMES SAUNDERS, an individual residing in Colorado (hereinafter "Mr.
Saunders").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, subject to the terms and conditions of this Agreement, EMB Parent
and Mr. Sax desire for EMB Subsidiary to purchase from Mr. Sax, and for Mr. Sax
to sell to EMB Subsidiary 50 shares of capital stock of Investment Consultants,
Inc., a Colorado corporation that does business as Equityline Financial
Services, Inc. (hereinafter "ICI"), which shares (in conjunction with the shares
of ICI owned by Mr. Saunders and transferred hereby) represent all of the issued
and outstanding capital stock of ICI; and
WHEREAS, subject to the terms and conditions of this Agreement, EMB Parent
and Mr. Saunders desire for EMB Subsidiary to purchase from Mr. Saunders, and
for Mr. Saunders to sell to EMB Subsidiary 50 shares of capital stock of ICI,
which shares (in conjunction with the shares of ICI owned by Mr. Sax and
transferred hereby) represent all of the issued and outstanding capital stock of
ICI; and
WHEREAS, in order to attain the benefits of integrating the operations of
ICI with the operations of EMB Parent and EMB Subsidiary and of obtaining
continuity of the operations of ICI, EMB Parent and EMB Subsidiary desire that
Messrs. Sax and Saunders become employees of EMB Parent or EMB Subsidiary; and
WHEREAS, the Board of Directors of EMB Parent deems it desirable and in the
best interests of EMB Parent and its stockholders that EMB Subsidiary purchase
an aggregate of 100 shares of ICI from Messrs. Sax and Saunders in consideration
of the issuance by EMB Parent, through EMB Subsidiary, to Messrs. Sax and
Saunders of an aggregate of four hundred thousand (400,000) shares of EMB Parent
common stock (subject to increase), such that ICI shall become a wholly-owned
subsidiary of EMB Subsidiary or be merged with and into EMB Subsidiary; and
-1-
<PAGE>
WHEREAS, the parties hereto have determined that the aggregate fair market
value of the shares of common stock of EMB Parent to be issued to Messrs. Sax
and Saunders in accordance with the terms and conditions of the transactions
contemplated hereby shall be not less than $2.0 million on a date that is 18
months from the Closing Date of such transactions; and
WHEREAS, the respective Boards of Directors of EMB Parent and EMB
Subsidiary deem it desirable and in the best interests of EMB Parent that ICI
become a wholly-owned subsidiary of EMB Subsidiary or be merged with and into
EMB Subsidiary; and
WHEREAS, the respective Boards of Directors of EMB Parent and EMB
Subsidiary have approved and adopted this Agreement as a plan of reorganization
within the meaning, and subject to the provisions, of Section 368 and other
applicable provisions of the Internal Revenue Code of 1986, as amended, as a "B"
reorganization;
WHEREAS, each of Messrs. Sax and Saunders has approved and adopted this
Agreement as a plan of reorganization within the meaning, and subject to the
provisions, of Section 368 and other applicable provisions of the Internal
Revenue Code of 1986, as amended, as a "B" reorganization;
WHEREAS, EMB Parent, EMB Subsidiary, and each of Messrs. Sax and Saunders
desire to provide for certain undertakings, conditions, representations,
warranties, and covenants in connection with the transactions contemplated by
this Agreement; and
WHEREAS, the respective Boards of Directors of EMB Parent and EMB
Subsidiary have approved and adopted this Agreement, subject to the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereto do hereby agree as follows:
SECTION 1
DEFINITIONS
-----------
1.1 "Agreement," "EMB Subsidiary," "EMB Parent," "Mr. Sax," "Mr.
--------- -------------- ---------- ------- ---
Saunders," and "ICI," respectively, shall have the meanings defined on the cover
- -------- ---
page and in the foregoing preamble and recitals to this Agreement.
1.2 "Closing Date" shall mean 10:00 A.M., Pacific Daylight Savings Time,
------------
November 1, 1997, at the offices of Arter & Hadden LLP, 5 Park Plaza, Suite
1000, Irvine, California 92614, the date on which the parties hereto shall be
deemed to have closed the transactions contemplated herein.
1.3 "Mr. Sax's Employment Agreement" shall mean the Employment Agreement
------------------------------
be tween EMB Subsidiary and Mr. Sax in substantially the form of Exhibit 1.3,
attached hereto.
-2-
<PAGE>
1.4 "Mr. Saunders' Employment Agreement" shall mean the Employment
----------------------------------
Agreement between EMB Subsidiary and Mr. Saunders in substantially the form of
Exhibit 1.4, attached hereto.
1.5 "ICI Financial Statements" shall mean (i) the Audit Report of
------------------------
Schumacher & Associates, Inc., Independent Public Accountants; (ii) the Balance
Sheet of ICI as of September 30, 1996; (iii) the September 30, 1996, Notes to
Balance Sheet of ICI; (iv) the Review Report of William Richey & Co.; (v) the
Balance Sheet of ICI as of April 30, 1997; (vi) the Statement of Income (Loss)
of ICI for the seven months ended April 30, 1997; (vii) the April 30, 1997,
Notes to Financial Statements of ICI; and (viii) the unaudited internally
prepared Balance Sheet and Profit and Loss Statements for the period ended
September 30, 1997; each of which was prepared in accordance with generally
accepted accounting principles for interim financial information, applied on a
consistent basis, subject to year-end audit adjustments (if appropriate), and
all of which are attached to the Agreement as Exhibit 1.5.
1.6 "ICI Agreements" shall mean the leases, contracts, commitments,
--------------
agreements, liabilities, and obligations of ICI attached to the Agreement as
Exhibit 1.6.
SECTION 2
AGREEMENT FOR PURCHASE AND SALE OF ICI STOCK
--------------------------------------------
2.1 Substantive Terms of the Purchase and Sale of ICI Stock.
-------------------------------------------------------
(a) Mr. Sax shall sell and deliver to EMB Subsidiary 50 shares of the
issued and outstanding capital stock of ICI in a form enabling EMB
Subsidiary then and there to become the record and beneficial owner
thereof;
(b) EMB Subsidiary and Mr. Sax shall execute Mr. Sax's Employment
Agreement;
(c) Mr. Sax shall execute his Release Agreement in the form of Exhibit
2.1(c) attached hereto;
(d) Mr. Sax shall execute his Investment Representation Letter in the
form of Exhibit 2.1(d) attached hereto.
(e) Mr. Saunders shall sell and deliver to EMB Subsidiary 50 shares of
the issued and outstanding capital stock of ICI in a form enabling EMB
Subsidiary then and there to become the record and beneficial owner
thereof;
(f) EMB Subsidiary and Mr. Saunders shall execute Mr. Saunders'
Employment Agreement;
-3-
<PAGE>
(g) Mr. Saunders shall execute his Release Agreement in the form of
Exhibit 2.1(g) attached hereto;
(h) Mr. Saunders shall execute his Investment Representation Letter in
the form of Exhibit 2.1(h) attached hereto; and
(i) EMB Parent shall execute and deliver the Registration Rights
Agreement in the form of Exhibit 2.1(i) attached hereto.
2.2 Issuance of EMB Parent Common Stock.
-----------------------------------
(a) In consideration of the sale and delivery by Mr. Sax of 50 shares
in ICI to EMB subsidiary in a form enabling EMB Subsidiary then and there
to become the record and beneficial owner thereof, EMB Parent, through EMB
Subsidiary, shall issue, sell, and deliver to Mr. Sax 200,000 shares of EMB
Parent's common stock pursuant to an exception from the registration
requirements of the Securities Act of 1933, as amended, and from
qualification under the Colorado Business Corporation Act. The certificate
representing such shares shall bear the following legend: "The securities
represented by this certificate have not been registered under the
securities act of 1933 (the "Act"). Accordingly, no transfer of these
securities or any interest therein may be made except pursuant to an
effective registration statement under the act unless the issuer has
received an opinion of counsel satisfactory to it that such transfer does
not require registration under the Act."
(b) In consideration of the sale and delivery by Mr. Saunders of 50
shares in ICI to EMB subsidiary in a form enabling EMB Subsidiary then and
there to become the record and beneficial owner thereof, EMB Parent,
through EMB Subsidiary, shall issue, sell, and deliver to Mr. Saunders
200,000 shares of EMB Parent's common stock pursuant to an exception from
the registration requirements of the Securities Act of 1933, as amended,
and from qualification under the Colorado Business Corporation Act. The
certificate representing such shares shall bear the following legend:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"). Accordingly, no
transfer of these securities or any interest therein may be made except
pursuant to an effective registration statement under the Act unless the
issuer has received an opinion of counsel satisfactory to it that such
transfer does not require registration under the Act."
2.3 Subsequent Issuance of EMB Parent Common Stock. Under the
----------------------------------------------
circumstances set forth in Section 7.3, EMB Parent will cause to be issued to
Messrs. Sax and Saunders certain additional shares of EMB Parent Common Stock.
-4-
<PAGE>
SECTION 3
REPRESENTATIONS AND WARRANTIES OF EMB PARENT AND EMB SUBSIDIARY
---------------------------------------------------------------
EMB Parent and EMB Subsidiary, in order to induce each of Messrs. Sax and
Saunders to execute this Agreement and to consummate the transactions
contemplated herein, represent and warrant to each of Messrs. Sax and Saunders
as follows:
3.1 Organization and Qualification. EMB Parent and EMB Subsidiary are
------------------------------
each corporations duly organized, validly existing, and in good standing under
the laws of their respective states of incorporation, each with all requisite
power and authority to own its respective property and to carry on its
respective business as it is now being conducted. EMB Parent and EMB Subsidiary
are duly qualified as foreign corporations and in good standing in each
jurisdiction where the ownership, lease, or operation of property or the conduct
of business requires such qualification except where the failure to be in good
standing or so qualified would not have a material, adverse effect on the
financial condition or business of EMB Parent and EMB Subsidiary taken as a
whole.
3.2 Ownership of EMB Parent; Status of Shares Issued Hereunder. EMB
----------------------------------------------------------
Parent is authorized to issue two classes of stock of up to 30,000,000 common
shares, no par value per share, and of up to 5,000,000 preferred shares, no par
value per share. The shares to be issued by EMB Parent to Messrs. Sax and
Saunders hereunder shall be validly issued, fully paid, and non-assessable upon
issuance and shall be free and clear of any lien or encumbrance thereon.
3.3 Ownership of EMB Subsidiary. The outstanding shares of capital stock
---------------------------
of EMB Subsidiary are validly issued and outstanding, fully paid, and non-
assessable, all of which are owned by EMB Parent and have not been pledged,
hypothecated, or mortgaged.
3.4 Authorization and Validity. Each of EMB Parent and EMB Subsidiary has
--------------------------
the requisite power and is duly authorized to execute and deliver and to carry
out the terms of this Agreement. The respective boards of directors and
stockholders of each of EMB Parent and EMB Subsidiary have taken all action
required by law, their respective Articles of Incorporation and Bylaws, or
otherwise to authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, subject to the
satisfaction or waiver of the conditions precedent set forth in Section 8 of
this Agreement. Assuming this Agreement has been approved by all action
necessary on the part of each of Messrs. Sax and Saunders, this Agreement is a
valid and binding agreement of each of EMB Parent and EMB Subsidiary.
3.5 EMB Financial Statements. The financial statements of EMB Parent that
------------------------
have been included in the periodic reports filed by EMB Parent with the
Securities and Exchange Commission (the "Commission") pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), are complete in all
material respects and fairly present the financial position of EMB Parent as of
the dates set forth therein and its results of operations for each of the fiscal
years referenced therein, audited by Harlan & Boettger, Independent Public
Accountants, and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis. The unaudited quarterly
financial statements of EMB Parent included therein fairly present in all
material respects all financial information of EMB Parent, having been prepared
in accordance with generally accepted accounting principles, applied on a
consistent basis, subject to year-end audit adjustments.
-5-
<PAGE>
3.6 Federal and State Securities Filings. EMB Parent has made such
------------------------------------
filings with the Commission as have been required pursuant to the Securities Act
of 1933, as amended, the Exchange Act, and the relevant state securities laws.
EMB Parent has furnished to counsel for Messrs. Sax and Saunders a true and
correct copy of EMB Parent's most recently filed Annual Report on Form 10-KSB
and a copy of each subsequent Exchange Act filing.
3.7 No Defaults. Neither EMB Parent nor EMB Subsidiary is in default
-----------
under or in violation of any provision of its respective Articles of
Incorporation or Bylaws. EMB Parent and EMB Subsidiary are not in default under
or in violation of any material provision of any indenture, mortgage, deed of
trust, lease, loan agreement, or other agreement or instrument to which it or
they are a party or by which it or they are bound or to which any of its or
their properties is subject, if such default would have a material, adverse
effect on the financial condition or business of EMB Parent and EMB Subsidiary
taken as a whole. EMB Parent and EMB Subsidiary are not in viola tion of any
statute, law, ordinance, order, judgment, rule, regulation, permit, franchise,
or other approval or authorization of any court or governmental agency or body
having jurisdiction over them or any of their properties which, if enforced,
would have a material, adverse effect on the financial condition or business of
EMB Parent and EMB Subsidiary taken as a whole. Neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated herein, will conflict with or result in a breach of or constitute a
default under any of the foregoing or result in the creation of any lien,
mortgage, pledge, charge, or encumbrance upon any asset of EMB Parent and no
consents or waivers thereunder are required to be obtained in connection
therewith in order to consummate the transactions contemplated by this
Agreement.
3.8 Proprietary Rights. EMB Parent and EMB Subsidiary own or are duly
------------------
licensed to use such trademarks and copyrights as are necessary to conduct their
respective businesses as presently conducted. The conduct of business by EMB
Parent and EMB Subsidiary does not infringe upon the trademarks or copyrights of
any third party, if such infringement would have a material, adverse effect upon
the financial condition or business of EMB Parent and EMB Subsidiary taken as a
whole.
3.9 Books of Account and Reports; Internal Controls.
-----------------------------------------------
(a) The books of account of EMB Parent and EMB Subsidiary accurately
reflect in all material respects all of their items of income and expense,
all of their assets, liabilities, and accruals, and are prepared and
maintained in form and substance adequate for preparing audited financial
statements, in accordance with generally accepted accounting procedures as
historically and consistently applied by EMB Parent and EMB Subsidiary.
EMB Parent and EMB Subsidiary have accurately prepared and filed all
reports required by any law or regulation to be filed by them, and they
have duly paid or accrued on their books of account all applicable duties
and charges due (or assessed against it or them) pursuant to such reports,
none of which is delinquent.
(b) EMB Parent and EMB Subsidiary have devised and maintained a system
of internal accounting controls sufficient to provide reasonable assurances
that transactions are recorded as necessary (i) to permit preparation of
financial statements in conformity with generally accepted accounting
principles and (ii) to maintain accountability for assets and expenses.
-6-
<PAGE>
3.10 Litigation. There are no actions, suits, proceedings, orders,
----------
investigations, or claims pending or, to the knowledge of either of EMB Parent
or EMB Subsidiary, threatened against or affecting EMB Parent or EMB Subsidiary
at law or in equity, or before or by any governmental department, commission,
board, bureau, agency, or instrumentality, which, if adversely determined, would
materially and adversely affect the financial condition of EMB Parent and EMB
Subsidiary taken as a whole, or which seek to prohibit, restrict, or delay the
consummation of the stock purchase contemplated hereby. Neither EMB Parent nor
EMB Subsidiary is operating under or subject to, or in default with respect to,
any order, writ, injunction, or decree of any court or federal, state,
municipal, or other governmental department, commission, board, agency, or
instrumentality.
3.11 Insurance. EMB Parent and EMB Subsidiary have insurance against
---------
losses or damages and other risks in amounts and of a character usually insured
against by companies in the same or similar business.
3.12 Documents. The copies of all agreements and other instruments that
---------
have been delivered by EMB Parent and/or EMB Subsidiary to each of Messrs. Sax
and Saunders are true, correct, and complete copies of such agreements and
instruments and include all amendments thereto.
3.13 Disclosure. The representations and warranties made by each of EMB
----------
Parent and EMB Subsidiary herein and in any schedule, statement, certificate, or
document furnished or to be furnished by either or both of EMB Parent and EMB
Subsidiary to either or both of Messrs. Sax and Saunders pursuant to the
provisions hereof or in connection with the transactions contemplated hereby,
taken as a whole, do not and will not as of their respective dates contain any
untrue statements of a material fact, or omit to state a material fact necessary
to make the statements made not misleading.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF MESSRS. SAX AND SAUNDERS
----------------------------------------------------------
Mr. Sax and Mr. Saunders, jointly and severally, in order to induce each of
EMB Parent and EMB Subsidiary to execute this Agreement and to consummate the
transactions contemplated herein, represent and warrant to each of EMB Parent
and EMB Subsidiary as follows:
4.1 Organization and Qualification. ICI is a corporation duly organized,
------------------------------
validly existing, and in good standing under the laws of the state of Colorado
with all requisite power and authority to own its property and assets and to
carry on its business as it is now being conducted. ICI is qualified as a
foreign corporation and is in good standing in each jurisdiction where the
ownership, lease, or operation of property or the conduct of its business
requires such qualification except where the failure to be in good standing or
so qualified would not have a material, adverse effect on the financial
condition and business of ICI.
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<PAGE>
4.2 Ownership of ICI. ICI is authorized to issue one class of stock of up
----------------
to 100 shares, $1.00 par value per share. At the date hereof, of such
authorized shares, 100 shares have been validly issued and are outstanding,
fully paid, and non-assessable, all of which are owned of record and
beneficially by Messrs. Sax or Saunders. Except as disclosed in Exhibit 4.2
hereto, there are no options, warrants, or other securities exercisable or
convertible into or any calls, commitments, or agreements of any kind relating
to any unissued equity securities of ICI.
4.4 Validity. Each of Messrs. Sax and Saunders has the requisite power to
--------
execute and deliver and to carry out the terms of this Agreement. Assuming this
Agreement has been approved by all action necessary on the part of each of EMB
Parent and EMB Subsidiary, this Agreement is a valid and binding agreement of
each of Messrs. Sax and Saunders.
4.5 ICI Financial Statements. The ICI Financial Statements are complete
------------------------
in all material respects and fairly present the financial position of ICI as of
the respective dates and for the respective periods thereof, and have been
prepared in accordance with generally accepted accounting principles, applied on
a consistent basis for interim financial information, subject to year-end audit
adjustments. ICI does not have any debts, liabilities, or obligations, whether
as principal or guarantor, accrued, contingent, unasserted, or otherwise, and
whether due or to become due, which are not reflected in the ICI Financial
Statements or incurred in the ordinary course of business since the dates
thereof.
4.6 Conduct and Transactions of ICI. During the period from the date of
-------------------------------
the most current of the ICI Financial Statements to the Closing Date, ICI
conducted its operations in the ordinary course of business, consistent with
past practice and used its best efforts to maintain and preserve its properties,
key employees, and relationships with customers and suppliers. Without limiting
the foregoing, during such period ICI did not without the prior written consent
of EMB Parent:
(a) Incur any liabilities except to maintain its facilities and assets
in the ordinary course of its business;
(b) Declare or pay any dividends on any shares of capital stock or
make any other distribution of assets to the holders thereof;
(c) Issue, reissue, or sell, or issue options or rights to subscribe
to, or enter into any contract or commitment to issue, reissue, or sell,
any shares of capital stock or acquire or agree to acquire any shares of
capital stock;
(d) Amend its Articles of Incorporation or Bylaws or merge or
consolidate with or into any other corporation or sell all or substantially
all of its assets or change in any manner the rights of its capital stock
or other securities;
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<PAGE>
(e) Pay or incur any obligation or liability, direct or contingent,
except in the ordinary course of its business;
(f) Except for that certain debt of ICI to either or both of Messrs.
Sax and Saunders, as more particularly set forth on Exhibit 4.6(f) hereto,
which exhibit may be updated from time to time prior to the Closing Date,
incur any indebtedness for borrowed money, assume, guarantee, endorse, or
otherwise become responsible for obligations of any other party, or make
loans or advances to any other party except in the ordinary course of its
business;
(g) Increase in any manner the compensation, direct or indirect, of
any of its officers or executive employees, except as otherwise disclosed
in Exhibit 4.6(g), hereto; or
(h) Make any capital expenditures except in the ordinary course of its
business.
4.7 Compensation Due Employees. ICI will not have any outstanding
--------------------------
liability for payment of wages, payroll taxes, vacation pay (whether accrued or
otherwise), salaries, bonuses, pensions, contributions under any employee
benefit plans or other compensation, current or deferred, under any labor or
employment contracts, whether oral or written, based upon or accruing in respect
of those services of employees of ICI that have been performed prior to the
Closing Date, except as specified on Exhibit 4.7 hereto. On the Closing Date,
ICI will not have any unfunded, contingent, or other liability under any defined
benefits plan or any other retirement or retirement-type plan, whether such
plan(s) are to continue or are thereupon terminated, except for the normal on-
going obligations for future contributions under such plan(s) not related,
generally or specifically, to the termination of such plan(s) or except as
specified on Exhibit 4.7 hereto.
4.8 Union Agreements and Employment Agreements. ICI is not a party to any
------------------------------------------
union agreement or any organized labor dispute. ICI does not have any written
or verbal employment agreements with any of its employees.
4.9 Contracts and Leases. Except as listed in Exhibit 4.9 hereto, ICI is
--------------------
not a party to any written or oral leases, commitments, or any other agreements
which, individually, represent obligations of more than $2,500.00 per month and,
in the aggregate, represent obligations of more than $18,000 per year. On the
Closing Date, ICI shall have paid or performed in all material respects all
obligations required to be paid or performed by it to such date and will not be
in default under any document, contract, agreement, lease, or other commitment
to which it is a party.
4.10 Insurance. ICI has insurance against losses or damages and other
---------
risks in amounts and of a character usually insured against by companies in the
same or similar business.
4.11 Liabilities. Except for that certain debt of ICI to either or both of
-----------
Messrs. Sax and Saunders, as more particularly set forth on Exhibit 4.6(f)
hereto, which exhibit may be updated from time to time prior to the Closing
Date, ICI does not have any liabilities except for:
(a) liabilities as of the date of the most recent ICI Financial
Statements, reflected therein;
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<PAGE>
(b) liabilities incurred in the ordinary course of its business since
the date of the most recent ICI Financial Statements; and
(c) liabilities not yet due and payable under leases, contracts, and
agreements in existence as of the date of the most recent ICI Financial
Statements or entered into thereafter as disclosed on Exhibit 4.11(c), each
of which has been entered into in the ordinary course of business.
4.12 Proprietary Rights. ICI owns or is duly licensed to use such
------------------
trademarks and copyrights as are necessary to conduct its business as presently
conducted. The conduct of business by ICI does not infringe upon the trademarks
or copyrights of any third party, if such infringement would have a material,
adverse effect upon the financial condition or business of ICI.
4.13 Books of Account and Reports; Internal Controls.
-----------------------------------------------
(a) The books of account of ICI accurately reflects in all material
respects all of its items of income and expense, all of its assets,
liabilities, and accruals, and are prepared and maintained in form and
substance adequate for preparing audited financial statements, in
accordance with generally accepted accounting procedures as historically
and consistently applied by ICI. ICI has accurately prepared and filed all
reports required by any law or regulation to be filed by it, and has duly
paid or accrued on its books of account all applicable duties and charges
due (or assessed against it) pursuant to such reports, none of which is
delinquent.
(b) Since the date of the most recent ICI Financial Statements, there
have been no transactions except in accordance with management's general or
specific authorization.
(c) ICI has devised and maintained a system of internal accounting
controls sufficient to provide reasonable assurances that transactions are
recorded as necessary (i) to permit preparation of financial statements in
conformity with generally accepted accounting principles and (ii) to
maintain accountability for assets and expenses.
4.14 Contracts and Agreements. ICI is a party to agreements in the
------------------------
ordinary course of its business for the purchase or lease of services, supplies,
and inventories from vendors and the sale of inventories and services to
customers, all of which are generally consistent in amount with its prior
business operations during the periods of time reflected in the ICI Financial
Statements. The amount and term of all material indebtedness to third parties
for borrowed funds and material leases of facilities and equipment from third
parties as of the Closing Date are set forth in the ICI Financial Statements.
4.15 Minute Books. The minute books of ICI contain true, complete, and
------------
accurate records of all meetings and other corporate actions of its shareholders
and Board of Directors, and true and accurate copies thereof have been delivered
to counsel for EMB Parent. The signatures appearing on all documents contained
therein are the true signatures of the persons purporting to have signed the
same.
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<PAGE>
4.16 Title to Properties. ICI has good and marketable title to the
-------------------
properties and assets reflected on the ICI Financial Statements, free and clear
of liens and encumbrances except for: (i) security interests granted to
financial institutions relating to indebtedness reflected in the ICI Financial
Statements, (ii) pledges to secure deposits and other liens incurred in the
ordinary course of business, (iii) such imperfections of title, easements, and
encumbrances, if any, as are not material in character, amount, or extent, and
(iv) dispositions and encumbrances for adequate consideration in the ordinary
course of business since the date of the most recent, respective ICI Financial
Statements. All material leases pursuant to which ICI ia a lessee of real or
personal property are valid and binding.
4.17 Litigation. Except as set forth in Exhibit 4.17, there are no
----------
actions, suits, proceedings, orders, investigations, or claims (whether or not
purportedly on behalf of ICI) pending against or affecting ICI at law or in
equity or before or by any federal, state, municipal, or other governmental
department, commission, board, agency, or instrumentality, domestic or foreign,
nor has any such action, suit, proceeding, or investigation been pending or
threatened in writing during the 12-month period preceding the date hereof,
which, if adversely determined, would materially and adversely affect the
financial condition of ICI or which seeks to prohibit, restrict, or delay the
consummation of the stock sale contemplated hereby. ICI is not operating under
or subject to, or in default with respect to, any order, writ, injunction, or
decree of any court or federal, state, municipal, or other governmental
department, commission, board, agency, or instrumentality.
4.18 Taxes. At the Closing Date, except as set forth on Exhibit 4.18
-----
attached hereto, all tax returns required to be filed with respect to the
operations or assets of ICI prior to Closing Date shall have been correctly
prepared in all material respects and timely filed, and all taxes required to be
paid in respect of the periods covered by such returns shall have been paid in
full or adequate reserves have been established for the payment of such taxes.
As of the Closing Date, ICI shall not have requested any extension of time
within which to file any tax returns, and all known deficiencies for any tax,
assessment, or governmental charge or duty shall have been paid in full or
adequate reserves have been established for the payment of such taxes. No
audits by federal or state authorities are currently pending or threatened.
4.19 No Defaults. ICI is not in default under or in violation of any
-----------
provision of its Articles of Incorporation or Bylaws. ICI is not in default
under or in violation of any material provision of any material indenture,
mortgage, deed of trust, lease, loan agreement, or other agreement or instrument
to which it is a party or by which it is bound, or to which any of its
properties is subject, if such default would have a material, adverse effect on
the financial condition or business of ICI. ICI is not in violation of any
statute, law, ordinance, order, judgment, rule, regulation, permit, franchise,
or other approval or authorization of any court or governmental agency or body
having jurisdiction over it or any of its property which, if enforced, would
have a material, adverse effect on the financial condition or business of ICI.
Neither the execution and delivery of this Agreement, nor the consummation of
the transactions contemplated herein, will conflict with or result in a breach
of or constitute a default under any of the foregoing or result in the creation
of any lien, mortgage, pledge, charge, or encumbrance upon any asset of ICI and
no consents or waivers thereunder are required to be obtained in connection
therewith in order to consummate the transactions contemplated by this
Agreement, except for the agreements so indicated on Exhibit 4.19.
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<PAGE>
4.20 Material Change. Except as disclosed on Exhibit 4.20, there has been
---------------
no material change in the condition, financial or otherwise, of ICI as shown in
the financial statements, except changes occurring in the ordinary course of
business, which changes have not materially, adversely affected its
organization, business, properties, or financial condition taken.
4.21 Documents. The copies of all agreements and other instruments that
---------
have been delivered by ICI to EMB Parent are true, correct, and complete copies
of such agreements and instruments and include all amendments thereto.
4.22 Disclosure. The representations and warranties made by each of
----------
Messrs. Sax and Saunders herein and in any schedule, statement, certificate, or
document furnished or to be furnished by ICI and/or either of Messrs. Sax or
Saunders to either of EMB Parent or EMB Subsidiary pursuant to the provisions
hereof or in connection with the transactions contemplated hereby taken as a
whole do not and will not as of their respective dates contain any untrue
statements of a material fact, or omit to state a material fact necessary to
make the statements made not misleading.
SECTION 5
INVESTIGATION; PRESS RELEASE
----------------------------
5.1 Investigation.
-------------
(a) EMB Parent acknowledges that it has made an investigation of ICI
during the period from July 1, 1997, through the Closing Date, to confirm,
among other things, the assets, liabilities, and status of business of ICI
and its cash position, accounts receivable, liabilities, and mortgages in
process. In the event of termination of this Agreement, EMB Parent will
deliver to either of Messrs. Sax or Saunders all documents, work papers,
and other materials and all copies thereof obtained by each of EMB Parent
and EMB Subsidiary, or on its or their behalf, from ICI or either of
Messrs. Sax or Saunders, whether obtained before or after the execution
hereof, will not use, directly or indirectly any confidential information
obtained from ICI or each of Messrs. Sax and Saunders hereunder or in
connection herewith, and will keep all such information confidential and
not used in any way detrimental to ICI or each of Messrs. Sax and Saunders
except to the extent the same is publicly disclosed by ICI or either of
Messrs. Sax or Saunders.
(b) Each of Messrs. Sax and Saunders acknowledges that each has made
an investigation of EMB Parent and EMB Subsidiary during the period from
July 1, 1997, through the Closing Date, which has included, among other
things, the opportunity of discussions with executive officers of EMB
Parent, EMB Subsidiary, and their accountants, investment bankers, and
counsel. In the event of termination of this Agreement, each of Messrs.
Sax and Saunders will deliver to EMB Parent all documents, work papers, and
other materials and all copies thereof obtained by either of them, or on
either of their behalf, from EMB Parent and/or EMB Subsidiary, whether
obtained before or after the execution hereof and will not use, directly or
indirectly (except by their advisors, attorneys,
-12-
<PAGE>
accountants, and financial consultants), any confidential information
obtained from either of EMB Parent or EMB Subsidiary hereunder or in
connection herewith, and will keep all such information confidential and
not used in any way detrimental to EMB Parent or EMB Subsidiary, except to
the extent the same is publicly disclosed by either of EMB Parent or EMB
Subsidiary.
(c) Except in the event that any party hereto discovers in the course
of his or its respective investigation any breach of a representation or
warranty by the other party hereto and does not disclose it to such other
party prior to the Closing Date, no investigation pursuant to this Section
5.1 shall affect or be deemed to modify any representation or warranty made
by any party hereto.
5.2 Press Release. EMB Parent, EMB Subsidiary, and Messrs. Sax and
-------------
Saunders shall agree with each other as to the form and substance of any press
releases and the filing of any documents with any federal or state agency
related to this Agreement and the transactions contemplated hereby and shall
consult with each other as to the form and substance of other public disclosures
related thereto; provided, however, that nothing contained herein shall prohibit
either party from making any disclosure that his or its counsel deems necessary.
SECTION 6
BROKERAGE
---------
6.1 Brokers and Finders. Neither EMB Parent, EMB Subsidiary, ICI, any of
-------------------
their respective officers, directors, employees, or agents, nor either of
Messrs. Sax or Saunders has employed any broker, finder, or financial advisor
or incurred any liability for any fee or commissions in connection with
initiating the transactions contemplated herein. Each party hereto agrees to
indemnify and hold the other party harmless against or in respect of any
commissions, finder's fees, or brokerage fees incurred or alleged to have been
incurred with respect to initiating the transactions contemplated herein as a
result of any action of the indemnifying party.
SECTION 7
CLOSING AGREEMENTS AND POST-CLOSING
-----------------------------------
7.1 Closing Agreements. On the Closing Date, the following activities
------------------
shall occur, the following agreements shall be executed and delivered, and the
respective parties thereto shall have performed all acts that are required by
the terms of such activities and agreements to have been performed
simultaneously with the execution and delivery thereof as of the Closing Date:
(a) Mr. Sax shall have executed and delivered documents to EMB
Subsidiary sufficient then and there to transfer record and beneficial
ownership of the 50 issued and outstanding capital stock of ICI to EMB
Subsidiary;
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<PAGE>
(b) EMB Subsidiary and Mr. Sax shall have executed and delivered Mr.
Sax's Employment Agreement;
(c) Mr. Sax shall have executed and delivered his Release Agreement;
(d) Mr. Sax shall have executed his Investment Representation Letter;
(e) EMB Subsidiary shall have delivered 200,000 shares of EMB Parent's
common stock to Mr. Sax;
(f) Mr. Saunders shall have executed and delivered documents to EMB
Subsidiary sufficient then and there to transfer record and beneficial
ownership of the 50 issued and outstanding capital stock of ICI to EMB
Subsidiary;
(g) EMB Subsidiary and Mr. Saunders shall have executed and delivered
Mr. Saunders' Employment Agreement;
(h) Mr. Saunders shall have executed and delivered his Release
Agreement;
(i) Mr. Saunders shall have executed his Investment Representation
Letter;
(j) EMB Subsidiary shall have delivered 200,000 shares of EMB Parent's
common stock to Mr. Saunders; and
(k) EMB Parent shall execute and deliver the Registration Rights
Agreement.
7.2 ICI as a Subsidiary of EMB Subsidiary. Each of Messrs. Sax and
-------------------------------------
Saunders acknowledges that, immediately following the Closing Date, ICI will
become a wholly-owned subsidiary of EMB Subsidiary or be merged with and into
EMB Subsidiary.
7.3 Subsequent Issuance of EMB Parent Stock Issuance. On October 31, 1999
------------------------------------------------
(the "Valuation Date"), the value of the EMB Parent Common Stock shall be the
fair market value of one share of EMB Parent Common Stock, multiplied by the
aggregate number of shares thereof issued to Messrs. Sax and Saunders at the
Closing Date. If, as of the Valuation Date, the EMB Parent Common Stock is
listed on a national securities exchange or the high and low selling prices
thereof are reported on the Nasdaq Stock Market or the OTC Bulletin Board, then
the fair market value of one share of EMB Parent Common Stock shall be the
average of the highest and lowest selling prices of the EMB Parent Common stock
as reported by such exchange or as reported on the Nasdaq Stock Market or the
OTC Bulletin Board for the five trading days immediately preceding the Valuation
Date or, if there were no sales of EMB Parent Common Stock during such five-day
period, then the fair market value of the EMB Parent Common Stock shall be
deemed to be the average of the highest and lowest selling prices of the EMB
Parent Common stock as reported by such exchange or as reported on the Nasdaq
Stock Market or the OTC Bulletin Board for the next prior trading day on which
there were sales of EMB Parent Common Stock. If, as of the Valuation Date, the
EMB Parent Common Stock is traded other than on a national securities exchange
or the high and low selling prices thereof are not reported on the Nasdaq Stock
Market
-14-
<PAGE>
or the OTC Bulletin Board, then the fair market value of one share of EMB Parent
Common Stock shall be the average between the bid and asked price of a share of
EMB Parent Common Stock on the Valuation Date as reported on the Nasdaq Stock
Market or the OTC Bulletin Board for the five trading days immediately preceding
the Valuation Date or, if there is no bid and asked price on said date, then the
fair market value of the EMB Parent Common Stock shall be deemed to be the aver
age of the highest and lowest selling prices of the EMB Parent Common stock as
reported by such exchange or as reported on the Nasdaq Stock Market or the OTC
Bulletin Board for the next prior trading day on which there was a bid and asked
price. If no such bid and asked price is available, then the Board of Directors
of EMB Parent shall make a good faith determination of the fair market value of
one share of EMB Parent Common Stock using any reasonable method of valuation
and, as soon as practicable upon their being notified of such occurrence,
Messrs. Sax and Saunders may, in good faith and at their option and discretion,
accept such valuation. If Messrs. Sax and Saunders do not so accept such
valuation, they may elect to proceed as provided in the penultimate paragraph of
this section.
Subject to the provisions set forth in the immediately preceding and
following paragraphs, if, as of the Valuation Date, pursuant to such method of
computation, the EMB Parent Common Stock is valued at less than $2,000,000, EMB
Parent, directly or through EMB Subsidiary, shall issue, on a pro rata basis, to
each of Messrs. Sax and Saunders additional restricted shares of EMB Parent
Common Stock, such that the aggregate value of the EMB Parent Common Stock
issued to Messrs. Sax and Saunders, pursuant to the transactions contemplated
hereby, will, as of the Valuation Date, be not less than $2,000,000. The
restrictions on such additional shares of EMB Parent Common Stock shall be
identical in scope and in time as the restrictions on the EMB Parent Common
Stock issued pursuant to Section 2.1.
If as of the valuation date, the average weekly trading volume for the four
week period immediately prior to the Valuation Date of EMB Parent Common Stock
on a national securities exchange, the Nasdaq Stock Market, or the OTC Bulletin
Board does not equal or exceed 25,000 shares, then Messrs. Sax and Saunders may,
in good faith and at their option, tender to EMB Parent for cancellation the
shares of EMB Parent delivered to Messrs. Sax and Saunders pursuant to the terms
of Sections 7.1(e) and 7.1(j), respectively, and may elect to receive, in lieu
of any additional shares of EMB Parent Common Stock to which they may be
entitled pursuant to the immediately foregoing paragraph, the following: (i) a
conveyance of all tangible assets of ICI owned by ICI as of the Closing Date and
any replacements thereof, less any such assets that were disposed in the
ordinary course from and after the Closing Date; (ii) a transfer of all rights
to the name "Equity Line Financial Services, Inc."; (iii) a covenant from EMB
Parent and EMB Subsidiary that neither will neither solicit nor permit any
affiliate, employee, or agent thereof to solicit, for a period of two years
commencing as of the Valuation Date any of the brokers with whom ICI has a
referred relationship as of the Closing Date; (iv) an assignment of any lease
relating to any office premises currently maintained by ICI to the extent that
Messrs. Sax and Saunders elect to assume leasing obligations thereunder; and (v)
such computer-generated information and computer software relating to the
business of ICI as is owned by ICI as of the Closing Date. Furthermore, any
employment agreements then in effect between EMB Parent or any affiliate thereof
and either or both of Messrs. Sax and Saunders shall immediately terminate
without recourse by any party thereto and any of the parties' respective
obligations regarding competition (except as set forth in this paragraph) and
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<PAGE>
disclosure of confidential information (except with respect to confidential
information not related to the business of ICI) shall terminate as of the
Valuation Date.
To secure the obligations of EMB Parent and EMB Subsidiary set forth in
this Section 7.3, including the obligation to effect the foregoing transfers to
Messrs. Sax and Saunders, EMB Parent and EMB Subsidiary shall grant to Messrs.
Sax and Saunders a security interest in and to the tangible assets of ICI owned
by ICI as of the Closing Date and any replacements thereof.
7.4 ICI Shareholder Loans. Any obligations of ICI to either or both of
---------------------
Messrs. Sax and Saunders for funds lent to ICI by either or both of such
individuals shall be repaid by EMB Subsidiary out of funds generated from net
operating profits of EMB Subsidiary on a reasonably prudent basis.
SECTION 8
CONDITIONS PRECEDENT TO EMB PARENT'S
AND EMB SUBSIDIARY'S OBLIGATIONS TO CLOSE
-----------------------------------------
The obligations of EMB Parent and EMB Subsidiary to consummate this
Agreement are subject to satisfaction on or prior to the Closing Date of the
following conditions:
8.1 Representations and Warranties. The representations and warranties of
------------------------------
each of Messrs. Sax and Saunders contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date, and each of
Messrs. Sax and Saunders shall have performed in all material respects all of
his respective obligations hereunder theretofore to be performed.
8.2 Insurance. All policies of insurance, as detailed on Exhibit 8.2
---------
hereto, shall remain in effect at the Closing Date and shall not be cancelled or
subject to cancellation by virtue of any activities of ICI prior to the Closing
Date or by virtue of the transactions contemplated hereby.
8.3 Other. The joint conditions precedent in Section 10 hereof shall have
-----
been satisfied and all documents required for Closing shall be acceptable to EMB
Parent's counsel.
SECTION 9
CONDITIONS PRECEDENT TO MESSRS. SAX'S AND SAUNDERS' OBLIGATIONS TO CLOSE
------------------------------------------------------------------------
The obligation of each of Messrs. Sax and Saunders to consummate this
Agreement is subject to the satisfaction on or prior to the Closing Date of the
following conditions:
9.1 Representations and Warranties. The representations and warranties of
------------------------------
each of EMB Parent and EMB Subsidiary contained in this Agreement shall be true
and correct in all material respects on and as of the Closing Date, and each of
EMB Parent and EMB Subsidiary shall have performed in all material respects all
of its respective obligations hereunder theretofore to be performed.
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<PAGE>
9.2 Resolutions. EMB Parent and EMB Subsidiary shall each have furnished
-----------
Messrs. Sax and Saunders with a certified copy of their respective resolutions
duly adopted by their respective boards of directors approving this Agreement
and the transactions contemplated hereby.
9.3 Other. The joint conditions precedent in Section 10 hereof shall have
-----
been satisfied.
SECTION 10
JOINT CONDITIONS PRECEDENT
--------------------------
The obligations of EMB Parent, EMB Subsidiary, and Messrs. Sax and Saunders
to con summate this Agreement shall be subject to satisfaction or waiver in
writing by all parties of each and all of the following additional conditions
precedent at or prior to the Closing Date:
10.1 Other Agreements. All of the agreements contemplated by Section 7.1
----------------
of this Agreement shall have been executed and delivered, and all acts required
to be performed thereunder as of the Closing Date shall have been duly
performed.
10.2 Absence of Litigation. At the Closing Date, there shall be no action,
---------------------
suit, or proceeding pending or threatened against any of the parties hereto by
any person, governmental agency, or subdivision thereof, nor shall there be
pending or threatened any action in any court or administrative tribunal, which
would have the effect of inhibiting the consummation of the transactions
contemplated herein.
SECTION 11
INDEMNIFICATION
---------------
11.1 Subject to the limitations set forth in this Section 11, each of
Messrs. Sax and Saunders, jointly and severally, shall indemnify and hold EMB
Parent and EMB Subsidiary harmless from and against the following (herein called
"Their Indemnified Obligations"):
(a) any and all liabilities, losses, damages, claims, costs, and
expenses of ICI of any nature, whether absolute, contingent, or otherwise,
existing at the Closing Date or arising out of any state of facts,
occurrence, or omission prior to the Closing Date to the extent not
reflected or reserved against in full in the ICI Financial Statements or
disclosed in this Agreement or in any exhibits thereto or disclosed in any
written supplement to such exhibits delivered by either of Messrs. Sax or
Saunders to either of EMB Parent or EMB Subsidiary prior to the Closing
Date, unless incurred in connection with the transactions contemplated by
this Agreement or in the ordinary course of business of ICI between the
date of the most current ICI Financial Statement and the Closing Date; and
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(b) any and all damage, loss, or deficiency resulting from any
material misrepresentation, breach of any material warranty, or
nonfulfillment of any material agreement on the part of Mr. Sax contained
in this Agreement or in any statement or certificate furnished or to be
furnished to EMB Parent or EMB Subsidiary pursuant hereto or in connection
with the transactions contemplated hereby; and
(c) any and all actions, suits, proceedings, demands, assessments, or
judgments, costs and expenses incident to any of the foregoing.
The joint and several liability of Messrs. Sax and Saunders for Their
Indemnified Obligations shall be subject to the following limitations:
(i) Neither of Messrs. Sax and Saunders shall be liable for
Their Indemnified Obligations unless either of them has received
written notice of a claim asserted under Section 11.1 hereof on or
before the expiration of the 24th month following the Closing Date.
(ii) No such claim shall be asserted unless the aggregate of all
claims for Their Indemnified Obligations shall exceed $25,000.
(iii) Any such claims shall be payable by the indemnifying
party(ies) delivering to the indemnified party(ies) shares of EMB
Parent common stock at a valuation of $5.00 per share in an amount
equal to such indemnified loss. The maximum liability of Messrs. Sax
and Saunders for Their Indemnified Obligations shall be a delivery of
all of the EMB Parent common shares issued and issuable hereunder.
11.2 EMB Parent or EMB Subsidiary shall promptly give written notice to
either of Messrs. Sax or Saunders after EMB Parent or EMB Subsidiary has
knowledge of any claim against either or both of Messrs. Sax or Saunders as to
which recovery may be sought against either or both of them because of the
indemnity set forth in Section 11.1 hereunder, or of the commencement of any
legal proceedings against EMB Parent or EMB Subsidiary, and/or ICI as to such
claim after EMB Parent or EMB Subsidiary has knowledge of such proceedings,
whichever shall first occur, and shall permit either or both of Messrs. Sax or
Saunders to assume the defense of any such claim or any litigation resulting
from such claim. Failure by either of Messrs. Sax or Saunders to notify EMB
Parent or EMB Subsidiary of their election to defend any such action within 30
days after notice thereof shall have been given to either or Messrs. Sax or
Saunders shall be deemed a waiver by each of Messrs. Sax and Saunders of their
right to defend such action. If either or both of Messrs. Sax or Saunders
assume the defense of any such claim or litigation resulting therefrom, the
obligations of Messrs. Sax and Saunders hereunder as to such claim shall be
limited to taking all steps necessary in the defense or settlement of such claim
or litigation resulting therefrom and to holding EMB Parent, EMB Subsidiary, and
ICI harmless from and against any and all losses, damages, and liabilities
caused by or arising out of any settlement approved by either of Messrs. Sax or
Saunders or any judgment in connection with such claim or litigation resulting
therefrom. Neither of Messrs. Sax and Saunders shall, in the defense of such
claim or any litigation resulting therefrom, consent to entry of any judgment
except with the written consent of EMB Parent and
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<PAGE>
EMB Subsidiary, and ICI, nor shall either of Messrs. Sax and Saunders enter into
any settlement (except with the written consent of EMB Parent, EMB Subsidiary,
and ICI) which does not include as an unconditional term thereof the giving by
the claimant or the plaintiff to EMB Parent, EMB Subsidiary, and ICI of a
release from all liability in respect of such claim or litigation.
11.3 If neither of Messrs. Sax and Saunders shall assume the defense of any
such claim or litigation resulting therefrom, EMB Parent, EMB Subsidiary, and
ICI (the "Defending Entities") may defend against such claim or litigation in
such manner as they may deem appropriate and unless either or both of Messrs.
Sax and Saunders shall deposit with the Defending Entities a sum equivalent to
the total amount demanded in such claim or litigation plus such Defending
Entities' estimate of the cost of defending the same, the Defending Entities may
settle such claim or litigation on such terms as they may deem appropriate, in
their reasonable judgment, and each of Messrs. Sax and Saunders shall promptly
reimburse the Defending Entities for the aggregate amount of all expenses, legal
or otherwise, incurred by them in connection with the defense against or
settlement of such claim or litigation. If no settlement of such claim or
litigation is made, each of Messrs. Sax and Saunders shall promptly reimburse
the Defending Entities for the aggregate amount of any judgment rendered with
respect to such claim or in such litigation and of all expenses, legal or
otherwise, incurred by the Defending Entities in the defense against such claim
or litigation.
11.4 Subject to the limitations set forth in this Section 11, EMB Parent
and EMB Subsidiary shall indemnify and hold each of Messrs. Sax and Saunders
harmless from and against the following (herein called "EMB's Indemnified
Obligations"):
(a) any and all damage, loss, or deficiency resulting from any
material misrepresentation, breach of any material warranty, or
nonfulfillment of any material agreement on the part of EMB Parent or EMB
Subsidiary contained in this Agreement or in any statement or certificate
furnished or to be furnished to each of Messrs. Sax and Saunders pursuant
hereto or in connection with the transactions contemplated hereby; and
(b) any and all damage, loss, or deficiency (i) resulting from the
failure by EMB Parent or EMB Subsidiary to fulfill any obligation assumed
hereunder or to cause ICI to fulfill any such obligation or (ii) arising
from the operation of ICI by EMB Parent or EMB Subsidiary subsequent to the
Closing Date; and
(c) any and all actions, suits, proceedings, demands, assessments, or
judgments, costs and expenses incident to any of the foregoing.
The liability of EMB Parent or EMB Subsidiary for EMB's Indemnified Obligations
shall be subject to the following limitations:
(i) EMB Parent and EMB Subsidiary shall not be liable for EMB's
Indemnified Obligations unless EMB Parent has received written notice
of a claim asserted under Section 11.5 hereof on or before the
expiration of the 24th month following the Closing Date.
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<PAGE>
(ii) No such claim shall be asserted unless the aggregate of all
claims for EMB's Indemnified Obligations shall exceed $25,000.
11.5 Either of Messrs. Sax or Saunders shall promptly give written notice
to EMB Parent after either of such individuals has knowledge of any claim
against EMB Parent or EMB Subsidiary as to which recovery may be sought against
EMB Parent or EMB Subsidiary because of the indemnity set forth Section 11.5
hereunder, or of the commencement of any legal proceedings against either of
Messrs. Sax or Saunders as to such claim after either or both of Messrs. Sax or
Saunders have knowledge of such proceedings, whichever shall first occur, and
shall permit EMB Parent or EMB Subsidiary to assume the defense of any such
claim or any litigation resulting from such claim. Failure by EMB Parent to
notify either of Messrs. Sax or Saunders of its election to defend any such
action within 30 days after notice thereof shall have been given to EMB Parent
shall be deemed a waiver by each of EMB Parent and EMB Subsidiary of their right
to defend such action. If either of EMB Parent or EMB Subsidiary assumes the
defense of any such claim or litigation resulting therefrom, the obligations of
EMB Parent and EMB Subsidiary hereunder as to such claim shall be limited to
taking all steps necessary in the defense or settlement of such claim or
litigation resulting therefrom and to holding each of Messrs. Sax and Saunders
harmless from and against any and all losses, damages, and liabilities caused by
or arising out of any settlement approved by EMB Parent and EMB Subsidiary or
any judgment in connection with such claim or litigation resulting therefrom.
EMB Parent and EMB Subsidiary shall not, in the defense of such claim or any
litigation resulting therefrom, consent to entry of any judgment except with the
written consent of each of Messrs. Sax and Saunders, or enter into any
settlement (except with the written consent of each of Messrs. Sax and
Saunders), which does not include as an unconditional term thereof the giving by
the claimant or the plaintiff to each of Messrs. Sax and Saunders of a re lease
from all liability in respect of such claim or litigation.
11.6 If neither of EMB Parent and EMB Subsidiary shall assume the defense
of any such claim or litigation resulting therefrom, either or both of Messrs.
Sax and Saunders may defend against such claim or litigation in such manner as
either of Messrs. Sax or Saunders may deem appropriate and unless EMB Parent or
EMB Subsidiary shall deposit with either of Messrs. Sax or Saunders a sum
equivalent to the total amount demanded in such claim or litigation plus the
joint estimate of Messrs. Sax and Saunders of the cost of defending the same,
each of Messrs. Sax and SaunDers may settle such claim or litigation on such
terms as they may deem appropriate, in their reasonable judgment, and EMB Parent
or EMB Subsidiary shall promptly reimburse each of Messrs. Sax and Saunders for
the aggregate amount of all expenses, legal or otherwise, incurred by each of
Messrs. Sax and Saunders in connection with the defense against or settlement of
such claim or litigation. If no settlement of such claim or litigation is made,
EMB Parent or EMB Subsidiary shall promptly reimburse each of Messrs. Sax and
Saunders for the aggregate amount of any judgment rendered with respect to such
claim or in such litigation and of all expenses, legal or otherwise, incurred by
each of Messrs. Sax and Saunders in the defense against such claim or
litigation.
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SECTION 12
CONFIDENTIALITY
---------------
12.1 Each of Messrs. Sax and Saunders, jointly and severally, acknowledges
that he has, and will, acquire information and materials from ICI, EMB Parent,
and EMB Subsidiary (the "Companies") and knowledge about the technology,
business, products, strategies, customers, clients and suppliers of the
Companies and that all such information, materials and knowledge acquired, are
and will be trade secrets and confidential and proprietary information of the
Companies (collectively, such acquired information, materials, and knowledge are
hereinafter referred to as "Confidential Information"). Each of Messrs. Sax and
Saunders, jointly and severally, covenants to hold such Confidential Information
in strict confidence, not to disclose it to others or use it in any way,
commercially or otherwise, except in connection with the transactions
contemplated by this Agreement and thereafter by Mr. Sax's Employment Agreement
and by Mr. Saunders' Employment Agreement, as relevant, and not to allow any
unauthorized person access to such Confidential Information.
12.2 The Confidential Information disclosed by the Companies to each of
Messrs. Sax and Saunders shall remain the property of the disclosing party.
12.3 Each of Messrs. Sax and Saunders shall maintain in secrecy all
Confidential Information disclosed to each of them by any or all of the
Companies using not less than reason able care. Neither of MessrS. Sax and
Saunders shall not use or disclose in any manner to any third party any
Confidential Information without the express written consent of the chief
executive officer of EMB Parent unless or until the Confidential Information is:
(a) publicly available or otherwise in the public domain; or
(b) rightfully obtained by any third party without restriction; or
(c) disclosed by any of the Companies without restriction pursuant to
judicial action, or government regulations or other requirements.
12.4 The obligations of each of Messrs. Sax and Saunders under Sections
12.1, 12.2, and 12.3 of this Agreement shall expire one year from the date
hereof as to Confidential Information consisting of commercial and financial
information and two years from the date on which each of Messrs. Sax and
Saunders, as relevant, are no longer affiliated with any of the Companies,
except as a shareholder thereof, as to Confidential Information consisting of
technical information. For this purpose, technical information shall include
without limitation all developments, inventions, innovations, designs,
discoveries, trade secrets and know-how, whether or not patentable or
copyrightable.
12.5 During the period commencing at the Closing Date and continuing until
EMB Parent's obligations pursuant to Section 7.3, above, have been materially
satisfied, EMB Parent and EMB Subsidiary shall be, jointly and severally,
subject to confidentiality restrictions substantially similar to those set forth
above in respect of information and materials regarding ICI.
12.6 Each of Messrs. Sax and Saunders hereby agrees that he will not
intentionally bring into the premises of either or both of the Companies, or use
in any way for the benefit of either or both of the companies, any confidential
information that Mr. Sax has reason to believe is or may be the trade secret or
confidential information of a third party.
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SECTION 13
TERMINATION AND WAIVER
----------------------
13.1 Termination. This Agreement may be terminated and abandoned on the
-----------
Closing Date by:
(a) the mutual consent in writing of the parties hereto;
(b) the Board of Directors of EMB Parent if the conditions precedent
in Sections 8 and 10 of this Agreement have not been satisfied or waived
by the Closing Date;
(c) the Board of Directors or EMB Subsidiary if the conditions
precedent in Sections 8 and 10 of this Agreement have not been satisfied or
waived by the Closing Date; and
(d) either of Messrs. Sax or Saunders if the conditions precedent in
Sections 9 and 10 of this Agreement have not been satisfied or waived by
the Closing Date.
If this Agreement is terminated pursuant to Section 13.1, the parties
hereto shall not have any further obligations under this Agreement, and each
party shall bear all costs and expenses incurred by him or it.
SECTION 14
NATURE AND SURVIVAL OF REPRESENTATIONS, ETC.
--------------------------------------------
14.1 All statements contained in any certificate or other instrument
delivered by or on behalf of EMB Parent, EMB Subsidiary, or Messrs. Sax or
Saunders pursuant to this Agreement or in connection with the transactions
contemplated hereby shall be deemed representations and warranties by such
party. All representations and warranties and agreements made by EMB Parent,
EMB Subsidiary, or Mr. Sax in this Agreement or pursuant hereto shall survive
the Closing Date hereunder until the expiration of the twelfth month following
the Closing Date.
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SECTION 15
MISCELLANEOUS
-------------
15.1 Notices. Any notices or other communications required or permitted
-------
hereunder shall be sufficiently given if written and delivered in person or sent
by registered mail, postage prepaid, addressed as follows:
to EMB Parent: EMB Corporation
Attention: Chief Executive Officer
---------
3200 Bristol, Eighth Floor
Costa Mesa, California 92626
to EMB Subsidiary: EMB Mortgage Corp.
Attention: Chief Executive Officer
---------
3200 Bristol, Eighth Floor
Costa Mesa, California 92626
in either case, Arter & Hadden LLP
copy to: Attention: Randolf W. Katz, Esq.
---------
5 Park Plaza, Suite 1000
Irvine, California 92614
to Mr. Sax: Scott Sax
2851 S. Parker Road
Suite 500
Aurora, Colorado 80014
to Mr. Saunders: James Saunders
3200 Bristol, Eighth Floor
Costa Mesa, California 92626
in either case, Murai Wald Biondo & Moreno
copy to: Attention: M. Cristina Moreno, Esq.
---------
900 Ingraham Building
25 Southeast 2nd Avenue
Miami, Florida 33131
or such other address as shall be furnished in writing by the appropriate
person, and any such notice or communication shall be deemed to have been given
as of the date so mailed.
15.2 Time of the Essence. Time shall be of the essence of this Agreement.
-------------------
15.3 Costs. Each party will bear the costs and expenses incurred by it in
-----
connection with this Agreement and the transactions contemplated hereby.
15.4 Entire Agreement and Amendment. This Agreement and documents
------------------------------
delivered at the Closing Date hereunder contain the entire agreement between the
parties hereto with respect to the transactions contemplated by this Agreement
and supersedes all other agreements, written or oral, with respect thereto. This
Agreement may be amended or modified in whole or in part, and any rights
hereunder may be waived, only by an agreement in writing, duly and validly
executed in the same manner as this Agreement or by the party against whom the
waiver would be asserted. The waiver of any right hereunder shall be effective
only with respect to the matter specifically waived and shall not act as a
continuing waiver unless it so states by its terms.
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15.5 Counterparts. This Agreement may be executed in one or more
------------
counterparts each of which shall be deemed to constitute an original and shall
become effective when one or more counterparts have been signed by each party
hereto and delivered to the other party.
15.6 Governing Law. This Agreement shall be governed by, and construed and
-------------
interpreted in accordance with, the laws of the State of California.
15.7 Attorneys' Fees and Costs. In the event any party to this Agreement
-------------------------
shall be required to initiate legal proceedings to enforce performance of any
term or condition of this Agreement, including, but not limited to, the
interpretation of any term or provision hereof, the payment of monies or the
enjoining of any action prohibited hereunder, the prevailing party shall be
entitled to recover such sums, in addition to any other damages or compensation
received, as will reimburse the prevailing party for reasonable attorneys' fees
and court costs incurred on account thereof (including, without limitation, the
costs of any appeal) notwithstanding the nature of the claim or cause of action
asserted by the prevailing party.
15.8 Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the parties hereto and their respective heirs, executors,
personal representatives, successors and assigns as the case may be.
15.9 Access to Counsel. Each party hereto acknowledges that each has had
-----------------
access to legal counsel of his or its own choice and has obtained such advice
therefrom, if any, as such party has deemed necessary and sufficient prior to
the execution hereof. Each party hereto acknowledges that the drafting of this
Agreement has been a joint effort and any ambiguities or interpretative issues
that may arise from and after the execution hereof shall not be decided in favor
or, or against, any party hereto because the language reflecting any such
ambiguities or issues may have been drafted by any specific party or his or its
counsel.
15.10 Captions. The captions appearing in this Agreement are inserted
--------
for convenience of reference only and shall not affect the interpretation of
this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
EMB CORPORATION
By:
-----------------------------------
James E. Shipley, President
EMB MORTGAGE CORPORATION
By:
-----------------------------------
William V. Perry, President
- ----------------------------------------
SCOTT SAX
----------------------------------------
JAMES SAUNDERS
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<PAGE>
TABLE OF CONTENTS TO EXHIBITS
(This Table of Contents is an Index of the Exhibits attached hereto and the
Summary Description herein does not purport to constitute a complete description
of the information required to be set forth in such Exhibits. Reference is made
to the Stock Purchase Agreement for a detailed description of information
required to be set forth in such Exhibits.)
EXHIBIT SUMMARY DESCRIPTION
- ----------- -----------------------------------------------------------------
1.3 Form of Mr. Sax's Employment Agreement
1.4 Form of Mr. Saunders Employment Agreement
1.5 ICI Financial Statements
1.6 Leases, contracts, commitments, agreements, liabilities, and
obligations
2.1(c) Form of Mr. Sax's Release Agreement
2.1(d) Form of Mr. Sax's Investment Representation Letter
2.1(g) Form of Mr. Saunders' Release Agreement
2.1(h) Form of Mr. Saunders' Investment Representation Letter
2.1(i) Form of Registration Rights Agreement
4.2 Options, warrants, or other securities exercisable or convertible
into or any calls, commitments, or agreements of any kind
relating to any unissued equity securities of ICI
4.6(f) Debt of ICI to either or both of Messrs. Sax and Saunders
4.6(g) Increases in compensation of officers or executive employees
4.7 Compensation Due Employees
4.9 Contracts and Leases
4.11(c) Certain liabilities
4.17 Litigation pending or threatened
4.18 Taxes
4.19 No Defaults
4.20 Material Change
8.2 Insurance of ICI
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, dated as of the 1st day of November, 1997 (hereinafter called
the "Effective Date"), by and between:
EMB MORTGAGE CORPORATION, a California corporation with its offices at
3200 Bristol, Eighth Floor, Costa Mesa, California 92626 (hereinafter
"EMB"); and
SCOTT SAX, a resident of the State of Colorado (hereinafter the
"Employee").
1. Employment. EMB hereby employs the Employee for the term of this
----------
Agreement, and the Employee hereby accepts such employment upon the terms and
conditions hereinafter set forth.
2. Term. The term of this Agreement shall commence on January 1, 1998,
----
and shall continue in effect thereafter for a period of eighteen (18) months.
This Agreement shall be renewable at the end of its term for a period to be
negotiated and agreed between the parties hereto. Notwithstanding the
immediately preceding sentence, if, after a reasonable allocation of expenses,
in accordance with generally accepted accounting principles, during the term of
this Agreement or any renewal term hereof, the Employee's marketing efforts are
determined to have resulted in a material net profit to EMB or any affiliate
thereof, as appropriate, this Agreement, at the option of the Employee, will be
renewed for an additional one year term on the same terms and conditions as were
in effect immediately prior to such renewal.
3. Compensation.
------------
3.1 Salary. For all services rendered by the Employee under this
------
Agreement, EMB shall pay the Employee a salary at the rate of One Hundred Fifty
Thousand Dollars ($150,000) per annum, subject to increase upon annual approvals
of the Board of Directors of EMB. Salary is payable semi-monthly; provided,
however, that the salary shall be subject to annual cost of living increases to
reflect the increase, if any, in the cost of living by adding to the initial or
then-current salary, as relevant, an amount obtained by multiplying the then-
current salary by a percentage increase in the level of the Consumer Price Index
for the LA-Long Beach, Anaheim Metropolitan Area (the "CPI"), as reported by the
Bureau of Labor Statistics of the United States Department of Labor.
3.2 Additional Compensation. Nothing herein shall be deemed to
-----------------------
preclude EMB from awarding additional compensation or benefits to the Employee
during the term of this Agreement, upon the approval of EMB's Board of
Directors, whether in the form of raises, bonuses, additional fringe benefits,
or otherwise. The Employee may participate in any stock benefit plan, profit
sharing plan, or other compensation plan or benefit made available by EMB Parent
or EMB Subsidiary to executives of EMB Parent similarly situated.
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<PAGE>
As additional compensation, EMB shall pay to the Employee five basis
points on all wholesale loans received by or retail loans originated at EMB's
office located in the Aurora/Denver, Colorado, metropolitan area. Such
additional compensation shall be paid on a monthly basis, on the 10th day of the
month following the month in which such relevant loan transactions close. The
Employee shall not be entitled to any additional compensation for fourth party,
correspondent loans except by mutual agreement with EMB.
3.3 Benefits. During the term of this Agreement, the Employee shall
--------
be entitled to receive all benefits applicable to executive officers of EMB of
equal positions, as designated from time to time by EMB's Board of Directors.
4. Duties. During the term of this Agreement, the Employee shall be
------
Manager of the Denver Office of EMB, shall be responsible for all Denver office
operations, shall consult with, report to, and follow the guidelines and
directions of the Managing Director of EMB as such Managing Director requires,
and shall perform such duties relating to operating EMB as are required to be
performed for its day-to-day operations, as well as performing such long range
planning as is required in the Employee's, and such Managing Director's best
judgment to maximize the future profitability of EMB.
5. Extent of Services. The Employee shall devote a sufficient quantity
------------------
of his working time, attention, and energies to the full performance of his
duties hereunder and to the business of EMB. The Employee may devote time to
personal and family investments if such investments do not conflict with his
duties hereunder regarding the business of EMB.
6. Disclosure of Information. The Employee recognizes and acknowledges
-------------------------
that EMB's trade secrets and proprietary processes as they may exist from time
to time are valuable, special, and unique assets of their businesses, access to
and knowledge of which are essential to the performance of the Employee's duties
hereunder. The Employee will not, during or after the term of his employment,
in whole or in part, disclose such secrets or processes to any person, firm,
corporation, association, or other entity (except EMB or its corporate
affiliates) for any reason or purpose whatsoever, nor shall the Employee make
use of any such property for his own purposes or for the benefit of any other
person, firm, corporation, or other entity (except EMB or its corporate
affiliates) under any circumstances. In the event that the Employee elects to
terminate this Agreement pursuant to the rights granted to him under Section 7.3
of the Stock Purchase Agreement of even date herewith, the obligations of the
Employee hereunder shall terminate immediately to the extent and in the manner
set forth in such section.
7. Covenants Not to Solicit or Interfere. For a period of one year from
-------------------------------------
and after the termination of the Employee's employment hereunder, the Employee
shall not interfere with, disrupt, or attempt to disrupt the relationship,
contractual or otherwise, between EMB, or any division, subsidiary, or corporate
affiliate thereof, and any customer, supplier, lessor, lessee, or employee of
such company, division, subsidiary, or corporate affiliate. The term
"customer," as used in this paragraph, shall mean any person, firm, or
corporation that was a customer of any of such company, or any division,
subsidiary, or corporate affiliate thereof, during the six-month period
immediately preceding the termination of employment hereunder. In the event
that the Employee elects to terminate this Agreement pursuant to the rights
granted to him under Section 7.3 of the Stock Purchase Agreement of even date
herewith, the obligations of the Employee hereunder shall terminate immediately
to the extent and in the manner set forth in such section.
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<PAGE>
8. Covenant Against Competition. In the event Employee elects to engage
----------------------------
in other business activities unrelated to EMB's during the term of this
Agreement, which activities are the same or substantially similar to the
businesses of EMB or any division, subsidiary, or corporate affiliate thereof,
the Employee shall advise EMB of such activities. Unless EMB shall consent to
such other business activities, during the term of this Agreement the Employee
shall not directly or indirectly compete with EMB or any division, subsidiary,
or corporate affiliate thereof in the busi ness of such company or any
division, subsidiary, or corporate affiliate thereof whether such competition
shall be as an officer, director, owner, employee, partner, or consultant. For
the purposes of this Agreement, EMB's "business" shall be deemed to consist of
mortgage banker/broker and related services and operations. Notwithstanding
anything to the contrary set forth above, in the event the Employee elects to
engage in a business competitive to such company without its consent, he may
elect to do so by voluntarily terminating the obligations of EMB under this
Agreement without any further obligation to EMB.
9. Injunctive Relief. If there is a breach or threatened breach of the
-----------------
provisions of paragraphs 6, 7, or 8 of this Agreement, EMB be entitled
immediately to obtain an injunction restraining the Employee from such breach.
Nothing herein shall be construed as prohibiting EMB from pursuing any other
remedies for such breach or threatened breach.
10. Arbitration. Except as provided in paragraph 9, above, the parties
-----------
hereby submit all controversies, claims, and matters of difference arising as a
result of this Agreement or the transactions contemplated hereby to arbitration
according to the rules and practices of the JAMS/Endispute from time to time in
force. Such arbitration shall be conducted in Orange County, California. This
submission and agreement to arbitrate shall be specifically enforceable.
Arbitration may proceed in the absence of any party if written notice (pursuant
to the rules and regulations of JAMS/Endispute) of the proceedings has been
given to such party. The parties agree to abide by all awards rendered in such
proceedings. Such awards shall be final and binding on all parties to the
extent, and in the manner, provided by California statute. All awards may be
filed with the Clerk of the California Superior Court for the County of Orange,
California, as a basis of judgment and of the issuance of execution for its
collection and, at the election of the party making such filing, with the Clerk
of one or more other courts, state or federal, having jurisdiction over the
party against whom such an award is rendered or his property.
11. Legal Cause. EMB may terminate its obligations under this Agreement
-----------
for "legal cause" in the event EMB's Board of Directors reasonably determines
that (i) the Employee has willfully and materially disregarded his duties
hereunder, provided that EMB's Board of Directors has provided prior written
notice to the Employee of such willful and material disregard, which is not
promptly corrected by Employee and provided that any duties assigned to the
Employee are consistent with this Agreement or (ii) the Employee has committed a
criminal act that has materially damaged EMB or its divisions, subsidiaries, or
corporate affiliates.
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<PAGE>
12. Notices. Any notice required or permitted to be given under this
-------
Agreement shall be sufficient if in writing and if sent by registered or
certified mail, return-receipt requested, postage prepaid, to the address
indicated above.
13. California Law to Govern. This Agreement shall be governed by and
------------------------
construed and enforced in accordance with the laws of the State of California.
14. Assignment. This agreement is personal to the Employee and shall not
----------
be assigned by him. The rights and obligations of EMB under this Agreement
shall inure to the benefit of and shall be binding upon the successors of EMB.
15. Entire Agreement. This instrument contains the entire agreement of
----------------
the parties hereto with respect to the transactions contemplated by this
Agreement and supersedes all other agreements, written or oral, with respect
thereto. This Agreement may be amended or modified in whole or in part, and any
rights hereunder may be waived, only by an agreement in writing, duly and
validly executed in the same manner as this Agreement or by the party against
whom the waiver would be asserted. The waiver of any right hereunder shall be
effective only with respect to the matter specifically waived and shall not act
as a continuing waiver unless it so states by its terms.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
first hereinabove written in the City of Costa Mesa, State of California.
EMB MORTGAGE CORPORATION
By:
-----------------------------------
William V. Perry, President
- ----------------------------------------
SCOTT SAX
-30-
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, dated as of the 1st day of November, 1997 (hereinafter called
the "Effective Date"), by and between:
EMB MORTGAGE CORPORATION, a California corporation with its offices at
3200 Bristol, Eighth Floor, Costa Mesa, California 92626 (hereinafter
"EMB"); and
JAMES C. SAUNDERS, a resident of the State of Colorado (hereinafter
the "Employee").
1. Employment. EMB hereby employs the Employee for the term of this
----------
Agreement, and the Employee hereby accepts such employment upon the terms and
conditions hereinafter set forth.
2. Term. The term of this Agreement shall commence on January 1, 1998,
----
and shall continue in effect thereafter for a period of eighteen (18) months.
This Agreement shall be renewable at the end of its term for a period to be
negotiated and agreed between the parties hereto. Notwithstanding the
immediately preceding sentence, if, after a reasonable allocation of expenses,
in accordance with generally accepted accounting principles, during the term of
this Agreement or any renewal term hereof, the Employee's marketing efforts are
determined to have resulted in a material net profit to EMB or any affiliate
thereof, as appropriate, this Agreement, at the option of the Employee, will be
renewed for an additional one year term on the same terms and conditions as were
in effect immediately prior to such renewal.
3. Compensation.
------------
3.1 Salary. For all services rendered by the Employee under this
------
Agreement, EMB shall pay the Employee a salary at the rate of One Hundred Fifty
Thousand Dollars ($150,000) per annum, subject to increase upon annual approvals
of the Board of Directors of EMB. Salary is payable semi-monthly; provided,
however, that the salary shall be subject to annual cost of living increases to
reflect the increase, if any, in the cost of living by adding to the initial or
then-current salary, as relevant, an amount obtained by multiplying the then-
current salary by a percentage increase in the level of the Consumer Price Index
for the LA-Long Beach, Anaheim Metropolitan Area (the "CPI"), as reported by the
Bureau of Labor Statistics of the United States Department of Labor.
3.2 Additional Compensation. Nothing herein shall be deemed to
-----------------------
preclude EMB from awarding additional compensation or benefits to the Employee
during the term of this Agreement, upon the approval of EMB's Board of
Directors, whether in the form of raises, bonuses, additional fringe benefits,
or otherwise. The Employee may participate in any stock benefit plan, profit
sharing plan, or other compensation plan or benefit made available by EMB Parent
or EMB Subsidiary to executives of EMB Parent similarly situated.
-31-
<PAGE>
As additional compensation, EMB shall pay to the Employee five basis
points on all wholesale loans received by or retail loans originated at EMB's
office located in the Aurora/Denver, Colorado, metropolitan area. Such
additional compensation shall be paid on a monthly basis, on the 10th day of the
month following the month in which such relevant loan transactions close. The
Employee shall not be entitled to any additional compensation for fourth party,
correspondent loans except by mutual agreement with EMB.
3.3 Benefits. During the term of this Agreement, the Employee shall
--------
be entitled to receive all benefits applicable to executive officers of EMB of
equal positions, as designated from time to time by EMB's Board of Directors.
4. Duties. During the term of this Agreement, the Employee shall be
------
Managing Director of EMB, shall be responsible for overall management of
mortgage operations, shall consult with, report to, and follow the guidelines
and directions of the Board of Directors of EMB as such Board requires, and
shall perform such duties relating to operating EMB as are required to be
performed for its day-to-day operations, as well as performing such long range
planning as is required in the Employee's, and such Board's, best judgment to
maximize the future profitability of EMB.
5. Extent of Services. The Employee shall devote a sufficient quantity
------------------
of his working time, attention, and energies to the full performance of his
duties hereunder and to the business of EMB. The Employee may devote time to
personal and family investments if such investments do not conflict with his
duties hereunder regarding the business of EMB.
6. Disclosure of Information. The Employee recognizes and acknowledges
-------------------------
that EMB's trade secrets and proprietary processes as they may exist from time
to time are valuable, special, and unique assets of their businesses, access to
and knowledge of which are essential to the performance of the Employee's duties
hereunder. The Employee will not, during or after the term of his employment,
in whole or in part, disclose such secrets or processes to any person, firm,
corporation, association, or other entity (except EMB or its corporate
affiliates) for any reason or purpose whatsoever, nor shall the Employee make
use of any such property for his own purposes or for the benefit of any other
person, firm, corporation, or other entity (except EMB or its corporate
affiliates) under any circumstances. In the event that the Employee elects to
terminate this Agreement pursuant to the rights granted to him under Section 7.3
of the Stock Purchase Agreement of even date herewith, the obligations of the
Employee hereunder shall terminate immediately to the extent and in the manner
set forth in such section.
7. Covenants Not to Solicit or Interfere. For a period of one year from
-------------------------------------
and after the termination of the Employee's employment hereunder, the Employee
shall not interfere with, disrupt, or attempt to disrupt the relationship,
contractual or otherwise, between EMB, or any division, subsidiary, or corporate
affiliate thereof, and any customer, supplier, lessor, lessee, or employee of
such company, division, subsidiary, or corporate affiliate. The term
"customer," as used in this paragraph, shall mean any person, firm, or
corporation that was a customer of any of such company, or any division,
subsidiary, or corporate affiliate thereof, during the six-month period
immediately preceding the termination of employment hereunder. In the event
that the Employee elects to terminate this Agreement pursuant to the rights
granted to him under Section 7.3 of the Stock Purchase Agreement of even date
herewith, the obligations of the Employee hereunder shall terminate immediately
to the extent and in the manner set forth in such section.
-32-
<PAGE>
8. Covenant Against Competition. In the event Employee elects to engage
----------------------------
in other business activities unrelated to EMB's during the term of this
Agreement, which activities are the same or substantially similar to the
businesses of EMB or any division, subsidiary, or corporate affiliate thereof,
the Employee shall advise EMB of such activities. Unless EMB shall consent to
such other business activities, during the term of this Agreement the Employee
shall not directly or indirectly compete with EMB or any division, subsidiary,
or corporate affiliate thereof in the business of such company or any division,
subsidiary, or corporate affiliate thereof whether such competition shall be as
an officer, director, owner, employee, partner, or consultant. For the purposes
of this Agreement, EMB's "business" shall be deemed to consist of mortgage
banker/broker and related services and operations. Notwithstanding anything to
the contrary set forth above, in the event the Employee elects to engage in a
business competitive to such company without its consent, he may elect to do so
by voluntarily terminating the obligations of EMB under this Agreement without
any further obligation to EMB.
9. Injunctive Relief. If there is a breach or threatened breach of the
-----------------
provisions of paragraphs 6, 7, or 8 of this Agreement, EMB be entitled
immediately to obtain an injunction restraining the Employee from such breach.
Nothing herein shall be construed as prohibiting EMB from pursuing any other
remedies for such breach or threatened breach.
10. Arbitration. Except as provided in paragraph 9, above, the parties
-----------
hereby submit all controversies, claims, and matters of difference arising as a
result of this Agreement or the transactions contemplated hereby to arbitration
according to the rules and practices of the JAMS/Endispute from time to time in
force. Such arbitration shall be conducted in Orange County, California. This
submission and agreement to arbitrate shall be specifically enforceable.
Arbitration may proceed in the absence of any party if written notice (pursuant
to the rules and regulations of JAMS/Endispute) of the proceedings has been
given to such party. The parties agree to abide by all awards rendered in such
proceedings. Such awards shall be final and binding on all parties to the
extent, and in the manner, provided by California statute. All awards may be
filed with the Clerk of the California Superior Court for the County of Orange,
California, as a basis of judgment and of the issuance of execution for its
collection and, at the election of the party making such filing, with the Clerk
of one or more other courts, state or federal, having jurisdiction over the
party against whom such an award is rendered or his property.
11. Legal Cause. EMB may terminate its obligations under this Agreement
-----------
for "legal cause" in the event EMB's Board of Directors reasonably determines
that (i) the Employee has willfully and materially disregarded his duties
hereunder, provided that EMB's Board of Directors has provided prior written
notice to the Employee of such willful and material disregard, which is not
promptly corrected by Employee and provided that any duties assigned to the
Employee are consistent with this Agreement or (ii) the Employee has committed a
criminal act that has materially damaged EMB or its divisions, subsidiaries, or
corporate affiliates.
-33-
<PAGE>
12. Notices. Any notice required or permitted to be given under this
-------
Agreement shall be sufficient if in writing and if sent by registered or
certified mail, return-receipt requested, postage prepaid, to the address
indicated above.
13. California Law to Govern. This Agreement shall be governed by and
------------------------
construed and enforced in accordance with the laws of the State of California.
14. Assignment. This agreement is personal to the Employee and shall not
----------
be assigned by him. The rights and obligations of EMB under this Agreement
shall inure to the benefit of and shall be binding upon the successors of EMB.
15. Entire Agreement. This instrument contains the entire agreement of
----------------
the parties hereto with respect to the transactions contemplated by this
Agreement and supersedes all other agreements, written or oral, with respect
thereto. This Agreement may be amended or modified in whole or in part, and any
rights hereunder may be waived, only by an agreement in writing, duly and
validly executed in the same manner as this Agreement or by the party against
whom the waiver would be asserted. The waiver of any right hereunder shall be
effective only with respect to the matter specifically waived and shall not act
as a continuing waiver unless it so states by its terms.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
first hereinabove written in the City of Costa Mesa, State of California.
EMB MORTGAGE CORPORATION
By:
-----------------------------------
William V. Perry, President
- ----------------------------------------
JAMES C. SAUNDERS
-34-
<PAGE>
EXHIBIT 10(L)
[LETTER HEAD OF ICI FUNDING CORPORATION APPEARS HERE]
Commitment No. MACP0105
Seller No. 000230013
October 21, 1997
Mr. Russ Kidder
Managing Director
EMB MORTGAGE CORPORATION
575 Anton Blvd., Suite 200
Costa Mesa, CA 92626
RE: MASTER COMMITMENT TO PURCHASE MORTGAGE LOANS UNDER
CONFORMPLUS(TM) PROGRAM
Dear Mr. Kidder:
ICI FUNDING CORPORATION, an indirect subsidiary of IMPERIAL CREDIT MORTGAGE
HOLDINGS, INC., hereinafter referred to as "Buyer," hereby commits to
purchase/fund from EMB MORTGAGE CORPORATION, hereinafter referred to as
"Seller," first and second trust deed mortgage loans ("Mortgage Loans") pursuant
to the terms and conditions set forth herein. By executing this master
commitment (the "Commitment"), Buyer hereby agrees to purchase, and Seller
hereby agrees to sell those certain Mortgage Loans, subject to the terms and
conditions hereof.
1. AMOUNT OF COMMITMENT: The amount of the commitment is $ 25,000,000
--------------------
2. TERM OF COMMITMENT: The term of this Commitment is nine (9) months.
------------------
The Commitment expiration date will be June 30, 1998, or upon the
fulfillment of the amount of the Commitment whichever occurs first.
All Mortgage Loans must be committed and delivered to Buyer in
purchasable form prior to the expiration of this Commitment, in order
for Buyer to purchase under the terms of this Commitment.
3. LOAN PROGRAM: All Mortgage Loans purchased under this Commitment shall
------------
conform to the requirements and the underwriting guidelines of the
ConformPlus(TM) program (the "Program"), as set forth in ICI Funding
Corporations' Sellers Guide, dated August, 1997, as modified per this
Commitment (the "Guide"). Seller acknowledges that it has received a
copy of the Guide and is familiar with the requirements thereof
including the Program. All Mortgage Loans sold to Buyer will conform
to the requirements and underwriting guidelines of the Program. All
fundings under this Commitment shall be governed by the terms hereof
together with the Guide and the "Seller Agreement" attached hereto as
Exhibit "A" all of which are collectively referred to herein as the
"Purchase Documents."
1
<PAGE>
4. PURCHASE PRICE: The purchase price will be based on the posted rates
--------------
and prices, plus any pricing adjustments on Knight Ridder screen 7281
for the ConformPlus(TM) loans being locked in. IN ADDITION, THE SCREEN
PRICE WILL BE INCREASED BY THREE-EIGHTHS OF ONE PERCENT (375%) AT TIME
OF RATE LOCK NOT TO EXCEED THE POSTED MAXIMUM PRICE.
5. COMMITMENT FEE: An up front commitment fee of one-eighth of one
--------------
percent (.125%) will be waived by Buyer in exchange for 15,000 shares
of Seller's non-restricted stock at a price of $2.00 (assuming the
stock currently trades at $4.00).
6. ELIGIBLE PRODUCT TYPES: Mortgage loans conforming to the
---------------------
ConformPlus(TM) Program. A copy of the Program guidelines is attached
hereto as Exhibit "B."
7. UNDERWRITING GUIDELINES: All loan documentation and underwriting must
-----------------------
be in compliance with the Purchase Documents. Any exceptions to the
Purchase Documents must be approved by Buyer prior to the delivery of
the loan for purchase. Program parameters and pricing parameters are
subject to change upon delivery of thirty (30) days prior written
notice by Buyer to Seller.
8. DELEGATED UNDERWRITING: Seller will have delegated underwriting on
----------------------
ConformPlus(TM) program up to 80%LTV subject to mandatory training
prior to the implementation of delegated underwriting. Buyer will have
the right to terminate all or any portion of the delegation given to
the Seller providing Buyer notify Seller in writing stating a
termination date of such delegation.
SELLER MUST MEET THE FOLLOWING CRITERIA TO HAVE DELEGATED UNDERWRITING
ON CONFORMPLUS(TM) PROGRAM UP TO 95%LTV:
. MAINTAIN A MINIMUM CLASS II DELEGATION LEVEL
. MAINTAIN DELINQUENCY RATIO ON LOANS SOLD TO ICIFC ON 60 DAY+
DELINQUENCY AT 1% OR BELOW
. MANDATORY 1 DAY TRAINING FOR SELLER'S UNDERWRITER(S)
. MANDATORY ATTENDANCE AT ANNUAL TRAINING TO BE CONDUCTED BY ICIFC
DELIVERY PERCENTAGE LIMITATIONS:
-------------------------------
The purchased Mortgage Loans will be subject to the following
limitations:
. 95%LTV DELIVERY LIMITATION: Not to exceed 10% of the aggregate
amount of all Conformplus(TM) delivered;
. CASH-OUT REFINANCES: Not to exceed 40% of the all aggregate amount
of all ConformPlus(TM) delivered; Loans over 80%LTV with credit
score less than 680 not to exceed 35% of total commitment.
. NON-OWNER/SECOND HOME/2 UNITS: Not to exceed 20% of the all
aggregate amount of all ConformPlus(TM) delivered;
. REDUCE DOCS/LITE DOCUMENTATION: Not to exceed 40% of the all
2
<PAGE>
aggregate amount of all ConformPlus(TM) delivered;
. CONDOMINIUMS: Not to exceed 20% of the all aggregate amount of all
ConformPlus(TM) delivered;
10. ADMINISTRATION FEE: $125.00 per loan.
------------------
11. LOCK-IN PROCEDURES: Seller will reference this Commitment number and
------------------
specify the preferred pricing parameters at time of commitment, and
follow the standard requirements of the Guide for best efforts lock-
in. Bulk lock-ins are allowed for a minimum of $500,000 and are
considered mandatory delivery, plus or minus two percent (2%).
12. SERVICING: Loans shall be sold in their entirety to Buyer, with
---------
servicing rights of such loans released to Buyer upon purchase. All
servicing rights of loans purchased according to this Commitment shall
be included with this purchase and shall be considered transferred and
owned by Buyer as of the date of funding of each loan purchase and
Seller shall have no further rights or claims of any type as of the
date of each loan purchase.
All servicing activities, records, funds and including, but not
limited to, any escrow and buydown balances, all funds held for the
benefit of these loans, and insurance records shall be transferred to
Buyer on the date of purchase. The cost for establishing new tax
service contracts will be at Seller's expense.
13. PAIR-OFF: Once Mortgage Loans are locked in for block commitments, a
--------
pair-off fee equal to any market movement, will be assessed on the
difference, if any, between the commitment amount (minus delivery
tolerance) and the actual amount delivered. Seller will remit payment
to Buyer for the amount of the pair-off fee within ten (10) days from
the expiration date of the block commitment.
14. SALES AND FUNDING: Seller's warehouse line will be swept by Buyer on
-----------------
the last day of each month or at Seller's request. Funding will occur
within seventy-two (72) hours of delivery, provided Seller delivers
all required documents and fulfills all outstanding conditions under
the Purchase Documents, including, without limitation, the delivery to
Buyer of (a) a computer tape presenting Mortgage Loans completed with
data fields audited and re-verified to each loan file, (b) the
original promissory notes evidencing the Mortgage Loans to be
purchased, duly endorsed in favor of Buyer, prior to the purchase
date, and (c) copies of the assignment of deed of trust or mortgage
(in addition to other documents outlined in the Guide).
15. INDEMNIFICATION: Without limiting any of Buyer's rights contained in
---------------
this Commitment, Seller shall indemnify, defend and hold Buyer, its
successors and assigns, and its officers, agents, and employees
harmless from and against all claims, legal or arbitration
proceedings, loss, liability, damages, fees and costs (including,
without limitation, actual credit reporting agency costs, and
attorneys' fees and costs), which arise from or are related to,
directly or indirectly, (a) the failure of any Mortgage Loan to comply
with the underwriting criteria or any of the other requirements of the
Purchase Documents, including, without limitation the Guide, or (b)
Seller's breach of any warranty, representation, or
3
<PAGE>
covenant contained in the Purchase Documents. This remedy is
cumulative, and shall be in addition to all other rights and remedies
afforded Buyer hereunder, under the Purchase Documents, at law or in
equity.
16. MODIFICATION, AMENDMENT AND WAIVER: No modification or waiver of or
----------------------------------
amendment to any of the terms of this Commitment shall be effective
unless it is in writing signed by all parties hereto. No waiver of any
default or breach by Seller shall be implied from any omission by
Buyer or its assigns to take any action on account of such default if
such default continues or is repeated. No written waiver shall affect
any breach other than the breach specified in such waiver, and then
only to the extent therein expressly stated. Any failure or delay by
Buyer or its assigns in exercising any rights, power, or remedy
hereunder shall not be deemed a waiver thereof.
17. ASSIGNMENT: This Commitment is only assignable by Buyer. This
----------
Commitment is not intended to benefit any third party. Buyer may only
assign this Commitment to a party who has the ability to perform all
of Buyer's obligations under this Commitment.
18. APPLICABLE LAW/VENUE/ARBITRATION: The Commitment shall be governed by
--------------------------------
and construed under the laws of the State of California. Any
controversy, claim or dispute among the parties arising out of this
contract, or the breach thereof, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association in Orange County, California and judgment upon
the award rendered by the Arbitrator may be entered in any court
having jurisdiction, including the Superior Court of California,
County of Orange.
19. ENFORCEMENT: In the event of any action by Buyer or Seller to
-----------
enforce this Commitment, the prevailing party shall be entitled to
receive, in addition to all other relief, the costs thereof including,
without limitation, attorney's fees and court costs.
20. ENTIRE AGREEMENT: This Commitment and any agreement, document or
----------------
instrument attached hereto or referenced herein integrates all of the
terms and conditions mentioned herein or incidental hereto, and
supersedes all oral negotiations and prior writings regarding the
subject matter hereof.
21. FURTHER ACTS: Buyer and Seller mutually agree that each of them will
------------
immediately upon demand by the other party, execute such documents or
perform such acts as may reasonably be required by such party to
perform their objectives under this agreement; and refusal to
cooperate and execute such documents or perform such acts required by
this agreement shall be considered a material breach hereof and shall
suspend the performance of non-breaching party.
22. SURVIVAL: All representations and warranties within the Purchase
--------
Documents shall survive the transfer of Mortgage Loans to and purchase
by Buyer, its successors and assigns.
23. NOTICES: All notices, requests, demands or other communications that
-------
are to be given under this contract shall be in writing, addressed to
the appropriate parties and sent postage
4
<PAGE>
prepaid to the address below:
If to Buyer: ICI Funding Corporation
20371 Irvine Ave., Bldg. A
Santa Ana Heights, CA 92707
ATTN: Mary Glass-Schannault
If to Seller: EMB MORTGAGE CORPORATION
575 Anton Blvd., Suite 200
Costa Mesa, CA 92626
ATTN: Russ Kidder
24. SEVERABILITY: Whenever possible, each provision of this Commitment
------------
shall be interpreted in such manner as to be valid and effective under
applicable law, but if any such provision shall be ineffective to the
extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of the
Commitment.
25. HEADINGS: The headings used herein are used for convenience only, are
--------
not part hereof and shall not be used in construing this Commitment.
26. COUNTERPARTS: This Commitment may be executed in any number of
------------
counterparts and all such counterparts taken together shall be deemed
to constitute one and the same instrument.
27. FINANCIAL CONDITION: Prior to, or concurrent with the execution of
-------------------
this Commitment, Seller agrees to submit a recent audited financial
statement. Unless otherwise waived by Buyer, Seller must have and
maintain a minimum audited net worth of at least $1,000,000 in order
for Buyer to purchase Mortgage Loans under this Commitment.
5
<PAGE>
If the terms and conditions of the Commitment are acceptable to Seller, please
execute the acceptance where indicated on this Commitment and return one copy of
the signed agreement. A signed copy hereof signed by Seller must be received by
Buyer or its authorized representative within five (5) business days of receipt
by Seller, or this agreement will be considered null and void.
The individuals executing this Commitment by their signatures do hereby certify
they are duly authorized to execute this document on behalf of the parties they
represent.
"BUYER"
ICI FUNDING CORPORATION
By: /s/ Mary Glass-Schannault
---------------------------------------
Name: Mary Glass-Schannault
Title: Senior Vice President
By: /s/ James W. Dickinson
---------------------------------------
Name: James W. Dickinson
Title: Vice President
We hereby acknowledge and accept all of the terms and conditions of this
Commitment for the sale of the Mortgage Loans described herein:
"SELLER"
EMB MORTGAGE CORPORATION
By: /s/ Russ Kidder
---------------------------------------
Name: Russ Kidder
Title: Managing Director
6
<PAGE>
EXHIBIT "A"
FORM OF SELLER AGREEMENT
<PAGE>
EXHIBIT "B"
COPY OF CONFORMPLUS(TM) PROGRAM
<PAGE>
EXHIBIT 10(M)
[LOGO OF ICIFC APPEARS HERE]
ICI FUNDING CORPORATION
-----------------------
A SUBSIDIARY OF IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
Commitment No. MA3665
Seller No. 000600013
September 12, 1997
Mr. Russ Kidder
Managing Director
EMB MORTGAGE CORPORATION
575 Anton Blvd., Suite 200
Costa Mesa, CA 92626
RE: MASTER COMMITMENT TO PURCHASE SECOND TRUST DEED MORTGAGE LOANS UNDER
PROGRESSIVE EQUITY EXPRESS PROGRAM
Dear Mr. Kidder:
ICI FUNDING CORPORATION, an indirect subsidiary of IMPERIAL CREDIT MORTGAGE
HOLDINGS, INC., hereinafter referred to as "Buyer," hereby commits to
purchase/fund from EMBl MORTGAGE CORPORATION, hereinafter referred to as
"Seller," second trust deed mortgage loans ("Mortgage Loans") pursuant to the
terms and conditions set forth herein. By executing this master commitment (the
"Commitment"), Buyer hereby agrees to purchase, and Seller hereby agrees to sell
those certain Mortgage Loans, subject to the terms and conditions hereof.
1. AMOUNT OF COMMITMENT: The amount of the commitment is $25,000,000.
--------------------
2. TERM OF COMMITMENT: The term of this Commitment is six (6) months. The
-------------------
Commitment expiration date will be March 15. 1998, or upon the
fulfillment of the amount of the Commitment whichever occurs first.
All Mortgage Loans must be committed and delivered to Buyer in
purchasable form prior to the expiration of this Commitment, in order
for Buyer to purchase under the terms of this Commitment.
3. LOAN PROGRAM: All Mortgage Loans purchased under this Commitment shall
------------
conform to the requirements and the underwriting guidelines of the
Progressive Express Equity Plus program (the "Program"), as set forth
in ICI Funding Corporations' Sellers Guide, dated June, 1997, as
modified per this Commitment (the "Guide"). Seller acknowledges that
it has received a copy of the Guide and is familiar with the
requirements thereof including the Program. All Mortgage Loans sold to
Buyer will conform to the requirements and underwriting guidelines of
the Program. All fundings under this Commitment shall be governed by
the terms hereof, together with the Guide and the "Seller Agreement"
attached hereto as Exhibit "A" all of which are collectively referred
to herein as the "Purchase Documents."
1
<PAGE>
4. PURCHASE PRICE: The purchase price will be based on rates and prices
--------------
provided on a daily basis by Buyer via facsimile transmission no later
than 7:30 am. (PST).
5. COMMITMENT FEE: An up front commitment fee of one-eighth of one
--------------
percent (.125%) will be waived by Buyer in exchange for 15,000 shares
of Seller's non-restricted stock at a price of $2.00 (assuming the
stock currently trades at $4.00).
6. ELIGIBLE PRODUCT TYPES: Second trust deed mortgage loans conforming to
----------------------
the Program. A copy of the Program guidelines is attached hereto as
Exhibit "B."
7. UNDERWRITING GUIDELINES: All loan documentation and underwriting must
-----------------------
be in compliance with the Purchase Documents as the same may be
modified hereby the Delivery Percentage Limitations set forth on
Exhibit "C" attached hereto. Additional exceptions to the Purchase
Documents must be approved by Buyer prior to the delivery of the loan
for purchase. Program parameters and pricing parameters are subject to
change upon delivery of thirty (30) days prior written notice by Buyer
to Seller.
8. DELEGATED UNDERWRITING: Seller has delegated underwriting on
----------------------
Progressive Express Equity Plus program subject to mandatory training
and a complete underwriting and legal review by an acceptable ICIFC
Contract Service on each loan prior to the delivery for purchase.
Buyer will have the right to terminate all or any portion of the
delegation given to the Seller providing Buyer notify Seller in
writing stating a termination date of such delegation. All costs for
contract services will be the responsibility of the Seller.
9. ADMINISTRATION FEE: $125.00 per loan.
------------------
10. LOCK-IN PROCEDURES: Seller will reference this Commitment number and
------------------
specify the preferred pricing parameters at time of commitment, and
follow the standard requirements of the Guide for best efforts lock-
in. Bulk lock-ins are allowed for a minimum of $500,000 and are
considered mandatory delivery, plus or minus two percent (2%).
11. SERVICING: Loans shall be sold in their entirety to Buyer, with
---------
servicing rights of such loans released to Buyer upon purchase. All
servicing rights of loans purchased according to this Commitment shall
be included with this purchase and shall be considered transferred and
owned by Buyer as of the date of funding of each loan purchase and
Seller shall have no further rights or claims of any type as of the
date of each loan purchase.
All servicing activities, records, funds and including, but not
limited to, any escrow and buydown balances, all funds held for the
benefit of these loans, and insurance records shall be transferred to
Buyer on the date of purchase. The cost for establishing new tax
service contracts will be at Seller's expense.
12. PAIR-OFF: Once Mortgage Loans are locked in for block commitments, a
--------
pair-off fee equal to any market movement, will be assessed on the
difference, if any, between the
2
<PAGE>
commitment amount (minus delivery tolerance) and the actual amount
delivered. Seller will remit payment to Buyer for the amount of the
pair-off fee within ten (10) days from the expiration date of the
block commitment.
13. SALES AND FUNDING: Seller's warehouse line will be swept by Buyer on
-----------------
the last day of each month or at Seller's request. Funding will occur
within seventy-two (72) hours of delivery, provided Seller delivers
all required documents and fulfills all outstanding conditions under
the Purchase Documents, including, without limitation, the delivery to
Buyer of (a) a computer tape presenting Mortgage Loans completed with
data fields audited and re-verified to each loan file. (b) the
original promissory notes evidencing the Mortgage Loans to be
purchased, duly endorsed in favor of Buyer, prior to the purchase
date, and (c) copies of the assignment of deed of trust or mortgage
(in addition to other documents outlined in the Guide).
14. INDEMNIFICATION: Without limiting any of Buyer's rights contained in
---------------
this Commitment, Seller shall indemnify, defend and hold Buyer, its
successors and assigns, and its officers, agents, and employees
harmless from and against all claims, legal or arbitration
proceedings, loss, liability, damages, fees and costs (including,
without limitation, actual credit reporting agency costs, and
attorneys' fees and costs), which arise from or are related to,
directly or indirectly, (a) the failure of any Mortgage Loan to comply
with the underwriting criteria or any of the other requirements of the
Purchase Documents, including, without limitation the Guide, or (b)
Seller's breach of any warranty, representation, or covenant contained
in the Purchase Documents. This remedy is cumulative, and shall be in
addition to all other rights and remedies afforded Buyer hereunder,
under the Purchase Documents, at law or in equity.
15. MODIFICATION, AMENDMENT AND WAIVER: No modification or waiver of or
----------------------------------
amendment to any of the terms of this Commitment shall be effective
unless it is in writing signed by all parties hereto. No waiver of any
default or breach by Seller shall be implied from any omission by
Buyer or its assigns to take any action on account of such default if
such default continues or is repeated. No written waiver shall affect
any breach other than the breach specified in such waiver, and then
only to the extent therein expressly stated. Any failure or delay by
Buyer or its assigns in exercising any rights, power, or remedy
hereunder shall not be deemed a waiver thereof,
16. ASSIGNMENT: This Commitment is only assignable by Buyer. This
----------
Commitment is not intended to benefit any third party. Buyer may only
assign this Commitment to a party who has the ability to perform all
of Buyer's obligations under this Commitment.
17. APPLICABLE LAW/VENUE/ARBITRATION: The Commitment shall be governed by
--------------------------------
and construed under the laws of the State of California. Any
controversy, claim or dispute among the parties arising out of this
contract, or the breach thereof, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association in Orange County, California and judgment upon
the award rendered by the Arbitrator may be entered in any court
having jurisdiction, including the Superior Court of California,
County of Orange.
3
<PAGE>
18. ENFORCEMENT: In the event of any action by Buyer or Seller to enforce
-----------
this Commitment, the prevailing party shall be entitled to receive, in
addition to all other relief, the costs thereof including, without
limitation, attorney's fees and court costs.
19. ENTIRE AGREEMENT: This Commitment and any agreement, document or
----------------
instrument attached hereto or referenced herein integrates all of the
terms and conditions mentioned herein or incidental hereto, and
supersedes all oral negotiations and prior writings regarding the
subject matter hereof
20. FURTHER ACTS: Buyer and Seller mutually agree that each of them will
------------
immediately upon demand by the other party, execute such documents or
perform such acts as may reasonably be required by such party to
perform their objectives under this agreement; and refusal to
cooperate and execute such documents or perform such acts required by
this agreement shall be considered a material breach hereof and shall
suspend the performance of non-breaching party.
21. SURVIVAL: All representations and warranties within the Purchase
--------
Documents shall survive the transfer of Mortgage Loans to and purchase
by Buyer, its successors and assigns.
22. NOTICES: All notices, requests, demands or other communications that
-------
are to be given under this contract shall be in writing, addressed to
the appropriate parties and sent postage prepaid to the address below:
If to Buyer: ICI Funding Corporation
20371 Irvine Ave., Bldg. A
Santa Ana Heights, CA 92707
ATTN: Mary Glass-Schannault
If to Seller: EMB MORTGAGE CORPORATION
575 Anton Blvd., Suite 200
Costa Mesa, CA 92626
ATTN: Russ Kidder
23. SEVERABILITY: Whenever possible, each provision of this Commitment
------------
shall be interpreted in such manner as to be valid and effective under
applicable law, but if any such provision shall be ineffective to the
extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of the
Commitment.
24. HEADINGS: The headings used herein are used for convenience only, are
--------
not part hereof and shall not be used in construing this Commitment.
25. COUNTERPARTS: This Commitment may be executed in any number of
------------
counterparts and all such counterparts taken together shall be deemed
to constitute one and the same instrument.
4
<PAGE>
26. FINANCIAL CONDITION: Prior to, or concurrent with the execution of
-------------------
this Commitment, Seller agrees to submit a recent audited financial
statement. Unless otherwise waived by Buyer, Seller must have and
maintain a minimum audited net worth of at least $2,000,000 in order
for Buyer to purchase Mortgage Loans under this Commitment.
If the terms and conditions of the Commitment are acceptable to Seller, please
execute the acceptance where indicated on this Commitment and return one copy of
the signed agreement. A signed copy hereof signed by Seller must be received by
Buyer or its authorized representative within five (5) business days of receipt
by Seller, or this agreement will be considered null and void.
The individuals executing this Commitment by their signatures do hereby certify
they are duly authorized to execute this document on behalf of the parties they
represent.
"BUYER"
ICI FUNDING CORPORATION
By:/s/ Mary Glass-Schannault
------------------------------
Name: Mary Glass-Schannault
Title: Senior Vice President
By:______________________________
Name: James W. Dickinson
Title: Vice President
We hereby acknowledge and accept all of the terms and conditions of this
Commitment for the sale of the Mortgage Loans described herein:
"SELLER."
EMB MORTGAGE CORPORATION
By /s/ Russ Kidder
-------------------------------
Name: Russ kidder
Title: Managing Director
5
<PAGE>
EXHIBIT "B"
COPY OF PROGRESSIVE EXPRESS EQUITY PLUS PROGRAM
<PAGE>
EXHIBIT C
DELIVERY PERCENTAGE LIMITATIONS
-------------------------------
The purchased Mortgage Loans will be subject to the following limitations:
(a) Weighted Average Coupon: Subject to the eligible loan product types,
the minimum gross weighted average coupon for the Commitment will be
14%, unless Seller is otherwise notified by Buyer.
(b) Reduced Documentation: Reduced documentation Mortgage Loans not to
exceed 40% of the aggregate amount of all Mortgage Loans delivered
pursuant to the Commitment.
(c) Geographic Limitation: United States. Not more than 50% of the
Commitment may consist of Mortgage Loans located in California. As set
forth in the Progressive Express Equity Plus Parameters, no Mortgage
Loans will be accepted from Alabama, Alaska, Texas, Hawaii or the
United States Territory of Puerto Rico.
(d) CLTV Limitations: The aggregate amount of all Mortgage Loans delivered
pursuant to the Commitment shall have a weighted combined loan to
value of greater than [115%].
(e) Debt Consolidation Percentage: Seventy percent (70%) of the aggregate
amount of all Mortgage Loans delivered pursuant to the Commitment
shall be debt consolidation loans payable through the closing agent.
(f) The aggregate amount of all Mortgage Loans delivered pursuant to the
Commitment shall have a 680 FICO score weighted average.
(g) Loans made to Condominium Properties are limited to 20% of the total
Commitment.
(h) Loans made to Unit Properties are limited to 20% of the total
Commitment.
<PAGE>
EXHIBIT 10(N)
[LOGO OF ICIFC APPEARS HERE]
ICI FUNDING CORPORATION
-----------------------
A SUBSIDIARY OF IMPERIAL CREDIT MORTGAGE HOLDINGS. INC.
Commitment No. MA3660
Seller No. 000600013
September 4, 1997
Mr. Russ Kidder
Managing Director
EMB MORTGAGE CORPORATION
575 Anton Blvd., Suite 200
Costa Mesa, CA 92626
RE: MASTER COMMITMENT TO PURCHASE JUMBO AND CONFORMING RESIDENTIAL MORTGAGES
Dear Mr. Kidder:
ICI FUNDING CORPORATION, a subsidiary of IMPERIAL CREDIT MORTGAGE HOLDINGS,
INC., hereinafter referred to as "Buyer", hereby commits to purchase/fund from
EMB MORTGAGE CORPORATION, hereinafter referred to as "Seller" first trust deed
mortgage loan(s) pursuant to the terms and conditions set forth herein and the
ICIFC Sellers Guide, the PROGRESSIVE SERIES I - VI AND PROGRESSIVE EXPRESS Guide
(Guides) as amended from time to time, and the ICIFC Sale Agreement. Seller is
bound by all conditions of the Guides and Sale Agreement or under a separate
written agreement. By executing this Commitment, Buyer hereby agrees to
purchase, and Seller hereby agrees to sell those certain Loan(s), subject to
terms and conditions of this Commitment.
1. AMOUNT OF COMMITMENT: Buyer will offer Seller $75,000,000 commitment
--------------------
in exchange for 45,000 shares of Seller's non restricted stock at a
price of $2.00.
2. TERM OF COMMITMENT: This is a six month (6), optional delivery, Master
------------------
Commitment. The Commitment expiration date will be March 15, 1998 or
upon the fulfillment of the amount of commitment, whichever occurs
first. All loans must be committed and delivered to Buyer in
purchasable form prior to expiration of this Commitment.
3. COMMITMENT FEE: An up front commitment fee of one-eighth of one
--------------
percent (.125%) will be waived by Buyer in exchange for 45,000 shares
of Seller's non restricted stock at a price of $2.00 (assuming the
stock currently trades at $4.00). $1,050 IN UNPAID PRIOR UNDERWRITING
FEE IS PAYABLE TO BUYER UPON THE EXECUTION OF THIS COMMITMENT.
<PAGE>
4. ELIGIBLE PRODUCT TYPES: Seller may sell and Buyer will purchase
----------------------
mortgage products pursuant to the terms of the Guide(s), the following
types of mortgage loans:
. Progressive Series I - VI loan programs;
. Progressive Express programs, Retail originations.
FOR THIRD PARTY ORIGINATION EXPRESS PROGRAM, SELLER MUST MEET THE
FOLLOWING CRITERIA PRIOR TO SUBMITTING LOANS FOR PURCHASE:
. PROVIDE SAMPLE BROKER APPROVAL PROCESS PACKAGE TO ICIFC V.P.
SELLER ADMINISTRATION FOR APPROVAL OF PROCEDURES.
. MANDATORY ON-SITE TRAINING (COMPLETED 6/26/97).
SELLER MUST MAINTAIN THE FOLLOWING FOR CONTINUOUS IN TPO EXPRESS
DELIVERY:
. SELLER MUST BE A CURRENT MINIMUM CLASS II DELEGATION LEVEL.
. SELLER TO PROVIDE MINIMUM 10% QUARTERLY Q.C. RESULTS TO ICIFC.
Each product offers the following type of mortgage loan:
. 30 year fully amortizing fixed rate;
. 15 year fully amortizing fixed rate;
. 6 month LIBOR semi-annually adjusting ARMs with 1/6 Caps;
. 2 year fixed Rollover to 6 month LIBOR semi-annually adjusting
ARMs;
5. UNDERWRITING GUIDELINES: Except as set forth herein, including the
-----------------------
attached conditions, loan documentation and underwriting must be in
compliance with the Guide(s). Any exception to the guidelines not
specified within this commitment, must be approved by Buyer prior to
the delivery of the loan for purchase. Program parameters and pricing
parameters are subject to change.
6. PRIOR UNDERWRITING APPROVAL BY BUYER: Seller may submit loans to Buyer
------------------------------------
for prior approval. Loans that are rejected by Buyer are ineligible
for purchase. If a loan has been rejected by another conduit, Seller
must notify Buyer of reason for rejection at the time of loan
submission. Prior underwriting is required by Buyer on loan as
parameters stated in the attached Exhibit "B".
Regardless of the underwriting delegation given herein as shown in
Exhibit B, Buyer will require prior underwriting for the following:
. Any loans with exceptions to the Guideline(s);
. Cash reserves less than required by Guideline(s);
. Non-arms length transactions (as define in ICIFC's Underwriting
Guideline);
. Credit history and delinquent credit outside of program
guidelines;
. 2 years employment not in the same line of work;
<PAGE>
7. DELEGATED UNDERWRITING: Seller is delegated as per attached Exhibit B.
----------------------
All loans not delegated as per attached must be prior approved by
Buyer. Buyer will have the right to terminate all or any portion of
the delegation given to the Seller providing Buyer notify Seller in
writing stating a termination date of such delegation.
8. PRIOR APPROVAL BY CONTRACT SERVICES: Seller may select prior
-----------------------------------
underwriting by Contract Service Underwriting (acceptable to Buyer)
for Progressive Series (Select) and Progressive Express as stated in
Exhibit B. Loans rejected by another conduit or Buyer will not be
eligible for Contract Service Underwriting.
Acceptable Mortgage Insurance Contract Services:
. CMAC
. UGI
. PMI
. GE
. RMIC
Unacceptable Mortgage Insurance Contract Services:
. MGIC
9. PURCHASE PRICE: The purchase price will be based on the posted rates
--------------
and prices, plus any pricing adjustments on Knight Ridder screens 7271
through 7289 for the applicable loan program being locked in. For the
following loan programs, the screen price will be increased at time of
rate lock in:
. FIXED RATE PROGRESSIVE SERIES I - III AND PROGRESSIVE EXPRESS
LOANS - ONE-HALF OF ONE PERCENT (.50%);
. FIXED RATE PROGRESSIVE SERIES III+ - VI LOANS - FIVE-EIGHTHS OF
ONE PERCENT (.625%);
. TWO-YEAR ARM LOANS - ONE-EIGHTH OF ONE PERCENT (.125%); (ALL
PROGRAMS)
. SIX-MONTH ARM LOANS - FIVE-EIGHTHS OF ONE PERCENT (.625%); (ALL
PROGRAMS)
9a. PRICING INCENTIVE: BUYER AGREES TO PAY AN ADDITIONAL 5 BASIS POINT
-----------------
REBATE FOR LOANS LOCKED ON THE INTERNET, THROUGH DECEMBER 31ST, TO
QUALIFIED CUSTOMERS; LOANS MUST BE CLOSED WITHIN COMMITMENT PERIOD TO
QUALIFY FOR THIS BONUS.
9b. 60%LTV OR LESS PRICING ENHANCEMENT: FOR ALL PROGRAMS, LOANS LOCKED AND
----------------------------------
PURCHASED WITH LTVS OF 60% OR LESS, THE POSTED PRICE WILL BE INCREASED
BY 50 BASIS POINTS; THIS REBATE IS IN ADDITION TO ANY OTHER PRICING
INCENTIVES.
10. LOCK-IN PROCEDURES: Seller will reference this Master Commitment
------------------
number and specify the preferred pricing parameters at time of
commitment, and follow the standard Guide requirements for best
efforts lock-in. Bulk lock-ins are allowed for a
<PAGE>
minimum of $500,000 and are considered mandatory delivery, plus or
minus two percent (2%).
11. PRIVATE MORTGAGE INSURANCE: All Progressive loans with balances
--------------------------
exceeding the lesser of 80.01% of the purchase price or the appraised
value shall be insured by a mortgage insurance company acceptable to
Buyer. Said mortgage insurance coverage shall be in a form acceptable
to Buyer and must reduce exposure to at least seventy-five (75%)
percent of the original value on Progressive product. For loans
originated under Progressive Express, refer to Underwriting Guidelines
attached for specific mortgage coverage and companies.
12. DELIVERY RESTRICTIONS: Property types and program percentages are
---------------------
unrestricted except for the PROGRESSIVE program which will be subject
to delivery limitations set forth below:
DELIVERY PERCENTAGE LIMITATIONS:
-------------------------------
o LTV LIMITATIONS: Allow a maximum of 30% of the aggregate amount
of all Progressive delivered to exceed 80%LTV to a maximum of
95%LTV, with mortgages greater than 90% LTV not to exceed 20% of
the Commitment amount;
o REDUCED DOC: Not to exceed 40% of the aggregate amount of all
Progressive delivered;
o NOO and SECOND HOME: Not to exceed 15% of the aggregate amount of
all Progressive delivered;
o LOANS GREATER THAN $650,000: Not to exceed 20% of the aggregate
amount of all Progressive delivered;
o 2-4 UNIT PROPERTIES: Not to exceed 5% of the aggregate amount of
all Progressive delivered.
o NO INCOME/NO ASSET: Not to exceed 20% of the Commitment amount;
o 80% NO RATIO: Not to exceed 15% of the commitment amount;
o 100% FINANCING: Not to exceed 5% of the Commitment amount;
O PROGRESSIVE EXPRESS: NOT EXCEED 50% OF THE TOTAL COMMITMENT
AMOUNT;
O PROGRESSIVE EXPRESS GEOGRAPHIC LIMITATION: NOT MORE THAN 40% OF
THIS COMMITMENT MAY CONSIST OF LOANS LOCATED IN CALIFORNIA.
13. SERVICING: Loans shall be sold in their entirety to Buyer, with
---------
servicing rights of such loans released to Buyer upon purchase. All
servicing rights of loans purchased according to this Commitment shall
be included with this purchase and shall be considered transferred and
owned by Buyer as of the date of funding of each loan purchase and
Seller shall have no further rights or claims of any type as of the
date of each loan purchase.
<PAGE>
All servicing activities, records, funds and including, but not
limited to, any escrow and buydown balances, all funds held for the
benefit of these loans, and insurance records shall be transferred to
Buyer on the date of purchase. The cost for establishing new tax
service contracts will be at Seller's expense.
14. PAIR-OFF: Once loans are locked in for block commitments, a pair-off
--------
fee of one eighth of one percent (.125%), plus any market movement,
will be assessed on the difference, if any, between the Commitment
amount (minus delivery tolerance) and the actual amount delivered.
Seller will remit payment to Buyer for the amount of the pair-off fee
within ten (10) days from the expiration date of the commitment.
15. SALES AND FUNDING: Funding will occur within seventy two (72) hours of
-----------------
delivery, provided Seller delivers all required documents and
outstanding conditions, in addition to, the original promissory notes
evidencing the loans to be purchased, duly endorsed in favor of Buyer,
prior to the purchase date. Seller shall furnish copies of the
assignment of deed of trust or mortgage, in addition to other
documents outlined in the Guide.
In addition to any applicable pricing adjustments posted on applicable
Knight Ridder screens the following additional fees will be charged on
all loans purchased by Buyer:
<TABLE>
<S> <C>
Tax Service Fee - $59.00 or prevailing TransAmerica rate;
Administrative Fee - $125.00 per loan;
Prior Underwriting Fee - $75.00 per loan;
</TABLE>
16. GEOGRAPHICAL RESTRICTIONS: Unless otherwise stated, mortgages secured
-------------------------
by properties located in the continental United States and Hawaii are
eligible for purchase. Properties located in the state of Alabama and
Alaska are not eligible for purchase.
17. WARRANTIES AND REPRESENTATIONS: Seller, to induce Buyer to fund loans,
------------------------------
warrants, represents and covenants to Buyer that in connection with
each loan transaction:
Warranties within this agreement shall survive the transfer to and
purchase by Buyer and shall be deemed to successors and assigns. No
waiver of any default or breach by Seller shall be implied from any
omission by Buyer or its assigns to take any action on account of such
default if such default continues or is repeated. No written waiver
shall affect any breach other than the breach specified in such waiver
and only to the extent therein expressly stated. Any failure or delay
by Buyer or its assigns in exercising any rights, power, or remedy
hereunder shall not be deemed a waiver thereof.
<PAGE>
17a. PROGRESSIVE EXPRESS SELLER'S CERTIFICATION: Seller makes the following
------------------------------------------
certification to induce Buyer to commit to the purchase of Progressive
Express loans.
o The loan terms furnished in Progressive Express Application are
true, accurate, and complete.
o The information contained in Progressive Express Application was
obtained directly from the borrower by a full-time employee of
Seller or its duly authorized agent.
o The credit report submitted on the subject borrower, co-borrower,
if applicable, was ordered by Seller or its duly authorized agent
directly from the credit bureau which prepared the report was
received directly from said credit bureau.
18. INDEMNIFICATION: Without limiting any of Buyer's rights contained in
---------------
this agreement, Seller shall indemnify, defend and hold Buyer, its
successors and assigns, and its officers, agents, and employees
harmless including judgments, court costs, and actual credit reporting
agency costs, and attorney fees related to any breach of Seller
warranty, representation, or covenant contained in this agreement.
This indemnification shall survive the terms of this agreement for all
loans closed until the sooner of: (a) written release by Buyer and any
successor or assign: (b) payoff of the loan; or (c) the lapse of any
applicable statute of limitation.
19. MODIFICATION, WAIVER OR AMENDMENT: No modification or waiver of or
---------------------------------
amendment to any of the terms of this Commitment shall be effective
unless it is in writing signed by all parties hereto.
20. ASSIGNMENT: This Commitment is only assignable by Buyer. This
----------
Commitment is not intended to benefit any third party. Buyer may only
assign this Commitment to a party who has the ability to perform all
of Buyer's obligations under this Commitment.
21. APPLICABLE LAW: The Commitment shall be governed by and construed
--------------
under the laws of the State of California, to the jurisdiction of
whose courts the parties hereby agree to submit.
22. ENFORCEMENT: In the event of any action by Buyer or Seller to enforce
-----------
this Commitment, the prevailing party shall be entitled to receive, in
addition to all other relief, the costs thereof including, without
limitation, attorneys fees and court costs.
23. ENTIRE AGREEMENT: This Commitment and any agreement, document or
----------------
instrument attached hereto or referenced herein integrates all of the
terms and conditions mentioned herein or incidental hereto, and
supersedes all oral negotiations and prior writings regarding the
subject matter hereof.
<PAGE>
24. NOTICES: Buyer and Seller mutually agree that each of them will
-------
immediately upon demand by the other party, execute such documents or
perform such acts as may be required by such party to perform their
objectives under this agreement; and refusal to cooperate and execute
documents or perform acts required by this agreement shall be
considered a material breach hereof and shall suspend the performance
of non-breaching party frill and complete performance of the breaching
party.
All notices, requests, demands or other communications that are to be
given under this contract shall be in writing, addressed to the
appropriate parties and sent postage prepaid to the address below:
If to Buyer: ICI Funding Corporation
20371 Irvine Ave., Bldg. A
Santa Ana Heights, CA 92707
ATTN: Mary Glass
If to Seller: EMB MORTGAGE CORPORATION
575 Anton Blvd., Suite 200
Costa Mesa, CA 92626
ATTN: Russ Kidder
25. SEVERABILITY: Whenever possible, each provision of this Commitment
------------
shall be interpreted in such manner as to be valid and effective under
applicable law, but if any such provision shall be ineffective to the
extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of the
Commitment.
26. HEADINGS: The headings used herein are used for convenience only, are
--------
not part hereof and shall not be used in construing this Commitment.
27. COUNTERPARTS: This Commitment may be executed in any number of
------------
counterparts and all such counterparts taken together shall be deemed
to constitute on and the same instrument.
28. FINANCIAL CONDITION: Prior to, or concurrent with the execution of
-------------------
this Commitment, Seller agrees to submit a recent audited financial
statement. Unless otherwise waived by Buyer, Seller must have a
minimum audited net worth of at least $1,000,000 in order to deliver
loans under this Commitment.
<PAGE>
If the terms and conditions of the Commitment are acceptable to Seller, please
execute the acceptance where indicated on this Commitment and return one copy of
the signed agreement A signed copy hereof signed by Seller must be received by
Buyer or its authorized representative within five (5) business days of receipt
by Seller, or this agreement will be considered null and void.
The individuals executing this Commitment by their signatures do hereby certify
they are duly authorized to execute this document on behalf of the parties they
represent.
/s/ Mary C. Glass-Schannault
------------------------------------------
By: Mary C. Glass-Schannault
Senior Vice President
ICI FUNDING CORPORATION
/s/ James W. Dickinson
------------------------------------------
By: James W. Dickinson
Vice President
ICI FUNDING CORPORATION
We hereby acknowledge and accept all of the terms and conditions of this
Commitment for the sale of the Loans described herein:
Date: 9-12-97
--------------------------
/s/ Russ Kidder
------------------------------------------
By: Russ Kidder
Managing Director
EMB MORTGAGE CORPORATION
<PAGE>
EXHIBIT 10(O)
CONTIMORTGAGE CORPORATION
-------------------------
Wholesale Mortgage Program
MASTER AGREEMENT FOR SALE AND PURCHASE OF MORTGAGES
BY AND BETWEEN
CONTIMORTGAGE CORPORATION, BUYER
AND
EMB MORTGAGE CORPORATION SELLER
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
I. RECITALS 1
II. DEFINITIONS 1
(A) Agreement 1
(B) Loan to Value Ratio 1
(C) Loan 1
(D) "Marked-Up" Title Insurance Policy,
Binder or Certificate 1
(E) Mortgage 1
(F) Essential Mortgage File Documents 1
(G) Mortgage Loans 1
(H) Mortgaged Property or Subject Property 1
(I) Mortgagor or Borrower 1
(J) Note 1
(K) Purchase Price 2
(L) Related Assets 2
(M) Settlement Date 2
(N) Underwriting Guidelines/
Purchasing Guidelines 2
III. OFFER TO SELL AND ACCEPTANCE OF OFFER 2
(A) Offer 2
(B) Acceptance 2
IV. PURCHASE AND SALE OF LOANS 2
(A) Delivery of Loans 2
(B) Purchase and Sale 3
(C) Purchase and Price 3
(D) Payment of Purchase Price 3
(E) Premium Rebate 3
V. REPRESENTATIONS AND WARRANTIES OF THE SELLER 4
(A) Representations and Warranties of
the Seller - General 4
(B) Representations and Warranties of
the Seller As to Each Loan 4
VI. BREACH OF REPRESENTATION AND WARRANTIES 7
(A) Remedy For Breach 7
(B) Reassignments 7
(C) "Buy-Back Price" 7
(D) Definition of "Loss" 7
(E) Remedy For Non-Delivery of Documents 7
(F) Remedy For First Payment Default 7
(G) Remedy to Insure Accuracy Of Real
Estate Appraisals 7
VII. REPRESENTATIONS AND WARRANTIES OF THE BUYER 8
</TABLE>
<PAGE>
INDEX (CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
VII. INDEMNIFICATION 8
IX. RELATIONSHIP OF THE PARTIES 8
X. OPINION OF COUNSEL 9
XI. CLOSING DOCUMENTS 9
XII. MISCELLANEOUS 9
(A) Additional Covenants 9
(B) Survival of Covenants, Agreements,
Representations and Warranties,
Successors and Assigns 9
(C) Severability 9
(D) Attorney's Fees 9
(E) Waivers 10
(F) Notice 10
(G) Insurance Prepayment 10
(H) Assignment 10
(I) Captions 10
(J) Entire Agreement 10
(K) Governing Law 10
(L) Termination 10
(M) Arbitration, Jurisdiction and Venue 10
(N) Endorsements 11
</TABLE>
<PAGE>
MASTER AGREEMENT FOR SALE AND PURCHASE OF MORTGAGES
This Master Agreement for Sale and Purchase of Mortgages is made this
9th day of October, 1997, by and between ContiMortgage Corporation, located at
500 Enterprise Road, Horsham, PA 19044, a Corporation organized and existing
under the laws of the State of Delaware ("Buyer") and EMB Mortgage Corporation,
located at 3200 Bristol St, 8th Floor, Costa Mesa, CA 92626, a Corporation
organized and existing under the laws of California ("Seller").
I. RECITALS
WHEREAS, the Seller desires from time to time to offer for sale to the
Buyer and the Buyer desires from time to time to purchase from the Seller on the
terms and subject to the conditions set forth herein certain Loans owned by the
Seller evidenced by notes and secured by mortgage of the agreed-upon priority on
real property owned by the borrowers ("Borrowers").
WHEREAS, the Buyer and the Seller desire to enter into this agreement
to govern the sale and purchase of said Loans.
Now, therefore, in consideration of the above recitals and the mutual
covenants contained herein, the parties hereto hereby agree as follows:
II. DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(A) AGREEMENT: shall mean this Agreement as same may be amended and
supplemented from time to time. The parties agree that this Agreement shall be
used as the m???? sale and purchase agreement for those loans purchased by
Buyer from Seller in the future, unless otherwise agreed in writing by the
parties.
(B) LOAN TO VALUE RATIO: shall mean the sum of the original
principal amount of the Mortgage Loan and the outstanding principal balance of
the first Mortgage (the "First Mortgage"), if any, at the time of origination of
the Mortgage Loan divided by the lesser of the original purchase price of the
Mortgaged Property if Borrower purchased the Mortgaged Property within twelve
(12) months of the Mortgage Loan origination date or the appraised value of the
Mortgaged Property.
(C) LOAN: the Note, the related Mortgage and the Related Assets are
referred to as "Loan," and collectively as "Loans."
(D) "MARKED-UP" TITLE INSURANCE POLICY, BINDER OR CERTIFICATE: a
title insurance policy as further defined in Article V(B)9 of this Agreement in
which all liens, mortgages, claims, assessments, defects, encumbrances and other
exceptions affecting or against the Mortgaged Property have been removed and are
insured against in favor of Buyer by the title insurance company unless
otherwise agreed or approved by the Buyer in writing.
(E) MORTGAGE: the Note, bond, deed of trust, Mortgage, mortgage
warranty, extension agreement, assumption of indebteness, assignment and any
other documents constituting the basic instruments for real estate security on
real property owned by the Borrower in the state in which the Mortgaged Property
is located.
(F) ESSENTIAL MORTGAGE FILE DOCUMENTS: as to each Mortgage Loan, the
original of the Note, Mortgage, title insurance policy including endorsements or
"marked-up" title commitment, Related Assets and the additional documents as
described in Exhibit "A," attached hereto and made a part hereof, as applicable.
-----------
(G) MORTGAGE LOANS: the Loans indentified in the Purchase Schedule
(EXHIBIT "B") as from time to time are subject to this Agreement.
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(H) MORTGAGED PROPERTY OR SUBJECT PROPERTY: the residential real
property subject to the Mortgage which secures the Mortgage Loan.
(I) MORTGAGOR OR BORROWER: the obligor under a Mortgage Loan.
(J) NOTE: the original Note or bond or other evidence?? indebtedness
evidencing the indebtedness of the Borrower/Mortgagor under a Mortgage Loan.
-1-
<PAGE>
(K) PURCHASE PRICE: the purchase price for the Loan(s) described on
each Purchase Schedule shall be an amount as of the Settlement Date equal to the
sum of the: (1) unpaid principal balances of the Notes(s); (2) all interest
accrued (up to but not including the Settlement Date) but unpaid on the Note(s)
(prorated on a 30-day month - 360-day year); and (3) any premiums due Seller, if
applicable, in accordance with the Approval Advice or Purchase Schedule; (4)
less any discount due Buyer, if applicable, in accordance with the Approval
Advice or Purchase Schedule; and (5) less the fee for recordation of
assignments, if applicable.
(L) RELATED ASSETS: the documents as further defined in Article IV
(A)(iv) of this Agreement.
(M) SETTLEMENT DATE: the date of the funding or payment of Purchase
Price by the Buyer for Loans purchased pursuant to this Agreement. Each
Settlement shall be held at the offices of ContiMortgage Corporation, 500
Enterprise Road, Horsham, PA 19044.
(N) UNDERWRITING GUIDELINES/PURCHASING GUIDELINES EXHIBIT "C"
-----------
attached hereto and made a part hereof as may from time to time be amended by
Buyer.
III. OFFER TO SELL AND ACCEPTANCE OF OFFER
(A) OFFER. The Seller may offer from time to time to submit to the
Buyer a list of the Loans, along with the Essential Mortgage File Documents, as
defined herein, for each of the Loans, for the Buyer's review. The Buyer shall
then deliver to the Seller a Purchase Schedule on which the Buyer has indicated
which Loans, if any, the Buyer is offering to purchase from the Seller and the
Purchase Price for the Loans Buyer is willing to purchase.
(B) ACCEPTANCE. The Seller shall endorse the Notes and Mortgages
evidencing the Loans on which the Seller agrees to accept the Buyer's offer to
purchase. Such endorsement shall constitute the Seller's acceptance of the
Buyer's offer to purchase the indicated Loans pursuant to the terms and
conditions of this Agreement.
On occasion, Buyer may issue to Seller a written Approval Advice in
the form attached hereto, made a part hereto and marked EXHIBIT"D" to cover a
----------
specific Loan purchase by Buyer hereunder which is approved by Buyer in advance
of said specific Loan being made by Seller. Any purchase made hereunder that is
subject to an Approval Advice shall be governed first by the terms of such
Approval Advice and then by the terms of this Agreement, and to the extent of a
conflict between the Approval Advice and this Agreement, the Approval Advice
shall govern for that purchase and only that purchase.
Buyer shall have the absolute and sole discretion and option to agree
or decline to purchase any Loan(s) submitted by Seller for review.
IV. PURCHASE AND SALE OF LOANS
(A) DELIVERY OF LOANS.
-----------------
On or before the business day immediately preceding each Settlement
Date, the Seller shall deliver to the Buyer the following for each Loan
purchased:
(i) Those Loans described by the Buyer on each Purchase Schedule
which are purchased by Buyer Pursuant to this Agreement.
(ii) The agreed-upon priority liens and/or Mortgages on Subject
Property.
(iii) The Note(s) and the Mortgage(s) endorsed by an authorized
Officer of Seller to the Buyer pursuant to the Language set forth on Exhibit "E"
-----------
attached hereto and made a part hereof together with an executed individual
assignment to the Buyer, in recordable form and originals of all intervening
assignments, if any, of the Seller's beneficial interest in the Mortgage,
showing a complete chain of title from origination to the Seller, including
warehousing assignment, with evidence of recording thereon.
(iv) Any and all documents, instruments, collateral agreements,
and assignments and endorsements for all documents, instruments and collateral
agreements referred to in the Notes and/or Mortgages or related thereto,
including, without limitation, current insurance policies (private mortgage
insurance, if applicable; flood insurance, if applicable; hazard insurance;
title insurance; and other applicable insurance policies) covering the Subject
Property or relating to the Notes and all files, books, papers, ledger cards,
reports and records including, without limitation, loan applications, Borrower
financial statements, separate assignment of rents, if any, credit reports and
appraisals, relating to the Loans (the "Related Assets"). In all cases, the
Related Assets shall be the original documents.
(v) The Essential Mortgage File Document List, including all
writings evidencing the Loan(s) purchased by Buyer. In all cases, these
documents shall be the original documents.
-2-
<PAGE>
(vi) In the event that Seller cannot deliver to Buyer a ??ily
recorded assignment of Mortgage or any other document required to be recorded
under this Agreement on the Settlement Date solely because of a delay caused by
the public recording office when such document(s) had been delivered for
recordation, Seller shall deliver to the Buyer a certified copy of each such
document(s) with a statement thereon signed by an Officer of the Seller
certifying each to be a true and correct copy of document(s) delivered to the
appropriate public recording official for recordation. Seller shall deliver to
Buyer such recorded document(s) with evidence of recording indicated thereon no
later than 15 days after Seller receives such document, but in any event, no
later than 120 days from the Settlement Date.
(B) PURCHASE AND SALE.
-----------------
On each Settlement Date hereunder, Seller shall sell, assign,
transfer, convey and deliver to Buyer all of its right, title and interest in
and to the Loans, assets and documents as more fully enumerated and set forth in
Article IV(A)(i) through (vi) inclusive, which is incorporated herein by
reference.
(C) PURCHASE PRICE. The Purchase Price to the Loan described on each
--------------
Purchase Schedule shall be an amount as defined in Article 11(K) above. The
Purchase Price shall be payable as set forth in Article IV(D) below.
(D) PAYMENT OF PURCHASE PRICE. On each Settlement Date, the Purchase
-------------------------
Price shall be paid as follows: The Buyer shall deposit funds by wire to the
Seller's bank as outlined on the Wire Transfer Authorization (EXHIBIT "F").
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(E) PREMIUM REBATE.
--------------
(i) In the event that a premium is paid by the Buyer to the
Seller on a Loan and such Loan is a fixed rate Loan secured by residential real
property located in any state or an adjustable rate Loan secured by residential
real property located in any state, except in Illinois, Indiana, Michigan, New
Jersey and Pennsylvania, and said Loan is prepaid in full by the Borrower, other
than by a refinancing by the Buyer or any of its subsidiaries or affiliates,
within twelve (12) months of Settlement Date the Seller shall, upon demand by
the Buyer, refund to the Buyer the premium paid by the Buyer to the Seller as
follows: if prepayment in full is within one (1) month of the Settlement Date,
12/12ths of the premium shall be refunded; if prepayment in full is within two
(2) months of the Settlement Date, 11/12ths of the premium shall be refunded; if
prepayment in full is within three (3) months of the Settlement Date, 10/12ths
of the premium shall be refunded; if prepayment in full is within four (4)
months of the Settlement Date, 9/12ths of the premium shall be refunded; if
prepayment in full is within five (5) months of the Settlement Date, 8/12ths of
the premium shall be refunded; if prepayment in full is within six (6) months of
the Settlement Date, 7/12ths of the premium shall be refunded; if prepayment in
full is within seven (7) months of the Settlement Date, 6/12ths of the premium
shall be refunded; if prepayment in full is within (8) months of the Settlement
Date 5/12ths of the premium shall be refunded; if prepayment in full is within
nine (9) months of the Settlement Date, 4/12ths of the premium shall be
refunded; if prepayment in full is within 10 months of the Settlement Date,
3/12ths of the premium shall be refunded; if prepayment in full is within eleven
(11) months of the Settlement Date, 2/12ths of the premium shall be refunded; if
prepayment in full is within twelve (12) months of the Settlement Date, 1/12th
of the premium shall be refunded. In the event any fixed rate Loan is prepaid in
full later than twelve (12) months from the Settlement Date of such Loan, no
refund shall be due. In the event the Note carries a prepayment penalty, the
Buyer agrees first to recapture the premium rebate from the proceeds of the
prepayment penalty and then from the Seller, if there is any deficient balance
according to the refund calculation specified above.
(ii) In the event that a premium is paid by the Buyer to the
Seller on a Loan and such Loan is an adjustable rate Loan secured by real
property located in the State of Illinois, Indiana, Michigan, New Jersey or
Pennsylvania and is prepaid in full by the Borrower, other than by a refinancing
by the Buyer or any of its subsidiaries or affiliates, within eighteen (18)
months of the Settlement Date, the Seller shall, upon demand by the Buyer,
refund to the Buyer the premium paid by the Seller as follows: if prepayment in
full is within one (1) month of the Settlement Date, 18/18ths of the premium
shall be refunded; if prepayment in full is within two (2) months of the
Settlement Date, 17/18ths of the premium shall be refunded; if prepayment in
full is within three (3) months of the Settlement Date, 16/18ths of the premium
shall be refunded; if prepayment in full is within four (4) months of the
Settlement Date, 15/18ths of the premium shall be refunded; if prepayment in
full is within (5) months of the Settlement Date, 14/18ths of the premium shall
be refunded; if prepayment in full is within six (6) months of the Settlement
Date 13/18ths of the premium shall be refunded; if prepayment in full is within
seven (7) months of the Settlement Date 12/18ths of the premium shall be
refunded; if prepayment in full is within eight (8) months of the Settlement
Date, 11/18ths of the premium shall be refunded; if prepayment in full is within
nine (9) months of the Settlement Date, 10/18ths of the premium shall be
refunded; if prepayment in full is within ten (10) months of the Settlement Date
9/18ths of the premium shall be refunded; if prepayment in full is within eleven
(11) months of the Settlement Date, 8/18ths of the premium shall be refunded; if
prepayment in full is within twelve (12) months of the Settlement Date, 7/18ths
of the premium shall be refunded; if prepayment in full is within thirteen (13)
months of the Settlement Date, 6/18ths of the premium shall be refunded; if
prepayment in full is within fourteen (14) months of the Settlement Date,
5/18ths of the premium shall be refunded; if prepayment in full is within
fifteen (15) month of the Settlement Date, 4/18ths of the premium shall be
refunded; if prepayment in full is within sixteen (16) months of the Settlement
Date, 3/18ths of the premium shall be refunded; if prepayment in full is within
seventeen (17) months of the Settlement Date, 2/18ths of the premium shall be
refunded; if prepayment in full is within eighteen (18) months of the Settlement
Date, 1/18th of
<PAGE>
the premium shall be refunded. In the event any adjustable rate Loan is prepaid
in full later than eighteen (18) months from the Settlement Date of such Loan,
no refund shall be due. In the event the Note carries a prepayment penalty, the
Buyer agrees first to recapture the Premimum Rebate from the proceeds of the
prepayment penalty and then from the Seller, if there is any deficient balance
according to the refund calculation specified above.
V. REPRESENTATIONS AND WARRANTIES OF THE SELLER
(A) REPRESENTATIONS AND WARRANTIES OF THE SELLER - GENERAL. It is
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understood and agreed by Seller and Buyer that as a material inducement to Buyer
to enter into this Agreement the Seller hereby represents and warrants to the
Buyer as follows:
1. The Seller is an organization as set forth in the
introductory paragraph of this Agreement and is duly organized, validly existing
and in good standing under the laws of the state of its incorporation, and is
duly qualified as a foreign corporation in all jurisdictions therein the
character of the property owned or leased or the nature of the business
transacted by it makes qualification as a foreign corporation necessary.
2. The execution and delivery of the Agreement by the Seller
and the performance by the Seller of the obligations to be performed by it
hereunder have been duly authorized by all necessary corporate or other similar
action. Prior to the first Settlement Date, the Seller shall deliver to the
Buyer certified copies of relevant corporate or similar resolutions and a good
standing certificate for the state of its incorporation and, as requested by
Buyer, for each state in which Seller is registered to do business. It is within
Buyer's discretion to periodically request good standing certificates for all
states in which Seller is registered to do business.
3. The execution and delivery of this Agreement by the Seller
and the performance by the Seller of the obligations to be performed by it
hereunder did not, and will not, violate any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
presently in effect having applicability to the Seller or to the charter or
bylaws of the Seller. All parties which have had any interest in the Mortgages,
whether as mortgagee, assignee (other than Buyer or assignee of Buyer) or pledge
are (or during the period in which they held and disposed of such interest, ??)
in compliance with all applicable licensing requirements of the federal, state,
and local government wherein the Subject Property is located.
4. The execution and delivery of this Agreement by the Seller
and the performance by the Seller of the obligations to be performed by it
hereunder did not and will not result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other agreement, lease or
instrument to which the Seller is a party or by which it or its properties may
be bound or affected.
5. This Agreement constitutes, when duly executed and delivered
by the Seller, a legal, valid and binding obligation of the Seller enforceable
against the Seller according to its terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, receivership, moratorium, or
similar laws affecting creditors' rights in general, including equitable ???.
6. There are no actions, suits or proceedings pending or, to
the knowledge of the Seller, threatened against or affecting the Seller or the
properties of the Seller before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
which, if determined adversely to the Seller, would have a material adverse
effect on the financial condition, properties or operation of the Seller. Any
consent by the Buyer to purchase Loans pursuant to this Agreement shall
automatically terminate if: (a)-a decree or order of a court or agency
supervisory authority having jurisdiction for the appointment of a conservator
or receiver or liquidator in any insolvency, readjustment of debt, marshalling
of assets and liabilities, bankruptcy proceeding or any similar proceedings, or
for the winding up or liquidation of its affairs, shall have been entered
against the Seller or a Borrower and such decree or order shall have remained in
force undischarged or unstayed for a period of 60 days; or (b) the Seller or a
Borrower shall consent to the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets and
liabilities, bankruptcy or similar proceedings relating to the Seller or
relating to all or substantially all of its property; or (c) the Seller or
Borrower shall admit in writing its inability to pay its debts as they become
due, file a petition to take advantage of any applicable insolvency,
reorganization or bankruptcy statute, make and assignment for the benefit of its
creditors, or voluntarily suspend payment of its obligations.
(B) REPRESENTATIONS AND WARRANTIES OF THE SELLER AS TO EACH LOAN. It
------------------------------------------------------------
is understood and agreed by Seller and Buyer that as a material inducement to
Buyer to enter into this Agreement the Seller hereby represents and warrants to
the Buyer as of each Settlement Date with respect to each Loan purchased:
1. The Seller is a holder-in-due-course of each Note within the
meaning of the Uniform Commercial Code and is the sole owner of the Loan and has
the right to assign and transfer the Loan to the Buyer. The Seller has not sold,
assigned or otherwise transferred any right or interest in or to the Loan and
has not pledged the Loan as collateral for any loan or obligation of Seller or
other purpose. The assignment of the Loan by the Seller to Buyer validly
transfers such Loan to Buyer free and clear of any pledges, liens, claims,
encumbrances, Mortgages, charges, exceptions and/or security interests.
2. Except as expressly disclosed to and agreed to by the Buyer
in writing, each Loan conforms to: (a) Underwriting Guidelines of Buyer, and (b)
the conditions of the Approval Advice (if applicable).
<PAGE>
3. All information set forth in any purchase Schedule is true
and correct in all respects, and all other information furnished to Buyer by
Seller with respect to the Loan(s) purchased is true and correct as of the
Settlement Date.
4. Each Note and Mortgage and the related Assets are in every
respect genuine, are the valid instrument they purport on their face to be, are
the legal, valid, binding and enforceable obligation of the Borrower thereunder
and not subject to any discount, allowance, setoff, counterclaim, presently
pending bankruptcy or other defenses; none of the Notes, Mortgages, or Related
Assets are forged or have affixed thereto any unauthorized signature or have
been entered into by any persons without the required legal capacity; and no
foreclosure (including any non-judicial foreclosure) or any other legal action
has been brought by the Seller or any senior lienholder in connection therewith.
5. No instruments other than those delivered herewith are
required under applicable law to evidence the indebtedness represented by the
Loan(s) or ??? perfect the lien of the Mortgage(s).
6. Except as has been disclosed to and agreed to by the Buyer
in writing, there is no agreement with the Borrower regarding any variation of
the interest rate and schedules of payment (except as described in the Note and
Mortgage) or other terms and conditions of the Loan, no Borrower has been
released from liability on the Note, and no property has been released from the
Mortgage. If the Loan is a variable rate loan, the Seller represents and
warrants as of each Settlement Date that all applicable notices required by law
or regulation have been provided to the Borrower and that the right to future
changes in the interest rate and payment schedules has not been waived by the
Seller or any previous holder of the Loan.
7. The Loan is secured by a valid Mortgage, of the agreed-upon
priority, on real property, and such Mortgage has been properly received by the
appropriate public recording official to be filed, recorded or otherwise
perfected in due course in accordance with applicable law in the appropriate
jurisdiction.
8. There are no violations of any applicable federal or state
law or regulation, including, without limitation, Fair Credit Reporting Act and
Regulations, the Federal Truth-in-Lending Act and Regulation Z (including but
not limited to Section 32), the Federal Equal Credit Opportunity Act and
Regulation B, the Federal Real Estate Settlement Procedures Act and Regulations,
the Federal Debt Collection Practices Act, the Home Mortgage Disclosure Act, and
any federal or state usury laws and regulations. All disclosures required by
law, federal, state or local, were properly made by the Seller prior to the
closing of the Loan.
9. The Seller holds a marked-up title policy or a title
insurance binder or title certificate which is in full force and effect; which
has an insurance ?? it at least as great as the outstanding principal balance of
the Loan; which names the Seller, its successors and assigns as the insured
party; and which is issued by a title insurer which has been approved by the
Buyer in writing and is qualified to do business in the jurisdiction where the
Subject Property is located. Said policy shall:
(i) insure the absence of any lien of taxes and other
assessments;
(ii) disclose whether all taxes and other assessments due
as of the date of the policy have been paid in full; and
(iii) disclose all other matters to which like properties
are commonly subject.
If the Buyer purchases a Loan having relied on a marked-up
title insurance binder or title certificate rather than a title insurance
policy, the Seller shall have thirty (30) days to deliver to the Buyer the title
insurance policy.
10. As of the Settlement Date the Seller has transferred to
Buyer all of its right, title and interest in the Note(s), Mortgage(s) and
Related Assets for each Loan purchased free and clear of any pledge, liens,
claims, encumbrances, Mortgages, charges, exceptions or security interests other
than as is disclosed in the title insurance policy to each Loan, together with
an individual flood insurance policy (to the extent required by the Flood
Disaster Protection Act) and an individual ????? hazard insurance policy
(including fire and extended coverage and other matters as are customary in the
area of the Subject Property), or a blanket policy in lieu thereof, or a
certificate if the Buyer agrees in writing to except a certificate, insuring the
Subject Property, with a loss payable clause in favor of the Seller, its
successors and assigns in an amount equal to the lower of: (a) the replacement
value of the Subject Property, or (b) the unpaid principal balance of the Loan
and the senior mortgage deed(s) of trust loan.
11. The Note and Mortgage contains customary, valid, legal and
enforceable provisions such as to render the rights and remedies of the holder
thereof adequate for the realization against the Subject Property of the
benefits of the security created thereby.
12. The proceeds of the Loan have been fully disbursed and any
and all requirements as to completion of on-site and off-site improvements and
disbursement of any escrow funds therefore have been complied with.
<PAGE>
13. There are no mechanic's liens or similar liens or claims which
have been filed for work, labor or material affecting the Subject Property which
are or may be liens prior to or equal with the lien of the Mortgage and senior
Mortgage(s).
14. The Subject Property is free of material damage and waste and is
in good repair and there is no proceeding pending or threatened for the total or
partial condemnation of the Subject Property, and the Subject Property is free
and clear of all hazardous material.
15. All matured obligations pursuant to the Note and Mortgage have
been paid or performed and the Seller has not waived any defaults, breach,
violation or event of acceleration.
16. The Seller has no knowledge of any fact as to such Loan which it
has failed to disclose which would materially and adversely affect the value or
marketability of such Loans.
17. The Seller has no knowledge of any impediments to title that
adversely affect the value, enjoyment or marketability of the Subject Property.
18. Where required by state law, the Seller has filed for record a
request for notice of any action by a senior lienholder under a senior lien, and
the Seller has notified any superior lienholder in writing of the existence of
the Loan and requested notification of any action to be taken against the
Borrower by the superior lienholder. The Seller shall, upon request of the
Buyer, cooperate in recording a new request for action in favor of the Buyer and
in providing superior lienholders with written requests for notification to the
Buyer of action against the Borrower.
19. There is no default, breach, violation or event of acceleration
existing under any senior Mortgage which, with notice, and the expiration of any
grace or cure period, would constitute a default, breach, violation or event of
acceleration.
20. Each Note and Mortgage contains a provision for the acceleration
of the payment of the unpaid principal balance of the Mortgage Loan in the event
the related Mortgaged Property is sold without the prior consent of the
mortgagee thereunder.
21. All real estate appraisals made in the connection with each Loan
shall have been performed in accordance with industry standards in the
appraising industry in the area where the appraised property is located. Any
variances ascertained pursuant to Article VI(G) of this Agreement greater than
ten (10%) percent shall constitute conclusive evidence of a breach of this
warranty.
22. To the best of Seller's knowledge no hazardous or toxic materials
or wastes or products regulated by any law or ordinance or asbestos or asbestos
products or materials or polychlorinated biphenyls or urea formaidehyde
insulation have been used or employed in the construction, use or maintenance of
the Subject Property or have ever been stored, treated at or disposed of on the
Subject Property.
23. To the best of Seller's knowledge there has not occurred nor has
any person or entity alleged that there has occurred, upon the Subject Property
any spillage, leakage, discharge or release into the air, soil or groundwater of
any hazardous material or regulated wastes.
24. The Seller has not, in connection with each Loan purchased by
Buyer, taken any action which might result in a claim against the Buyer or an
obligation by the Buyer to refund unearned finance charges, credit life
insurance premiums or any other fees in respect to the transactions between
Buyer and Seller as described in this Agreement. The Seller agrees to indemnify
and hold the Buyer harmless from and against any claims, liabilities, damages or
costs (including reasonable attorney fees) relating to any Borrower, insurer or
other party who claims to be due a refund of finance charges or insurance
premiums or any other fees in connection with transactions contemplated by this
Agreement.
25. The Seller has not, in connection with each Loan purchased by
Buyer, incurred any obligation, made any commitment or taken any action which
might result in a claim against the Buyer or an obligation by the Buyer to pay a
sales brokerage commission, finder's fee or similar fee in respect to the
transactions between Buyer and Seller as described in this Agreement. The Seller
agrees to indemnify and hold the Buyer harmless from and against any claims,
liabilities, damages or costs (including reasonable attorney fees) relating to
any broker, agent or finder or other person, who shall claim to have dealt on
behalf of the Seller in connection with the transactions contemplated by this
Agreement.
26. Seller agrees that for the time period of 36 months beginning
from the applicable settlement date, not to take any action to solicit Borrowers
individually in order to effect the refinancing of any Loans previously
purchased by Buyer from Seller. In the event a Borrower elects to refinance with
Seller a Loan purchased by Buyer from Seller, and such Loan is currently owned
or serviced by Buyer or Buyer otherwise retains a financial interest in the
Loan, Buyer will have the right of first refusal on the purchase of the
refinancing.
-6-
<PAGE>
VI. BREACH OF REPRESENTATION AND WARRANTIES
(A) REMEDY FOR BREACH. In addition to any rights or remedies the
-----------------
Buyer has at law or in equity, if at any time there is a breach of any
representation or warranty set forth herein by Seller, the Seller shall upon
demand of the Buyer and at the sole option and absolute discretion of Buyer: (1)
repurchase the Loan affected for the Buy-Back Price within ten (10) days of
notification; or (2) if the Loan(s) has been sold by Buyer or the Subject
Property has been liquidated or sold by Buyer, the Seller shall, within ten (10)
days of notification, pay the Buyer the amount of loss, (as defined in Article
VI(D) below).
(B) REASSIGNMENTS. Upon receipt of the Buy-Back Price, in full, in
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immediately available funds, the Buyer shall reassign the Loan affected and any
right it may have in the relevant Subject Property to the Seller free and clear
of all liens, encumbrances, claims, or interest of any person or entity claiming
by, through, or under the Buyer without recourse and shall execute and deliver
to the Seller in recordable form an assignment of the Buyer's beneficial
interest in the affected Mortgage, as well as other documents necessary to
reflect the reassignment of any title protection and insurance policies.
(C) "BUY-BACK PRICE". The term "Buy-Back Price" shall mean the sum
----------------
total of: (1) the outstanding principal balance of the Loan, with accrued
interest thereon through the date the Loan is repurchased by Seller; (2) all
advances made by Buyer and all charges due from the Borrower; (3) the total
amount, including accrued interest and other expenses paid by the Buyer to any
senior lienholders, if any, to secure a priority lien position; (4) all
reasonable and necessary expenses, losses and damages paid or incurred by the
Buyer in connection with the Loan or an investigation of said Loan and/or the
related collateral, including, but not limited to, property taxes, maintenance
costs, interest expense, insurance, appraisals, advertising, sales commissions,
reasonable attorney fees, expenses and costs, fines and penalties; and (5)
rebate of premium due Buyer, if applicable.
(D) DEFINITION OF "LOSS": The term "Loss" shall mean the negative
--------------------
result, if any, of the following calculations: (a) the sum total of: (i) the
outstanding principal balance of the Loan, with accrued interest thereon through
the date the Loan is sold or date the collateral is liquidated; (ii) all
advances by Buyer and all charges due from the Borrower; (iii) the total amount
paid by the Buyer to any senior lienholders, if any, to secure a first lien
position; (iv) accrued interest on all Mortgage Loans purchased from senior
lienholders from the date such Mortgage Loans were purchased through the date
the Loan is sold or the date the collateral is liquidated; and (v) all other
reasonable and necessary expenses, losses and damages incurred by and/or paid by
the Buyer in connection with the Loan or an investigation of said Loan or the
sale or liquidation of the Loan and/or the related collateral, including, but
not limited to, reasonable attorney fees, expenses and costs, property taxes,
maintenance costs, insurance, appraisals, advertising, sales commissions, fines
and penalties; less the (b) net proceeds from the sale of the Loan or the sale
or liquidation of the Subject Property or the collateral.
(E) REMEDY FOR NON-DELIVERY OF DOCUMENTS. However, anything to the
------------------------------------
contrary notwithstanding, in the event that the Seller is required to deliver to
the Buyer any documents related to a purchased Loan and the Seller fails to
deliver such document in the proper form on the date or within the time period
specified by the controlling section of this Agreement, Buyer shall notify the
Seller of the breach, and the Seller shall have thirty (30) days from the date
of notice to cure the breach. If the Seller has not cured the breach within the
thirty (30) day cure period, the Seller shall immediately repurchase the Loan
upon Buyer's demand. The Buy-Back Price shall be determined in accordance with
Article VI(C). Any Loan returned by the Buyer pursuant to this paragraph shall
be without recourse, representation or warranty.
(F) REMEDY FOR FIRST PAYMENT DEFAULT. However, anything to the
--------------------------------
contrary notwithstanding, in the event the Borrower fails to make the first
payment due to the Buyer within thirty (30) days of the payment due date,
regardless of whether such payment is subsequently paid by the Borrower, the
Buyer, at its sole and absolute discretion, shall have the right to have Seller
repurchase said Loan(s) at the Buy-Back Price.
(G) REMEDY TO INSURE ACCURACY OF REAL ESTATE APPRAISALS. Buyer may,
---------------------------------------------------
at its own expense, in order to verify the accuracy of real property appraisals
prepared for Seller, order a reappraisal of the property secured by a Mortgage.
If the reappraisal obtained by Buyer indicate a fair market value which is more
than ten (10%) percent less than the original appraisal value, then upon receipt
by Seller from Buyer of a signed copy of the reappraisal, Seller shall
repurchase the Loan at the Buy-Back price (as defined in Article VI(C), above)
and reimburse Buyer for the cost of the appraisal subject to the following. If
seller disputes the validity of the reappraisal prepared by Buyer's appraiser,
Seller may at its own expense, request Buyer to obtain a third appraisal, and
only if such third appraisal is also more than (10%) percent less than the
original appraisal value shall the Seller be required to repurchase the Loan at
the Buy-Back Price. Buyer shall choose the appraiser for the third appraisal
with Seller's approval, which shall not be unreasonably withheld, but such
appraiser for the third appraisal with Seller's approval, which shall not be
unreasonably withheld, but such appraiser must posses the minimum qualifications
specified in Buyer's Underwriting Guidelines. The appraisal must be performed in
accordance with industry standards for the appraising industry in the area in
which the property is located, and the appraiser must be independent with
respect to both parties unless otherwise agreed to by the parties. In
determining the appropriate appraisal value, the review appraiser must determine
the appraised value as of the original appraisal date using comparable sales
that were available as of the date of the original appraisal.
However, anything to the contrary notwithstanding, the Buyer reserves
the sole right not to request the Seller to repurchase the Loan should the
reappraisal cause the combined loan-to-value not to exceed the maximum allowable
combined loan-to-value of the loan class under which the loan was purchased.
<PAGE>
VII. REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Seller as follows:
(A) The Buyer is an organization as set forth in the introductory
paragraphs and is duly organized, validly existing and in good standing under
laws applicable to its organization's existence.
(B) The execution and delivery of this Agreement by the Buyer and the
performance by the Buyer of the obligations by it to be performed hereunder have
been duly authorized by all necessary corporate resolutions.
(c) The execution and delivery of this Agreement by the Buyer and the
performance by the Buyer of the obligations by it to be performed hereunder do
not, and will not, violate any provision of any law, rule, regulations, order,
writ, judgment, injunction, decree, determination or award presently in effect
having applicability to the Buyer or to the charter or bylaws of the Buyer.
(D) The execution and delivery of this Agreement by the Buyer and
the performance by the Buyer of the obligations by it to be performed hereunder
do not and will not result in a breach of or constitute a default under any
indenture or loan or credit agreement or any other agreement, lease or
instrument to which the Buyer is a party or by which it or its properties may be
bound or affected.
(E) This Agreement constitutes, when duly executed and delivered by
the Buyer, a legal, valid and binding obligation of the Buyer enforceable
against the Buyer according to its terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, receivership, moratorium or
similar laws affecting creditors' rights in general, including equitable
remedies.
(F) There are no actions, suits or proceedings pending or, to the
knowledge of the Buyer, threatened against or affecting the Buyer or the
properties of the Buyer before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, which if
determined adversely to the Buyer, would have a material adverse effect on the
financial condition, properties or operation of the Buyer.
(G) Buyer has the authority and legal right to make, deliver and
perform this Agreement and all transactions contemplated hereunder. No consent
of any other party and no consent, license, approval or authorization of, or
registration, or declaration with, any governmental authority, bureau or agency
is required in connection with the execution, delivery, validity or
enforceability of this Agreement or purchase of any Loan, which consent,
license, approval, authorization, registration or declaration has not been
obtained. Buyer shall make available to Seller copies of any required license
upon Seller's request.
VIII. INDEMNIFICATION
(A) Seller agrees to protect, indemnify, and hold Buyer and its
employees, officers, and directors, harmless against, and in respect of, any and
all losses, liabilities, costs and expenses (including reasonable attorney's
fees), judgments, damages, claims, counterclaims, demands, actions or
proceedings, by whomsoever asserted, including but not limited to, the
Borrowers, against any person or persons who prosecute or defend any actions or
proceedings as representatives of or on behalf of a class or interested group,
or any governmental instrumentality, body, agency, department or commission, or
any administrative body or agency having jurisdiction pursuant to any applicable
statute, rule, regulation, order or decree, or the settlement or compromise of
any of the foregoing, providing, however, any of the foregoing arises out of, is
connected with or results from any breach of representations, covenants or
warranties made by Seller in relation to the Loans sold to Buyer hereunder.
(B) The waiver of any breach, term, provision or condition of this
Agreement shall not be construed to be a waiver of any other or subsequent
breach, term, provision or condition. All remedies afforded by this Agreement
for a breach hereof shall be cumulative; that is, in addition to all other
remedies provided for herein or at law or in equity.
(C) Provided further, in the event of any legal action, including
counterclaims, wherein the claim is based upon alleged facts that would
constitute a breach of any one or more of the warranties, covenants, and
representations made or assumed by Seller under the terms hereof, Seller shall
thereupon, at Buyer's option, repurchase without recourse such Loan at the Buy-
Back Price.
(D) The indemnification contained in (A) and (B) above is applicable
to any servicing of the Loans purchased hereunder which is performed by the
Seller.
IX. RELATIONSHIP OF THE PARTIES
It is agreed that the Seller and the Buyer are not partners or joint
venturers and that the Seller is not to act as an agent for the Buyer in
originating, administering or collecting any Loan, but shall have the status of
and shall act in all matters hereunder as an independent contractor.
-8-
<PAGE>
X. OPINION OF COUNSEL
The Seller shall deliver to the Buyer in form and substance
satisfactory to the Buyer and its counsel on or before the first Settlement Date
hereunder, an opinion of the Seller's independent outside counsel pursuant to
EXHIBIT "G," attached hereto and made a part hereof, opining on the provisions
- ----------
of Articles V(A)1 through V(A)6 inclusive and the Opinion of Counsel will cover
all Loans purchased by Buyer under this Agreement unless the opinion is
rescinded or revoked by the Law Firm rendering the Opinion.
XI. CLOSING DOCUMENTS
The Seller shall have delivered to Buyer an officer's certificate,
attested to by the Secretary of the Seller, stating the names and showing the
facsimile signatures of the officers of Seller authorized to execute and deliver
this Agreement; endorse Notes(s), Mortgage(s), and Assignment(s); and authorize
the bank accounts for Buyer to utilize for funding Loans (EXHIBIT "H"). Seller
-----------
shall deliver to Buyer a good standing certificate for its State of
Incorporation. It is within Buyer's discretion to periodically request good
standing certificates for all states in which Seller is registered to do
business. In addition, Seller shall provide Buyer copies of all applicable
lending licenses.
XII. MISCELLANEOUS
(A) ADDITIONAL COVENANTS.
--------------------
1. Each party shall, from time to time, execute and deliver or
cause to be executed and delivered, such additional instruments, assignments,
endorsements, papers and documents as the other party may at any time reasonably
request for the purpose of carrying out of this Agreement and the transfers
provided for herein.
2. The Seller shall, upon request of the Buyer, sign a letter,
in form to be approved by the Buyer and in conformity with the terms and
conditions hereof, addressed to all Borrowers on the Loans, announcing the sale
evidenced hereby and instructing such Borrowers to recognize the Buyer as the
Seller's successor in interest to such Loans.
3. After any Settlement Date hereunder, the Seller will hold in
trust for the Buyer all sums received by the Seller from Borrower(s) on any Loan
purchased pursuant to this Agreement and pay them to the Buyer within three (3)
business days of the receipt of those sums.
4. Any and all decisions made by Buyer in good faith to take
action or to not take action relative to a Loan, including, but not limited to,
the sale or liquidation of a Loan, Subject Property or collateral shall be final
and conclusively binding upon Seller in the event Seller does not repurchase a
Loan within ten (10) days of notification by Buyer pursuant to Section VI of
this Agreement.
5. In order to enforce Buyer's rights under this Agreement,
Seller shall, upon the request of Buyer or its assigns, do and perform or cause
to be done and performed, every reasonable act and thing necessary or advisable
to put Buyer or its assigns in position to enforce the payment of the Loans and
to carry out the intent of this Agreement, including the execution of and, if
necessary, the recordation of additional documents including separate
endorsements and assignments upon request of Buyer. In addition, Seller hereby
irrevocably appoints any officer or employee of Buyer or its assigns its true
and lawful attorney to do and perform every act necessary, requisite, proper, or
advisable to be done to put Buyer or its assigns in position to enforce the
payment of the Loans. (Said Power of Attorney is set forth as EXHIBIT "I.")
------------
(B) SURVIVAL OF COVENANTS, AGREEMENTS, REPRESENTATIONS AND
------------------------------------------------------
WARRANTIE; SUCCESSORS AND ASSIGNS. All warranties, representations and
- ---------------------------------
covenants made by either party in this Agreement or in any other instrument
delivered by either party to the other, including those made by third parties
for the benefit of either party, shall be considered to have been relied upon by
the other party (unless otherwise agreed in writing by the parties) and shall
survive the termination of this Agreement. The Buyer reserves the right to
proceed against third parties to enforce any representations, warranties and
covenants made by them for the benefit of the Seller.
(C) SEVERABILITY. If any provision, or part thereof, of this
------------
Agreement is invalid or unenforceable under any law, such provision, or part
thereof, is and will be totally ineffective to that extent, but the remaining
provisions, or part thereof, will be unaffected.
(D) ATTORNEYS' FEES. However, anything to the contrary
---------------
notwithstanding, in the event of any action at law, in equity, arbitration or
otherwise between the parties in relation to this Agreement or any Loan or other
instrument or agreement required or purchased or sold hereunder, the
non-prevailing party, in addition to any other sums which such party shall be
required to pay pursuant to the terms and conditions of this Agreement, at law,
in equity, arbitration or otherwise shall also be required to pay to the
prevailing party all costs and expenses of such litigation, including reasonable
attorney fees.
-9-
<PAGE>
(E) WAIVERS. No waiver of any term, provision or condition of this
-------
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be, or construed as a further or continuing waiver of any such
term, provision or condition, or of any other term, provision or condition of
this Agreement.
(F) NOTICE. Any notice or other communication in this Agreement
------
provided or permitted to be given by one party to the other must be in writing
and given by personal delivery or by depositing the same in the United States
mail (certified mail, return receipt requested), addressed to the other party to
be notified, postage prepaid. For purposes of notice, the addresses of the
parties shall be as follows:
BUYER CONTIMORTGAGE CORPORATION
500 Enterprise Road
Horsham, PA 19044
ATTENTION: Jerry Schiano, Senior Vice President, Sales
SELLER: EMB MORTGAGE CORPORATION
3200 Bristol Street 8th Floor
Costa Mesa, CA 92626
ATTENTION: William V. Perry, President
The above address may be changed from time to time by written notice
from one party to the other.
(G) INSURANCE PREPAYMENT. Insurance refund or credits of any kind
--------------------
whatsoever shall be the sole responsibility of the Seller in the event of
prepayment of any Loan, cancellation of insurance or any other event requiring
refunding or crediting of unearned insurance premiums. Upon the Buyer's demand,
Seller shall pay to the Buyer, from the Seller's own funds, any required
insurance premium rebate resulting from the prepayment, cancellation,
refinancing or other termination of any Mortgage Loan. Upon such payment, Buyer
shall assign in writing any rights it had to require that the insurer reimburse
Buyer for any rebate made to Borrower.
(H) ASSIGNMENT. The Seller shall not, without the prior written
----------
consent of the Buyer, assign any of its rights or obligations hereunder.
(I) CAPTIONS. Paragraph or other headings contained in this Agreement
--------
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(J) ENTIRE AGREEMENT. This Agreement and the Exhibits attached
----------------
hereto, and the documents referred to herein or executed concurrently herewith
constitute the entire agreement between the parties hereto with regard to the
subject matter hereof, and there are no prior agreements, understandings,
restrictions, warranties or representations between the parties with respect
thereto.
(K) GOVERNING LAW. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the Commonwealth of Pennsylvania. The provisions
of this paragraph shall not affect the provisions of any Note, Mortgage or
Related Assets which cause the laws of the United States or any other state to
be applicable. This Agreement shall be interpreted fairly in accordance with its
provisions and without regard to which party drafted it.
(L) TERMINATION. This Agreement is terminable by either the Buyer or
-----------
Seller upon ninety (90) days' written notice of termination to the non-
terminating party. Upon such termination, Buyer must honor any outstanding
commitments or Approval Advices issued to Seller and purchase all Loans subject
to such commitment or Approval Advice. Notwithstanding the foregoing, Buyer has
the option of terminating this Agreement immediately upon notice to the Seller
upon the Seller's breach of any of the Representations and Warranties contained
in Article V of this Agreement, and Buyer shall have no obligation to honor any
written notice to the Buyer upon the breach of any of Buyer's representations
and warranties contained in Article VII of this Agreement.
(M) ARBITRATION, JURISDICTION AND VENUE.
-----------------------------------
With respect to any controversy, argument or claim arising out of or
relating to this Agreement, or any breach thereof (including, but not limited
to, a request for emergency relief), the parties hereby consent to the exclusive
jurisdiction of the Court of Common Pleas of Montgomery County, Pennsylvania or
the Federal District Court for the Eastern District of Pennsylvania and waive
personal service of any and all process upon them and consent that all such
service of process made by registered or certified mail directed to them at the
address stated herein and service so made shall be deemed to be completed five
(5) days after mailing. The parties waive trial by jury and waive any objection
to jurisdiction and venue of any action instituted hereunder, agree not to
assert any defense based on lack of jurisdiction or venue and consent to the
granting of such legal or equitable relief as is deemed appropriate by the
court, including, but not limited to, any emergency relief, injunctive or
otherwise.
However, anything to the contrary notwithstanding, except with respect
to emergency relief, Buyer shall have the sole and exclusive option and
discretion to have any controversy, argument or claim arising out of
-10-
<PAGE>
or relating to this Agreement, or any breach thereof, settled in Philadelphia,
Pennsylvania in accordance with the Rules of the American Arbitration
Association (as modified below), and judgement upon the award may be entered in
any Court having jurisdiction thereof.
The arbitration panel shall be made up of three members which shall be
appointed: one by Buyer, one by Seller and the third by the first two
arbitrators. Each arbitrator shall be a lawyer experienced in matters relating
to real estate and mortgage banking. Discovery shall be permitted in connection
with the arbitration proceeding within the reasonable discretion of the
arbitration panel. The decision (award) shall be in writing and shall set forth
the rationale and legal basis therefor, and such decision may be appealed by
either party if the party believes that the written decision (award) is based
upon an error of law. The facts determined by the original panel will be final
and no appeal of such findings may be made. Such appeal shall be taken to a
three-member arbitration panel, the members of which shall be selected in
accordance with the above-described procedures, and the panel's review shall be
limited to the application of the statutory and decisional law of the
Commonwealth of Pennsylvania (as modified by Paragraph XII(K) above) to the
facts of the dispute as determined in writing by the original arbitration panel.
(N) ENDORSEMENTS.
------------
In the event that the remedies or other terms outlined in this
Agreement conflict with the terms of any endorsement by the Seller of any Note
evidencing a Loan purchased by the Buyer from the Seller, including, but not
limited to, an endorsement stating that the assignment of the Note is without
recourse, the remedies and terms of this Agreement shall govern and control.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written:
BUYER: CONTIMORTGAGE CORPORATION
/s/ JERRY SCHIANO
BY:-----------------------------------
JERRY SCHIANO
TITLE: Senior Vice President, Sales
SELLER: EMB MORTGAGE CORPORATION
/s/ WILLIAM V. PERRY
BY:-----------------------------------
WILLIAM V. PERRY
TITLE: President
<PAGE>
EXHIBIT 10(P)
SALE AGREEMENT FOR
PURCHASE OF MORTGAGE LOANS
______________________________________________________
[LOGO OF THE MORTGAGE AUTHORITY APPEARS HERE]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS
1.1 Fl-lA 7. TERMINATION
1.2 VA 7.1 Unilateral Termination
1.3 GNMA 7.2 Mutual Agreement
1.4 PM! 7.3 Breach
1.5 FNMA 7.4 Bankruptcy
1.6 FHLMC 7.5 Effect of Termination
1.7 Loan File
1.8 Mortgages 8. MISCELLANEOUS
1.9 Terms 8.1 Indemnification
8.2 Notification of Mortgagors, Taxing Authorities, Insurance
Companies, Etc.
8.3 Supplementary Information
2. SALE OF MORTGAGES; COMMITMENTS 8.4 Further Assurances
AND RELATED ITEMS 8.5 Access to Information
2.1 Items To Be Sold 8.6 No Broker's Fees
2.2 Handling of Loan Files 8.7 Survival of Warranties and Representations
2.3 Evidence of Sale 8.8 Notices
8.9 Warehouse Lenders
3. CONSIDERATION AND COVENANTS 8.10 Waivers
3.1 Purchase Price 8.11 Entire Agreement
3.2 Rebate of Purchase Price 8.12 Binding Effect
3.3 Covenants of Purchaser 8.13 Headings
3.4 Covenants of Seller 8.14 Applicable Laws
8.15 Financial Information
4. WARRANTIES AND REPRESENTATIONS OF SELLER 8.16 Assignment
4.1 Organization. Good Standing, Power. Etc. 8.17 Renewal
4.2 Authority and Capacity
4.3 Effective Agreement ADDENDUMS
4.4 Compliance With Contracts and Regulations A: The Mortgage Authority
4.5 Mortgage Escrow Accounts Procedures and Pricing--.
4.6 Litigation; Compliance with Laws Fl-IA/VA Loan
B: The Mortgage Authority Procedures and Pricing--
4.7 Licenses, Permits, Authorization, Etc. Conventional Loan Purchases
4.8 Exclusionary/Debarment Lists C: Servicing Released Premium
5. WARRANTIES AND REPRESENTATION OF PURCHASER
5.1 Due Incorporation and Good Standing
5.2 Authority and Capacity
5.3 Effective Agreement
5.4 Mortgage Loan Files
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
6.1 Receipt of Mortgage Documents and Information
6.2 Opinion of Counsel for Seller
6.3 Corporate Resolution
6.4 GNMA Authority
</TABLE>
<PAGE>
SALE AGREEMENT FOR PURCHASE OF MORTGAGE LOANS * 1
AGREEMENT, executed this 3rd day of April, 1997, and deemed effective on
this day (the "Closing Date") between THE MORTGAGE AUTHORITY, INC.
("Purchaser") or ("The Mortgage Authority"), whose address is 27555
Farmington Road, Farmington Hills, MI 48334 and EMB Mortgage Corporation
("seller"), whose address is 575 Anton Blvd. #11200, Costa Mesa, CA 92
WITNESSETH:
Seller in the ordinary course of its business originates FHA, VA and
conventional residential mortgage loans; Purchaser in the ordinary course
of its business purchases FHA, VA and conventional residential mortgage
loans. NOW, THEREFORE, in consideration of the mutual covenants made
herein, the parties hereto agree as follows:
1. DEFINITIONS
1.1 FHA. "FHA" means the Federal Housing Administration.
1.2 VA. "VA" means the Veterans Administration.
1.3 GNMA. "GNMA" means the Government National Mortgage Association.
1.4 PMI "PMI" means a private mortgage insurance corporation approved by
Purchaser.
1.5 FNMA. "FNMA" means the Federal National Mortgage Association.
1.6 FHLMC. "FHLMC" means the Federal Home Loan Mortgage Corporation.
1.7 Loan File. "Loan File" means all original documentation relating to a
Mortgage that is generated in processing a loan, complete in all
respects, including the items as listed in the Correspondent Program
Procedures Manual, updated from time to time.
1.8 Mortgages. "Mortgages" or "Mortgage Loans" means loans on property
located in the United States together with all rights related thereto
including but not limited to Servicing rights and holding of escrow
accounts that:
a. Are secured by a first lien on the premises;
b. Have a face-yield not in excess of 12% unless approved in
advance by Purchaser in writing on a case by case basis;
c. Are each amortized over no more than 30 years and no less than
15 years (unless approved by Purchaser in writing);
d. Have a maximum term of thirty (30) years;
e. Are documented by a Loan File that contains all the required
items;
f. Conventional loans are in compliance with all applicable
underwriting guidelines set forth by FNMA/FHLMC and any
requirements of Purchaser which have been communicated to Seller
in writing from time to time;
g. FHA/VA loans are in compliance with all underwriting guidelines
set forth by GNMA, FHA and/or VA and are eligible for inclusion
in GNMA mortgage-backed security pools;
h. Conform to the requirements set forth on the Pricing Schedules
attached hereto as Addendum "A" and "B;"
i. Are current in their payments at the time delivery thereof is
made to Purchaser;
j. Have been approved by THE MORTGAGE AUTHORITY or seller's
qualified underwriter where applicable for compliance with the
applicable current underwriting guidelines (FNMA/FHLMC for
conventional loans and FHA/GNMA/VA for FHA/VA loans), including,
but not limited to, documentation requirements, underwriting
standards, and timeliness of delivery;
k. Are on one to four family residences located in the State(s) of
California ____________________________________________________
l. Have a minimum principal balance of $40,000 unless approved in
advance by Purchaser.
<PAGE>
SALE AGREEMENT FOR PURCHASE OF MORTGAGE LOANS * 2
1.9 Term. "Term" shall mean the duration of this Agreement.
2. SALE OF MORTGAGES, COMMITMENTS AND RELATED ITEMS
2.1 Items To Be Sold. Subject to, and upon the terms and conditions of
this Agreement, Seller shall (i) sell and assign to Purchaser during
the Term of this Agreement, Mortgages closed in accordance with
appropriate GNMA or FNMA/FHLMC guidelines, (ii) deliver to Purchaser
in a timely manner the Loan Files for all Mortgages sold hereunder,
and (iii) transfer to Purchaser all mortgage escrow/impound accounts
maintained in accordance with the Mortgages (hereinafter "Related
Escrow Accounts"), together with all funds received at closing to buy
down the interest rate to a specified level for a specific period of
time commencing on the "Closing Date."
2.2 Handling of Loan Files. Seller agrees to deliver Loan Files (as per
the requirements set forth in the Correspondent Program Procedures
Manual) within the terms of the individual loan commitment on a daily
or weekly basis, as it may elect to do, although Purchaser shall not
be expected to process more than ten (10) loans per business day.
Seller shall deliver only Mortgage Loans that have been closed in
accordance with the guidelines referenced above. Furthermore, Seller
agrees to remit to Purchaser immediately upon receipt all payments on
Mortgage Loans which it shall receive after delivery of the Loan File
to Purchaser. Such remittances shall be made by U.S. Postal Service at
Seller's expense.
2.3 Evidence of Sale. From time to time, Seller shall execute and deliver
assignment agreements and other documents required, and in form
reasonably satisfactory to Purchaser, with respect to each Mortgage
and the rights being sold pursuant to the terms of this Agreement and
such other documents as shall evidence the transactions contemplated
hereby as Purchaser may reasonably require.
3. CONSIDERATION AND COVENANTS
3.1 Purchase Price. In full consideration for the sale of the Mortgages
and the related rights including, but not limited to, the right to
service the Mortgages and upon the terms and conditions of this
Agreement, Purchaser shall pay to Seller, a fee according to the terms
of the Price Schedules attached hereto and designated Addendum "A" and
Addendum "B."
3.2 Rebate of Purchase Price. In the event (i) the criteria for Mortgages
set forth in Article 1.8 are not achieved in all respects, (ii) the
Loan File or any documents therein for any Mortgage already paid for
proves to be materially defective, and is not cured within thirty (30)
days after notice to Seller, Purchaser shall be entitled to an
immediate rebate of the Purchase Price plus a processing fee of $85.00
for each such Mortgage. If a repurchase is required, any loan must be
repurchased at a price which permits Purchaser to recover all its
expenses resulting from the purchase of the defective loan. In
addition, any servicing release premium paid shall be rebated on a
prorata basis for any loan placed with an attorney to commence a
foreclosure action during the first 36 months following purchase of
same.
3.3 Covenants of Purchaser. Purchaser covenants and agrees, after such
delivery of the mortgages and related rights, to service the Mortgages
in accordance with the appropriate servicing agreement, either the
GNMA Servicing agreement or Purchaser's standard Servicing Agreement.
3.4 Covenants of Seller. All monies received by Seller relating to and
after delivery of the Mortgages shall be turned over to the Purchaser
immediately upon receipt. All fees, costs and expenses charged by or
related to origination, purchase, or transfer of the Mortgage Loans,
shall be borne by Seller.
4. WARRANTIES AND REPRESENTATIONS OF SELLER
Seller hereby makes the following warranties and representations, which
shall be deemed automatically repeated and updated each time upon delivery
of additional Mortgages or Commitments to Purchaser:
4.1 Organization, Good Standing, Power, Etc. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
State of California.
4.2 Authority and Capacity. Seller has all requisite corporate power,
authority and capacity to enter into this Agreement and to perform the
obligations required of it hereunder and thereunder, in particular the
corporate power and authority to transfer to Purchaser all servicing
rights in the Mortgages, related Mortgage documents and Related Escrow
Accounts.
4.3 Effective Agreement. The execution and performance of this Agreement
by Seller, its compliance with the terms and the consummation of the
transactions contemplated herein (assuming receipt of the various
consents required pursuant to this Agreement), will not violate any
provision of law applicable to Seller, and do not and will not
conflict with any of the terms of its Certificate of Incorporation,
By-Laws or any other governing instrument relating to the
<PAGE>
SALE AGREEMENT FOR PURCHASE OF MORTGAGE LOANS * 3
conduct of its business or the ownership of its properties or any
other agreement to which Seller is a party.
4.4 Compliance With Contracts and Regulations. Seller has complied with
all applicable laws and the regulations of FNMA, FHLMC, GNMA, FHA, VA
or any other governmental or quasi-governmental agencies having
jurisdiction with respect to, and which might affect, any of the
Mortgages being purchased by Purchaser hereunder, and Seller has done
no act or thing which may cause the cancellation of or otherwise
adversely affect the Mortgages, or any one thereof, or the private
mortgage insurance with respect to any of the Mortgages. The
assignment of the Mortgages and related documents pursuant to, and in
accordance with, the terms and conditions of this Agreement will
transfer and assign to Purchaser valid and complete right, title and
interest in the Mortgages and Servicing free and clear of any and all
claims, charges, defenses, offsets and encumbrances of any kind or
nature whatsoever.
4.5 Mortgage Escrow Account. Seller is the equitable trustee of the
Related Escrow Accounts which are being maintained, and on the
delivery date will be maintained, in accordance with applicable law
and the terms of the Mortgages, and, where applicable, in accordance
with the regulations of FNMA, FHLMC, GNMA, FHA, VA and other
governmental or quasi-governmental agencies having jurisdiction. All
escrow balances (including interest for the account of the mortgagors,
if applicable) are on deposit in the appropriate escrow accounts, and
will be transferred to Purchaser in accordance with Article 2.1 (iii)
hereof.
4.6 Litigation; Compliance With Laws. There is no litigation, proceeding
or governmental investigation existing or pending, or to the knowledge
of Seller threatened, or any order, injunction or decree outstanding,
against or relating to Seller, that has not been disclosed by Seller
to Purchaser or its counsel in writing, which could have a material
adverse effect upon the Mortgages or the Commitments, nor does Seller
know of any basis for any such litigation, proceeding, or governmental
investigation. Neither Seller nor its predecessor in interest has
violated any applicable law (including but not limited to usury,
compounding of interest, Truth-In-Lending. Equal Credit Opportunity,
Real Estate Settlements, Community Reinvestment and Fair Credit
Reporting), regulation, ordinance, order, injunction or decree, or any
other requirement of any governmental body or court, which might have
a material, adverse effect on any of the Mortgages.
4.7 Licenses, Permits, Authorization, Etc. Seller has obtained, or by the
Closing Date will have obtained, all approvals, authorizations,
consents, licenses, orders and other permits (not qualified or
conditioned in any material respect) of all governmental agencies or
bodies, whether federal, state, foreign or local, required to permit
the sale of the Mortgages and Commitments contemplated hereunder.
4.8 Exclusionary/Debarment Lists. Seller warrants that they have reviewed
and will continue to review all current exclusionary/debarment lists,
including but not limited to FHLMC exclusionary list and HUD Limited
Denial of Participation and Debarment list as applicable. Furthermore,
Seller warrants that they have not and will not employ or otherwise
contract with any person, agent or company on the above referenced
lists now or during the course of this agreement.
5. WARRANTIES AND REPRESENTATIONS OF PURCHASER
Purchaser hereby makes the following warranties and representations to
Seller, which shall be deemed automatically repeated and updated each time
upon delivery of additional Mortgages to it.
5.1 Due Incorporation and Good Standing. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware.
5.2 Authority and Capacity. Purchaser has all requisite corporate power,
authority and capacity to enter into this Agreement and, subject to
appropriate regulatory approval, to perform the obligations required
of it thereunder. Purchaser is properly qualified and/or licensed in
those states where required to perform its duties hereunder.
5.3 Effective Agreement. The execution and performance of this Agreement
by Purchaser, its compliance with the terms thereof and the
consummation of the transactions contemplated therein, will not
violate any provision of law applicable to it and will not conflict
with the terms or provisions of its Certificate of Incorporation or
By-Laws, or any other instrument relating to the conduct of its
business or the ownership of its property, or any other Agreement to
which Purchaser is a party.
5.4 Mortgage Loan Files. In making payment with respect to a Mortgage,
Purchaser acknowledges that it has received documents purporting to be
all those listed in the Loan File as per Correspondent Program
Procedures Manual, but Purchaser shall bear no responsibility as to
any matters pertaining to the contents of the documents, including
completeness, correctness or legality. In the event any documents are
thereafter lost in transmission, or if Purchaser shall have
erroneously made payment when it did not have documents purporting to
be all those listed in the Loan File, Purchaser, with the assistance
of Seller, shall use its best efforts to locate such missing documents
or substitutions therefor. Except for the loss of documents after
payment by Purchaser, as described above, Seller shall still be liable
<PAGE>
SALE AGREEMENT FOR PURCHASE OF MORTGAGE LOANS * 4
for all defective Mortgages, no matter when the defect is discovered,
subject to the three (3) year limitation set forth in Section 8.1(c).
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The ongoing obligations of Purchaser under this Agreement to purchase
Mortgages are subject to the satisfaction of each of the following
conditions:
6.1 Receipt of Mortgage Documents and Information. Purchaser shall have
received from Seller a complete Loan File as outlined in the
Correspondent Program Procedures Manual and shall have received the
following additional information with respect to each Mortgage, broken
out in such fashion as may be reasonably required by Purchaser; (i)
loan number, (ii) mortgagor's name, (iii) address of mortgaged
premises, (iv) principal balance due and owing on the note, (v) the
interest rate provided in the note, (vi) date to which interest is
paid, (vii) type of loan, (viii) amount held in escrow for the account
of the mortgagor, (ix) amount of buy down funds, (x) name of
originator, (xi) name of Title Closer, (xii) Mortgagor's mailing
address.
6.2 Opinion of Counsel for Seller. Purchaser shall have received an
opinion of their counsel James Foden, esq. __________________________,
to Seller in connection with this transaction, on the Closing Date, in
form and substance reasonably satisfactory to counsel to Purchaser, to
the effect that: (i) Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of
California, (ii) Seller has all requisite corporate power, authority
and capacity to enter into this Agreement and to perform the
obligations required of it hereunder, in particular the corporate
power and authority to transfer all right, title and interest in the
Servicing, Related Escrow Accounts and Accounts Receivable, (iii) the
execution and performance of this Agreement by Seller, its compliance
with the terms hereof and the consummation of the transactions
contemplated hereby, do not and will not conflict with any of the
terms of its Certificate of Incorporation, By-Laws or any other
corporate governing instruments known to such counsel, (iv) this
Agreement has been duly executed by Seller and is a valid and legally
binding obligation of Seller in accordance with its terms, subject to
bankruptcy, insolvency and similar laws affecting generally the
enforcement of creditors' rights and subject to principles of equity,
and (v) after inquiry, to the knowledge of such counsel (without
inquiry to Seller), other than foreclosure actions, there is no
litigation, proceeding or governmental investigation existing,
pending, or threatened, or any order, injunction or decree
outstanding, against or relating to seller which is expected to have a
material adverse effect upon the rights being assigned to Purchaser
hereunder after the Closing Date and which has not been disclosed by
Seller to Purchaser or its counsel in writing.
6.3 Corporate Resolution. Purchaser shall have received from Seller a duly
executed Certificate of the Secretary reciting the Board of Directors'
approval of the sale agreement and authorizing the officers to execute
documents.
6.4 GNMA Authority. Where applicable, GNMA's commitment authority shall
not have been terminated or have been suspended. If such commitment
authority shall not be in effect, Purchaser's obligations hereunder
shall be suspended until such authority is reinstated. All mortgages
which are delivered in accordance with requirements contained herein
and for which Purchaser has paid the purchase price prior to any
suspension or termination of GNMA authority shall be a completed sale
to Purchaser; however, Purchaser shall have no subsequent obligations
until the suspension or termination of GNMA authority is removed.
7. TERMINATION
This Agreement shall continue until terminated as follows, whichever shall
first occur:
7.1 Unilateral Termination. Either party may also terminate this agreement
upon thirty (30) day written notice to the other party at any time.
7.2 Mutual Agreement. This Agreement may be terminated upon the mutual
agreement of all the parties hereto, their personal representatives,
successors and assigns so to terminate.
7.3 Breach. Upon the material breach by either party hereto of any of the
terms or conditions of this Agreement, or any other agreement between
the parties hereto, and if such breach continues for a period of
thirty (30) days after written notice by the other party, then the
offended party may terminate this Agreement effective immediately upon
giving notice thereof to the other.
7.4 Bankruptcy. If either party shall file a petition in bankruptcy or for
a receiver for all or any substantial portion of its property and
assets, or if such petition shall be filed against it and shall not be
dismissed within thirty (30) days from its filing, or shall file a
petition for reorganization or to effect a composition with its
creditors, or such a petition shall be filed against it and not
discharged within thirty (30) days after the date of its filing, or
shall make a general assign-
<PAGE>
SALE AGREEMENT FOR PURCHASE OF MORTGAGE LOANS * 5
ment for the benefit of its creditors, the other party shall have the
right, at any time after the occurrence of any of the above-described
events, to terminate this Agreement specifying the date of
termination, which shall not be less than ten (10) days after the date
on which such notice is given.
7.5 Effect of Termination. Upon termination, all of the rights and
obligations of all parties under and pursuant to this Agreement shall
cease and terminate, except rights of warranty and indemnification
hereunder, and such rights as shall have accrued prior to termination
(including, but not limited to, any and all claims and demands for
damages for any breach of any covenant, promise or undertaking in this
Agreement contained which shall have occurred prior to termination).
After notice of termination is given by either party, Seller may no
longer deliver Mortgages. All rights hereunder, however, shall
continue with respect to all Mortgages that have been properly
delivered to Purchaser, prior to the effective date of termination.
8. MISCELLANEOUS
8.1 Indemnification.
a. Seller shall save, defend, indemnify and hold Purchaser
harmless from, and will reimburse Purchaser for, any losses,
damages, deficiencies or expenses of any material nature
(including reasonable attorney's fees and costs) incurred by
Purchaser:
i. Resulting from any misrepresentation made by Seller in
this Agreement, or in any schedule, statement or
certificate furnished pursuant to this Agreement.
ii. Resulting from any breach of warranty by Seller, or the
non-fulfillment of any covenant of Seller contained in
this Agreement, or in any schedule, statement or
certificate furnished pursuant to this Agreement;
iii. Resulting from any defect in any Mortgage existing as of
the date of acceptance by Purchaser of the Mortgage
(including those defects subsequently discovered), or as
a result of any act or omission of Seller thereafter;
iv. Resulting from errors in originating any of the Mortgages
or as a result of Seller's act or omission after
acceptance by Purchaser of the Mortgage;
v. Resulting from any claims made by any loan originators
that are not based upon any act or omission of the
Purchaser.
b. Purchaser agrees to promptly notify Seller in writing of the
existence of any fact known to Purchaser giving rise to any
obligations of Seller under this Article 8.1 and, in the case of
any claim or any litigation brought by a third party which may
give rise to any such obligations, Purchaser agrees to promptly
notify Seller of the making of such claim or the commencement of
such action by a third party as and when same become known to
Purchaser. Purchaser shall have the sole exclusive right, absent
fraud or bad faith, to settle any claim for less than $1,000.
Seller shall be entitled to participate in the defense of any
action brought by a third party against Purchaser which may give
rise to an obligation of Seller where the ad damnum exceeds
$1,000 and, at its election, to direct the defense thereof at
its own expense. Seller agrees to promptly notify Purchaser of
the making of any claim or the commencement of any action by a
person other than Purchaser which may give rise to an obligation
of Seller under this Article 8.
c. Purchaser's right to indemnification from Seller hereunder shall
expire three (3) years from and after the date of purchase by
Purchaser for the applicable Mortgage, except for matters
brought to Seller's attention within the three year period which
remain unresolved.
d. Each party hereto agrees that Purchaser may deduct funds from
current and/or future funding of loan purchases to offset
expenses related to Seller's errors involving documentation
and/or recording requirements. However, in no event may the
deductions exceed $500.00 in the aggregate without written
concurrence of Seller.
8.2 Notification of Mortgagors. Taxing Authorities, Insurance Companies,
Etc. Simultaneously with the delivery of each Mortgage to Purchaser,
the Seller shall have notified the mortgagors, the requisite taxing
authorities and insurance companies and/or agents, and the banks at
which escrow deposits are maintained, of the assignment of the
Mortgages and of the escrow deposits and instructions to deliver all
payments, notices, tax bills, insurance statements and the escrow
account statements, as the case may be, to Purchaser. Seller agrees to
cause the preparation and filing for record of all necessary
assignments of all Mortgages and related powers of attorney in all
states where recording is advisable and to forward to Purchaser all
original, recorded assignments. All costs, fees and expenses,
including, but not limited to, recording charges, assignment fees, if
any, in connection with the assignment by originator and/or Seller of
the Mortgages shall be borne by Seller.
<PAGE>
SALE AGREEMENT FOR PURCHASE OF MORTGAGE LOANS * 6
8.3 Supplementary Information. From time to time prior to and after the
Closing Date, Seller shall furnish Purchaser such information
supplementary to the information contained in the documents and
schedules delivered pursuant thereto as Purchaser may reasonably
request.
8.4 Further Assurances. Seller and Purchaser will each, at the request of
the other, execute and deliver to each other (and require any
custodians or others within their control to execute and deliver) all
such other instruments that either may reasonably request in order to
effectuate the consummation of the agreements hereunder.
8.5 Access to Information. During the effective period of this Agreement,
Purchaser and Seller shall give to the other and its counsel,
accountants and other representatives, reasonable access, during
normal business hours, to all of the other's files, books and records
relating to the Mortgages being purchased by Purchaser.
8.6 No Broker's Fees. Each party hereto represents and warrants to the
other that it has made no agreement to pay any agent, finder, or
broker or any other representative, any fee or commission in the
nature of a finder's or originator's fee arising out of or in
connection with the subject matter of this Agreement, except as they
have otherwise disclosed or agreed in writing. Except as otherwise
disclosed or agreed between the parties hereto in writing, the parties
hereto covenant with each other and agree to indemnify and hold each
other harmless from and against any such obligation or liability and
any expense incurred by the other in investigating or defending
(including reasonable attorney's fees) any claim based upon the other
party's actions.
8.7 Survival of Warranties and Representations. Each party hereto
covenants and agrees that its warranties and representations in this
Agreement, and in any document delivered or to be delivered pursuant
hereto, shall survive the termination of this Agreement.
8.8 Notices. All notices, requests, demands and other communications which
are required or permitted to be given under this Agreement shall be in
writing and shall be deemed to have been duly given upon the delivery
or mailing thereof, as the case may be, sent by registered or
certified mail, return receipt requested, postage prepaid.
a. If to the Purchaser, to:
CORRESPONDENT COMPLIANCE DEPARTMENT
The Mortgage Authority, Inc.
27555 Farmington Road
Farmington Hills, MI 48334
With a copy to:
THE LEGAL DEPARTMENT
The Mortgage Authority, Inc.
27555 Farmington Road
Farmington Hills, MI 48334
b. If to Seller to:
Mr. Joseph K. Brick-President
---------------------------------------
575 Anton Boulevard #200
---------------------------------------
Costa Mesa, CA 92626
---------------------------------------
_______________________________________
With a copy to:
Mr. Russell Kidder
---------------------------------------
575 Anton Boulevard #200
---------------------------------------
Costa Mesa, CA 92626
---------------------------------------
_______________________________________
or to such other address as Purchaser or Seller shall have
specified in writing to the other.
<PAGE>
SALE AGREEMENT FOR PURCHASE OF MORTGAGE LOANS * 7
8.9 Warehouse Lenders. The parties hereto agree that in order to comply
with terms of pertinent bailee letters, Purchaser may be required to
return loan documents direct to a warehouse lender. In such cases,
the decision will be made at the sole discretion of Purchaser.
8.10 Waivers. Either Purchaser or Seller may, by written notice to the
other:
a. Extend the time for the performance of any of the obligations
or other transactions of the other;
b. Waive compliance with any of the terms, conditions or covenants
required to be complied with by the other hereunder; and
c. Waive or modify performance of any of the obligations of the
other hereunder.
The waiver of any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any other
or subsequent breach.
8.11 Entire Agreement. This Agreement constitutes the entire Agreement
between the parties with respect to the subject matter hereof.
8.12 Binding Effect. Simultaneously with execution hereof, the parties
hereto shall have delivered such other ancillary documentation,
including certified resolutions and opinions of counsel, as is
customarily required in transactions of the sort contemplated herein.
This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their successors and assigns. Nothing in this
Agreement, express or implied, is intended to confer on any person
other than the parties hereto and their successors and assigns, any
rights, obligations, remedies or liabilities.
8.13 Headings. Headings on the Articles in this Agreement are for
reference purposes only and shall not be deemed to have any
substantive effect.
8.14 Applicable Laws. This Agreement shall be construed in accordance with
the laws of the State of Michigan.
8.15 Financial Information. Seller must submit its most recent audited
financial statements concurrently with the execution of this
Agreement for Purchaser's review and approval. The statements must
include complete balance sheets and income statements for the
previous annual accounting period and for all following quarterly
periods ending not more than ninety (90) days prior to the date
hereof. Seller must continue to submit its most recent audited
financial statements for approval each succeeding year, at least
sixty (60) days prior to the anniversary date of this Agreement.
8.16 Assignment. This Agreement shall not be assigned by either party
without the prior written consent of the other party.
8.17 Renewal. This Agreement shall be deemed to be automatically renewed
for an additional one (1) year term on each succeeding anniversary
date of the Closing Date contained herein provided neither party has
submitted to the other a thirty (30) day written notice of
termination.
In WITNESS WHEREOF, each of the undersigned parties to this Agreement has
caused this Agreement to be duly executed in its corporate name by one of
its duly authorized officers, all as of the date first above written.
THE MORTGAGE AUTHORITY, INC. (PURCHASER)
Attest: [SIGNATURE ILLEGIBLE] By: /s/ Jeanne Delomnier
---------------------------- ------------------------
Its: ASST. SECRETARY Its: JEANNE DELOMNIER
------------------------------- ------------------------
(Corporate Seal)
EMB Mortgage Corporation
------------------------------
(NAME OF COMPANY/SELLER)
Attest: [SIGNATURE ILLEGIBLE] By: [SIGNATURE ILLEGIBLE]
---------------------------- ------------------------
Its: Secretary Its: President
------------------------------- ------------------------
(Corporate Seal)
<PAGE>
SALE AGREEMENT FOR PURCHASE OF MORTGAGE LOANS * 8
ADDENDUM A
THE MORTGAGE AUTHORITY INC.
PROCEDURES AND PRICING--FHA/VA LOAN PURCHASES
I. POLICY, PROCEDURES AND PRACTICES
The Mortgage Authority, Inc. policy, procedures and practices as outlined
here are pursuant to published The Mortgage Authority Correspondent Program
Procedures Manual as updated from time to time. Said policy, procedures and
practices may be augmented, supplemented or otherwise modified by a thirty
(30) day written notice to seller.
II. PRICE QUOTES
A. Each day The Mortgage Authority shall publish delivery prices for
programs then in effect.
B. Seller must provide The Mortgage Authority with the following
information on the day of the lock-in:
1. Mortgagor's full name (last and first)
2. Property address including zip code
3. Dwelling type
4. Occupancy
5. Loan type (please specify if refinance)
6. Loan amount
7. Interest rate
8. Lock requested, i.e., 75 day, 30 day, or mandatory
9. Any required investor fields as modified from time to time.
C. The Mortgage Authority will respond with written verification that the
loan is registered for delivery subject to delivery of the minimum
requirements.
D. The Mortgage Authority reserves the right to issue prices more
frequently and/or limit loan registrations during days when market
volatility dictates.
E. Each loan will be locked under the requested loan program based upon
the terms and conditions required by that program. The Mortgage
Authority will announce the expiration or commencement of various
programs from time to time and make funds available under these
programs available to the Seller as market conditions permit.
III. PRE-CLOSING REQUIREMENTS
A. Seller shall have supplied The Mortgage Authority with all applicable
instructions for transfer of purchase funds.
IV. CLOSING REQUIREMENTS
A. Seller or the Title Company closes and disburses the loan using
Seller's funds and name, unless a specific agreement is executed to
allow an alternative. The Mortgage Authority does not accept third
party originated loans, unless a specific Sale Agreement Addendum to
Allow Third Party Originations is fully executed and all provisions of
the Addendum are complied with.
B. Seller must promptly advise The Mortgage Authority of all
cancellations either verbally or in writing by providing the following
information:
1. The Mortgage Authority loan number
2. Mortgagors' name
3. Reason for cancellation
Seller will be billed monthly for applicable non-delivery fees
associated with cancellation of mandatory commitments.
<PAGE>
SALE AGREEMENT FOR PURCHASE OF MORTGAGE LOANS * 9
V. POST-CLOSING REQUIREMENTS
A. Seller forwards the closing package to The Mortgage Authority.
B. Upon The Mortgage Authority's review and approval of the mortgage file
for completeness, The Mortgage Authority will wire funds to seller
with written reconciliation of same to follow via facsimile or U.S.
Postal Service. The purchase funds are defined as Principal less
Discounts, Escrows/Impounds/Reserves plus servicing released premium
described below.
C. It is Seller's responsibility to forward all Assignments, Title
Policies, Mortgages/Deeds of Trust, Loan Guaranty/Mortgage Insurance
Certificates, and completion certificates, including but not limited
to those described in the Whole Loan Purchase Program Procedures
Manual, to The Mortgage Authority within 90 days of settlement. Such
post-closing documents not received by The Mortgage Authority within
90 days of settlement shall be deemed delinquent. Upon written notice
to Seller, The Mortgage Authority may suspend the purchase of other
loans then committed for purchase or other remedy until such time as
Seller has provided The Mortgage Authority with such delinquent post-
closing documents or a satisfactory written explanation for remedy of
such delinquency shall have been received by The Mortgage Authority.
D. All files must be received and be complete not later than the lock
expiration date.
E. Late or incomplete files may be subject to repricing and/or late fees.
VI. PRICING INFORMATION FOR PURCHASE OF SERVICING
A. Servicing Released Premiums will be paid after review and acceptance
of a complete loan file on all loans according to the following
schedule during each month: (see attached SRP schedule addendum C).
B. The Mortgage Authority at its sole discretion and upon thirty (30)
days written notice to seller reserves the right to modify any and all
of the following as pertains to loans locked on and after effective
date of such change:
1. Servicing Released Premiums (Addendum C)
2. Maximum face yield (1.8 (b))
3. Minimum and maximum term (1.8 (c and d))
4. Mortgage location (1.8 (k))
5. Minimum principal balance (1.8(1))
6. The maximum number of loans processed per day (2.2)
7. Rebate processing fee (3.2)
8. Ad damnum amount (8.1(b))
9. Indemnification period (8.1(c))
10. Required notification (8.2)
11. Notices (8.8)
12. Seller may upon written notice to The Mortgage Authority,
change notice designees at any time.
* Addendum A acknowledged this
3rd day of April 1997.
[SIGNATURE ILLEGIBLE]
------------------------------
(Signature Required)
<PAGE>
SALE AGREEMENT FOR PURCHASE OF MORTGAGE LOANS * 10
ADDENDUM B
THE MORTGAGE AUTHORITY, INC.
PROCEDURES AND PRICING--CONVENTIONAL LOAN PURCHASES
I. POLICY, PROCEDURES AND PRACTICES
The Mortgage Authority policy, procedures and practices as outlined herein
are pursuant to a published The Mortgage Authority Correspondent Program
Procedures Manual and Underwriting Guidelines as updated from time to time.
Said policy, procedures, practices, and guidelines may be augmented,
supplemented or otherwise modified by a thirty (30) day written notice to
Seller.
II. Price Quotes
A. Each day The Mortgage Authority shall publish delivery prices for
programs then in effect.
B. Seller must provide The Mortgage Authority with the following
information on the day of the lock-in:
1. Mortgagor's full name (last and first)
2. Property address including zip code
3. Dwelling type
4. Occupancy
5. Loan type (please specify if refinance)
6. Loan amount
7. Interest rate
8. Lock requested, i.e. 60 day, 45 day or 15 day mandatory
9. Any required investor fields as modified from time to time.
C. The Mortgage Authority will respond with written verification that the
loan is registered for delivery subject to delivery of the minimum
requirements.
D. Each loan will be locked under the requested loan program based upon
the terms and conditions required by that program. The Mortgage
Authority will announce the expiration or commencement of various
programs from time to time and make funds available under these
programs available to the Seller as market conditions permit.
E. The Mortgage Authority reserves the right to issue prices more
frequently and/or limit loan registrations during days when market
volatility dictates.
III. PRE-CLOSING REQUIREMENTS
A. Seller shall have supplied The Mortgage Authority with all applicable
instructions for transfer of purchase funds.
B. Seller must have the loan underwritten and approved by The Mortgage
Authority prior to loan closing.
IV. CLOSING REQUIREMENTS
A. Seller or the Title Company closes and disburses the loan using
Seller's funds and name, unless a specific agreement is executed to
allow an alternative. The Mortgage Authority does not accept third
party originated loans, unless a specific Sale Agreement Addendum to
Allow Third Party Originations is fully executed and all provisions of
the Addendum are complied with.
B. Seller must promptly advise The Mortgage Authority of all
cancellations either verbally or in writing by providing the following
information:
1. The Mortgage Authority loan number
2. Mortgagors' name
3. Reason for cancellation
Seller will be billed monthly for applicable non-delivery fees
associated with cancellation of mandatory commitments.
<PAGE>
SALE AGREEMENT FOR PURCHASE OF MORTGAGE LOANS * 11
V. POST-CLOSING REQUIREMENTS
A. Seller forwards the closing package to The Mortgage Authority.
B. Upon The Mortgage Authority's review and approval of the mortgage file
for completeness, The Mortgage Authority will wire funds to seller
with written reconciliation of same to follow via facsimile or U.S.
Postal Service. The Purchase funds are defined as Principal less
Discounts, Escrow/Impounds/Reserves plus servicing released premium
described below.
C. It is Seller's responsibility to forward all Assignments, Title
Policies, Mortgages/Deeds of Trust, Mortgage Insurance Certificates,
and completion certificates, including but not limited to those
described in the Whole Loan Purchase Program Procedures Manual, to The
Mortgage Authority within 90 days of settlement. Such post-closing
documents not received by The Mortgage Authority with 90 days of
settlement shall be deemed delinquent. Upon written notice to Seller,
The Mortgage Authority may suspend the purchase of other loans then
committed for purchase or other remedy until such time as Seller has
provided The Mortgage Authority with such delinquent post-closing
documents or a satisfactory written explanation for remedy of such
delinquency shall have been received by The Mortgage Authority.
D. All files must be received and be complete not later than the lock
expiration date.
E. Late or incomplete files may be subject to repricing and/or late fees.
VI. PRICING INFORMATION FOR PURCHASE OF SERVICING
A. Servicing Released Premiums will be paid after review and acceptance
of a complete loan file on all loans according to the following
schedule during each month: (see attached SRP schedule Addendum C).
B. The Mortgage Authority at its sole discretion and upon thirty (30)
days written notice to seller reserves the right to modify any and
all of the following as pertains to loans locked on or after effective
date of such change:
1. Servicing Released Premiums (Addendum C)
2. Maximum face yield (1.8 (b))
3. Minimum and maximum term (1.8 (c and d))
4. Mortgage location (1.8 (k))
5. Minimum principal balance (1.8(1))
6. The maximum number of loans processed per day (2.2)
7. Rebate processing fee (3.2)
8. Ad damnum amount (8.1(b))
9. Indemnification period (8.1(c))
10. Required notification (8.2)
11. Notices (8.8)
12. Seller may upon written notice to The Mortgage Authority, change
notice designees at any time.
* Addendum B acknowledged this
3rd day of Aril, 1997
[SIGNATURE ILLEGIBLE]
_____________________________
(Signature Required)
<PAGE>
ADDENDUM C
THE MORTGAGE AUTHORITY, INC.
SERVICING RELEASED PREMIUMS
<TABLE>
<CAPTION>
GOVERNMENT FIXED RATE LOANS
- ---------------------------
BELOW $40,000- $60,000- $80,000
$40,000 $59,999 $79,999 & ABOVE
------- ------- ------- -------
<S> <C> <C> <C> <C>
30 YEAR FHA 0.00 1.65 1.80 1.90
30 YEAR VA 0.00 1.40 1.60 1.70
15 YEAR -- Reduce schedule by .20
</TABLE>
<TABLE>
<CAPTION>
CONFORMING FIXED RATE CONVENTIONAL LOANS
- ----------------------------------------
BELOW $50,000- $70,000- $90,000- $120,000
$50,000 $69,999 $89,999 $119,999 & ABOVE
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
30 YEAR 0.00 1.00 1.10 1.25 1.50
15 & 20 YEAR -- Reduce schedule by .15
</TABLE>
<TABLE>
<CAPTION>
ADJUSTABLE RATE CONVENTIONAL AND GOVERNMENT LOANS
- -------------------------------------------------
BELOW $40,000- $60,000- $80,000
$40,000 $59,999 $79,999 & ABOVE
------- ------- ------- -------
<S> <C> <C> <C> <C>
CONVENTIONAL 0.00 0.60 0.80 1.00
FHA 0.00 0.60 0.90 1.10
</TABLE>
<TABLE>
<CAPTION>
BALLOON PRODUCTS
- ----------------
BELOW $40,000- $60,000- $80,000
$40,000 $59,999 $79,999 & ABOVE
------- ------- ------- -------
<S> <C> <C> <C> <C>
30/7 FNMA 0.00 0.30 0.50 0.70
30/5 FHLMC 0.00 0.10 0.30 0.50
</TABLE>
<TABLE>
<CAPTION>
QUARTERLY VOLUME INCENTIVE SCHEDULE
- -----------------------------------
$0 - $3,000,000 - $5,000,000 - $7,000,000 -
$3,000,000 $5,000,000 $7,000,000 $12,000,000 $12,000,000 +
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BASIS 0 5 15 20 25
POINTS
</TABLE>
Acknowledged this 3rd of April, 1997
* By: [SIGNATURE ILLEGIBLE]
----------------------------------
Its: PRESIDENT
---------------------------------
<PAGE>
EXHIBIT 10(Q)
================================================================================
FIRST UNION NATIONAL BANK
OF
NORTH CAROLINA
________________________________________________________________________________
MORTGAGE LOAN SELLER/SERVICER AGREEMENT
________________________________________________________________________________
================================================================================
<PAGE>
FUNB ___________________________________________________________________________
This MORTGAGE LOAN SELLER/SERVICER AGREEMENT (this "Agreement") dated
as of_________, 199_, is between FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, a national banking association (the "Purchaser"), and the seller
and/or servicer named below (the "Company").
PRELIMINARY STATEMENT
WHEREAS, in reliance upon the representations and warranties of the
Company contained or incorporated by reference herein and in the
Seller/Servicer Application attached hereto as Exhibit A, the Purchaser has
agreed to purchase from the Company from time to time, and the Company has
agreed to sell to the Purchaser from time to time, certain residential
whole mortgage loans meeting the criteria set forth in the FUNB Seller
Guide as hereinafter defined; and
WHEREAS, the Company may retain the servicing of such mortgage loans,
in which instance the Company and the Purchaser desire to prescribe the
terms and conditions of such servicing as set forth in the FUNB Servicing
Guide as hereinafter defined;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Purchaser and the Company
agree as follows:
SECTION 1. DEFINITIONS. Unless otherwise defined herein, the
-----------
capitalized terms used herein shall have the meanings set forth in the
Guides. Whenever used herein, the following words and phrases shall have
the following meanings:
Agreement: This Mortgage Loan Seller/Servicer Agreement,
---------
including the Guides, the Commitment Confirmation Letters and all exhibits
hereto and thereto, all of which are incorporated herein by reference and
made a part hereof and are an integral part of this Agreement, and all
amendments hereof and thereof and supplements or addendums hereto and
thereto.
Amendment: As defined in Section 4 hereof.
---------
Commitment Confirmation Letter: One or more letters from the
------------------------------
Purchaser to the Company setting forth certain terms and conditions
relating to the sale by the Company to Purchaser of Mortgage Loans.
Effective Date: The date of this Agreement.
--------------
FUNB Seller Guide: The First Union National Bank of North
-----------------
Carolina Mortgage Loan Conduit Seller Guide in effect on the Effective
Date, as amended, modified or restated by Purchaser from time to time in
accordance with Section 4 hereof.
FUNB Servicer Guide: The First Union National Bank of North
-------------------
Carolina Servicer Guide in effect on the Effective Date, as amended,
modified or restated by Purchaser from time to time in accordance with
Section 4 hereof.
Guides: The FUNB Seller Guide and the FUNB Servicer Guide.
------
Mortgage Loan: Any mortgage loan sold by the Company to the
-------------
Purchaser pursuant to the terms of this Agreement.
FUNB __________________________________________________________________________
Page 1 September 20, 1996
<PAGE>
FUNB ___________________________________________________________________________
Officers' Certificate: Certificates in substantially the form of
---------------------
Exhibit B, signed by authorized officers of the Company.
Opinion of Counsel: A written opinion of counsel in substantially
------------------
the form of Exhibit C.
Purchase Date: Each date that the Company sells one or more
-------------
Mortgage Loans to the Purchaser in accordance with the terms of this
Agreement and the applicable Commitment Confirmation Letter.
Purchase Price: For each Mortgage Loan purchased hereunder, an
--------------
amount determined in accordance with the applicable Commitment Confirmation
Letter and the FUNB Seller Guide.
Seller/Servicer Application: The Seller/Servicer Application in
---------------------------
the form attached hereto as Exhibit A.
Servicing Released Fee: For each Mortgage Loan purchased
----------------------
Servicing Released hereunder, an amount, if any, determined by the
applicable Commitment Confirmation Letter.
SECTION 2. DELIVERY OF THE GUIDES. The Purchaser has provided to
----------------------
the Company and the Company has received and reviewed the Guides, which are
incorporated by reference in their entirety into this Agreement. The
Company has had the opportunity to ask questions of the Purchaser
concerning the Guides. The Company understands and agrees that the
Purchaser's interpretation of the Guides shall be final and binding on the
Company in all respects.
SECTION 3. SALE AND CONVEYANCE OF MORTGAGE LOANS: POSSESSION OF
----------------------------------------------------
MORTGAGE FILES.
--------------
(a) Regarding the purchase of each Mortgage Loan or Loans,
the Purchaser shall issue a Commitment Confirmation Letter, which shall
constitute conclusive evidence of the agreed terms for such purchase,
unless specific objection with respect to the Commitment Confirmation
Letter is made in writing and received by the Purchaser before 4:00 p.m.
Eastern Time on the Business Day following the issuance of the Commitment
Confirmation Letter.
(b) On each Purchase Date, the Company, upon the receipt of
the requisite consideration therefor, does hereby sell, transfer, assign,
set over and convey to the Purchaser, without recourse, but subject to the
terms and provisions of this Agreement, all the right, title, and interest
of the Company in and to one or more Mortgage Loans meeting the
requirements of this Agreement. In full consideration for the sale of each
of the Mortgage Loans by the Company to Purchaser pursuant to this
Agreement, on each Purchase Date the Purchaser shall pay to the Company the
Purchase Price, as adjusted as set forth in the FUNB Seller Guide, and
Servicing Released Fee, if any, for the Mortgage Loans purchased on such
Purchase Date.
(c) The Company will deliver the following items to the
Purchaser on the Effective Date:
(i) an executed original of this Agreement;
(ii) the Seller/Servicer Application, which shall be
acceptable to the Purchaser in its sole discretion;
(iii) the Officers' Certificate;
(iv) the Opinion of Counsel, which shall be acceptable
to the Purchaser in its sole discretion;
FUNB ___________________________________________________________________________
Page 2 September 20, 1996
<PAGE>
FUNB ___________________________________________________________________________
(v) a certificate or other evidence of merger or change of
name, signed or stamped by the applicable regulatory authority, if any
of the Mortgage Loans were acquired through merger or originated by
the Company while conducting business under a name other than its
present name;
(vi) the written approval of any receiver, conservator or
trustee that is (or may be) necessary for consummation of the
transactions contemplated by this Agreement, which written approval
shall be dated no more that twenty (20) days prior to the Effective
Date; and
(vii) any consents or approvals required by Law or pursuant
to contract to consummate the transactions contemplated hereby.
(d) Upon payment for the related Mortgage Loan pursuant to this
Section, the beneficial ownership of each Mortgage Note, each Mortgage, and
each of the other documents comprising the Mortgage File with respect to
each Mortgage Loan is hereby vested in the Purchaser, and the ownership of
all records and documents with respect to each Mortgage Loan prepared by or
which come into the possession of the Company is hereby immediately vested
in the Purchaser and shall be held and maintained, in trust, by the Company
at the will of the Purchaser in such custodial capacity only.
SECTION 4. APPLICATION AND AMENDMENT OF THE GUIDES: COMMITMENT
---------------------------- ----------------------
CONFIRMATION LETTER.
-------------------
(a) The interpretation of the Purchaser of the Guides shall be
final and binding on the parties hereto in all respects. Regardless of
whether specifically identified as such, each requirement, standard,
instruction or statement in the Guides, the Seller/Servicer Application,
this Agreement and any Commitment Confirmation Letter shall be deemed to be
a representation and warranty by the Company to the Purchaser. The
Purchaser may amend, alter, modify, supplement, replace or restate the
Guides (an "Amendment") at any time and from time to time in its sole
discretion without the consent of the Company. The Purchaser shall give
written notice of an Amendment to the Company, and the Amendment shall
become effective immediately upon receipt of such notice by the Company or
as specifically provided therein; provided, however, no Amendment of the
FUNB Seller Guide shall be effective with respect to an outstanding
Commitment Confirmation Letter unless consented to by the Company. In the
event of any inconsistencies between the provisions of this Agreement and
the Guides, this Agreement shall control. The parties acknowledge and agree
that as of the Effective Date, the FUNB Servicing Guide shall consist of
the Federal National Mortgage Association Servicing Guide; provided,
however, consistent with the terms of this Section 4, the Purchaser may
replace such Guide at any time and from time to time with a proprietary
FUNB Servicing Guide.
(b) In the event of any inconsistencies between the provisions
of this Agreement (including the Guides) and the Commitment Confirmation
Letter, the Commitment Confirmation Letter shall control.
SECTION 5. REPRESENTATIONS. WARRANTIES AND COVENANTS OF THE
------------------------------------------------
COMPANY.
-------
The Company hereby makes to the Purchaser as of the Effective Date all
of the Company's representations, and warranties set forth in the Guides
(other than those representations and warranties that relate only to
individual Mortgage Loans, which are made or effective as set forth in the
FUNB Seller Guide) and grants to the Purchaser the remedies set forth
hereunder and in the Guides with respect to a breach of such
representations and warranties. The Company also hereby covenants with the
Purchaser that the Company shall continue to comply with all of the
Company's representations, warranties and covenants set forth in the
Guides, each Commitment Confirmation Letter and this Agreement.
FUNB ___________________________________________________________________________
Page 3 September 20, 1996
<PAGE>
FUNB __________________________________________________________________________
SECTION 6. COSTS AND EXPENSES: RIGHT OF SETOFF.
-----------------------------------
(a) The Company shall pay all fees and expenses incurred in
connection with the transactions contemplated by this Agreement, including
without limitation transfer fees, recording fees, fees for title policy
endorsements and continuations, attorneys' fees and costs associated with
the physical delivery and insured shipment of the Mortgage Files to
Purchaser and/or Purchaser's document custodian(s).
(b) The Purchaser and its successors and assigns shall be
entitled to setoff against any amount to be paid by it to the Company for
such amounts as may be due from the Company under this Agreement.
SECTION 7. NO SOLICITATION RIGHTS.
----------------------
Subject to the provisions set forth in this Section 7, from and after
the date hereof, neither the Company, nor any of its Affiliates shall
solicit, by means of direct mail, or telephonic or personal solicitation,
the Mortgagors of any Mortgage Loans for purposes of prepayment of such
Mortgage Loans. Solicitations undertaken by the Company or any Affiliate of
the Company that are directed to the general public at large (as opposed to
directed specifically at the Mortgagors), including without limitation mass
mailings based on commercially acquired mailing lists, and newspaper, radio
and television advertisements, shall not constitute solicitation under this
Section 7.
SECTION 8. CONDITIONS TO PURCHASE.
----------------------
The obligations of Purchaser to purchase any Mortgage Loans are
subject to the satisfaction prior to or on each applicable Purchase Date
(or on such other date as expressly provided for herein) of the following
conditions, any one or more of which may be waived in writing by Purchaser:
(a) All of the representations and warranties of the
Company set forth in the Guides shall be true and correct as of the
applicable Purchase Date, and no event shall have occurred which, with
notice or the passage of time, would constitute a Default or breach under
this Agreement or under the Guides.
(b) On each Purchase Date, Purchaser shall have received
the documents and instruments required to be delivered to Purchaser on or
before such Purchase Date pursuant to the Guides, duly executed by all
signatories other than Purchaser as required pursuant to the respective
terms thereof.
(c) All other terms and conditions to be performed on or
prior to the applicable Purchase Date (or such other date as expressly
provided for herein) by the Company shall have been duly complied with and
performed in all respects pursuant to this Agreement, the applicable
Commitment Confirmation Letter and the Guides.
SECTION 9. TERMINATION OF SUSPENSION UPON DEFAULT.
--------------------------------------
Upon the occurrence of a Default under either of the Guides,
Purchaser shall have the right, at its option and in its sole discretion,
to suspend the selling privileges of the Company or to terminate this
Agreement, in addition to whatever rights Purchaser may have at law or in
equity to damages, including injunctive relief and specific performance.
Purchaser shall also have the right to terminate this Agreement without
cause by giving thirty (30) days prior written notice to the Company. In
the event Purchaser terminates this Agreement, the Company shall not be
relieved of its servicing obligations, if any, unless expressly terminated
in accordance with the FUNB Servicer Guide. Purchaser may terminate this
Agreement after a suspension. A termination of this Agreement or suspension
of the selling privileges of the Company due to a Default shall terminate
or suspend any outstanding obligations of Purchaser to purchase mortgage
loans from the Company; provided however, a termination of this Agreement
without cause upon
FUNB __________________________________________________________________________
Page 4 September 20, 1996
<PAGE>
FUNB ___________________________________________________________________________
the giving of notice as set forth herein shall not terminate any
outstanding obligations of Purchaser to purchase mortgage loans from the
Company. Purchaser may waive any Default, and upon any waiver, such Default
shall cease to exist. No such waiver shall extend to any subsequent or
other default or impair any right consequent thereto except to the extent
expressly waived.
SECTION 10. MISCELLANEOUS PROVISIONS.
------------------------
(a) Amendment. Except as provided in Section 4 concerning
---------
the Guides and Section 3 concerning the Commitment Confirmation Letters,
this Agreement may be amended from time to time by the Company and the
Purchaser solely by written agreement signed by the Company and the
Purchaser.
(b) Governing Law. This Agreement shall be governed by,
-------------
construed and interpreted in accordance with the laws of the State of North
Carolina.
(c) Consent to Jurisdiction. The parties agree that all
-----------------------
legal actions and proceedings arising out of or related to this Agreement,
or the transactions contemplated hereby, shall be brought in the United
States District Court for the Western District of North Carolina or the
Mecklenburg County Superior Court, and the parties hereby waive any
objections to summons, service of process, jurisdiction over the person or
subject matter, or the venuse of the courts listed above.
(d) Reproduction of Documents. This Agreement and all
-------------------------
documents relating hereto, including without limitation (i) consents,
waivers, and modifications which may hereafter be executed, (ii) documents
received by any party at the closing, and (iii) financial statements,
certificates, and other information previously or hereafter furnished, may
be reproduced by any photographic, facsimile transmission, photostatic,
microfilm, microcard, miniature photographic, or other similar process. The
parties agree that any such reproduction shall be admissible in evidence as
the original itself in any judicial or administrative proceeding, whether
or not the original is in existence and whether or not such reproduction
was made by a party in the regular course of business, and that any
enlargement, facsimile, or further reproduction of such reproduction shall
likewise be admissible in evidence.
(e) Notices. All demands, notices and communications
-------
hereunder shall be in writing and shall be deemed to have been duly given
if personally delivered at or mailed by registered mail, postage prepaid,
or by a nationally recognized overnight courier service, to the following:
If to the Company:
EMB Mortgage Corporation
---------------------------------------------------
3200 Bristol Street 8th Floor
---------------------------------------------------
Costa Mesa, CA 92626
---------------------------------------------------
or such other address as may hereafter be furnished to the Purchaser in
writing by the Company, and
If to the Purchaser:
First Union National Bank of North Carolina
One First Union Center
Charlotte, N.C. 28288-0600
Attention: ______________________________
or such other address as may hereafter be furnished to the Company by the
Purchaser in writing.
FUNB ___________________________________________________________________________
Page 5 September20, 1996
<PAGE>
FUNB __________________________________________________________________________
(f) Severability of Provisions. If any one or more of the
--------------------------
covenants, agreements, provisions, or terms of this Agreement shall be held
invalid for any reason whatsoever, then such covenants, agreements,
provisions, or terms shall be deemed severable from the remaining
covenants, agreements, provisions, or terms of this Agreement and shall in
no way affect the validity or enforceability of the other covenants,
agreements, provisions, or terms of this Agreement or the rights of the
Purchaser hereunder.
(g) Counterparts: Successors and Assigns. This Agreement
------------------------------------
may be executed in one or more counterparts and by the different parties
hereto on separate counterparts, each of which, when so executed, shall be
deemed to be an original; such counterparts, together, shall constitute one
and the same agreement. This Agreement shall inure to the benefit of and be
binding upon the Company and the Purchaser and their respective successors
and assigns; provided, however that the Company may not, in whole or in
part, assign or otherwise transfer, sell, subcontract, pledge or grant a
security interest in any of its rights or delegate any of its duties
hereunder without the prior written consent of the Purchaser. Any such
purported or attempted transfer without the prior written consent of the
Purchaser shall be null and void. The Purchaser may sell, assign, convey,
hypothecate, pledge or in any way transfer, in whole or in part, without
restriction, its rights hereunder, including but not limited to an
assignment whereby this Agreement remains in effect between the Purchaser
and the Company as to certain Mortgage Loans but is assigned to a third
party or parties as to other Mortgage Loans.
(h) Other Agreements Superseded. This Agreement supersedes
---------------------------
all prior agreements and understandings relating to the subject matter
hereof.
(i) No Partnership. --Nothing herein contained shall be
--------------
deemed or construed to create a partnership or joint venture between the
parties hereto, and at all times the Company shall act and represent itself
solely as an independent contractor of the Purchaser.
(j) Authorized Representatives. The Purchaser shall be
--------------------------
entitled to rely without investigation that any Person holding themselves
out to be a representative of the Company for purposes of signing this
Agreement or any other document delivered in connection with this Agreement
or taking other action pursuant to the Agreement including but not limited
to oral discussions was, at the respective times of such signing or
actions, a duly elected or appointed, qualified and authorized
representative of the Company, and the execution or deliver of the
Agreement or any document pursuant to the Agreement and the taking of any
other actions, including but not limited to oral discussions, shall be
conclusive evidence of such authorization.
FUNB __________________________________________________________________________
Page 6 September 20, 1996
<PAGE>
FUNB __________________________________________________________________________
IN WITNESS WHEREOF, the Company and the Purchaser have caused their
names to be signed hereto by their respective officers thereunto duly
authorized as of the day and year first above written.
First Union National Bank of North Carolina
By:__________________________________________
Name: Joseph K. Brick
Title: President
_____________________
By:__________________________________________
Name:
Title:
FUNB __________________________________________________________________________
Page 7 September 20, 1996
<PAGE>
FUNB __________________________________________________________________________
EXHIBITS
EXHIBIT A - SELLER/SERVICER APPLICATION
EXHIBIT B - FORM OF OFFICERS' CERTIFICATE
EXHIBIT C - FORM OF OPINION OF COUNSEL TO THE COMPANY
FUNB __________________________________________________________________________
Page 8 September 20, 1996
<PAGE>
FUNB __________________________________________________________________________
EXHIBIT A
SELLER/SERVICER APPLICATION
__________________________________________________________________________
Instructions: Please complete the following information and return to First
Union within 90 days. Please note that your institution is referred to as
the "Company" throughout this Application. Please type all information. If
the information requested cannot be completed in the space allowed, please
use an attachment indicating that it is part of this Application and the
item it addresses.
1) SERVICER INFORMATION
A) Company Name: EMB Mortgage Corporation
---------------------------------------------------
B) Home Office Address: 3200 Bristol Street 8th Floor
-------------------------------------------
Costa Mesa, CA 92626
-------------------------------------------
C) Mailing Address: SAME
-----------------------------------------------
_______________________________________________
D) Telephone: (714)437--0700
---------------------------------------------------
E) Tax ID#: 33--0581713
-------------------------------------------------------
F) Please attach a list of all branch offices
________________________________________________________________________________
2) TYPE OF INSTITUTION 01
-----------
<TABLE>
<CAPTION>
<S> <C> <C>
01 Mortgage Company 06 State Chartered Savings Bank 11 State Credit Union
02 Federal Savings & Loan 07 Federally Chartered Commercial Bank 12 Investment Bank
03 State Savings & Loan 08 State Chartered Commercial Bank 13 Finance Company
04 Insurance Company 09 Mutual Savings Bank 14 Other - Explain
05 Federally Chartered Savings 10 Federal Credit Union
Bank
</TABLE>
________________________________________________________________________________
3) RELATED MORTGAGE SERVICING APPROVALS
A) FNMA (Conv.)SELLER/SERVICER
Yes[_] No[X]
If Yes, #___________________________________
Date Approved:___________________________________
FUNB __________________________________________________________________________
Page 1 September 20, 1996
<PAGE>
FUNB __________________________________________________________________________
B) FHLMC SELLER/SERVICER
Yes [_] No[X][X]
If Yes, #__________________________________
Date Approved:_____________________________
C) GNMA SELLER/SERVICER
Yes [_] No[X][X]
If Yes, #__________________________________
Date Approved:_____________________________
D) OTHER CONDUITS
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
________________________________________________________________________________
4) PRINCIPAL OFFICERS
List the top ten principal officers of the Company including those
responsible for origination and servicing.
Name Title & Responsibilities
---- ------------------------
1) Joseph K. Brick President
---------------------------- -----------------------------------
2) William V. Perry CEO
---------------------------- -----------------------------------
3) Ben Crocker Sr. Vice President, National
---------------------------- -----------------------------------
Operations Manager
-----------------------------------
4) Tom Golden Vice President-Wholesale Manager
---------------------------- -----------------------------------
5) Bruce Brosky Executive Vice President-Market
---------------------------- -----------------------------------
6) Robert Fisher Manager of Servicing
---------------------------- -----------------------------------
7) Janet Honaker Manager of Processing/Funding
---------------------------- -----------------------------------
8) Christie Craghill Manager of Retail
---------------------------- -----------------------------------
9) Dan Perez Co-Manager of the Credit Union
---------------------------- -----------------------------------
10) Brian Penderghast Co-Manager of the Credit Union
---------------------------- -----------------------------------
________________________________________________________________________________
FUNB __________________________________________________________________________
Page 2 September 20, 1996
<PAGE>
FUNB ___________________________________________________________________________
<TABLE>
<CAPTION>
5) KEY CONTACTS: Name Phone # Fax II #
---- ------- --------
<S> <C> <C> <C>
A) l) Selling Manager: Christie Craghill 714--424--7741
----------------- -------------- _______________
2) Servicing Manager: _________________ ______________ _______________
3) Secondary Marketing Robert Fisher 714--424--7750 714--825--0595
----------------- -------------- ---------------
Manager:
4) Underwriting Manager: C--MAC #36702--000 714--424--7726
------------------ -------------- _______________
5) Accounting Manager: Pete Elliott 714--424--7709 714--825--0291
------------------ -------------- --------------
B) Number of origination employees: 17
-----------------------
C) Number of loan administration employees: 6
---------------
</TABLE>
________________________________________________________________________________
6) ORGANIZATIONAL CHANGES
Describe any major organizational changes which the Company has undergone,
are contemplated or are pending such as mergers, sales, acquisitions,
divestitures or restructuring? If none, indicate "not applicable".
NONE
-----------------------------------------------------------------
_________________________________________________________________
_________________________________________________________________
________________________________________________________________________________
7) List names of affiliated companies, their relationship, and their
institutional type, (i.e., mortgage banker, savings and loan or savings and
loan holding company, commercial bank holding company, savings, bank,
insurance company, investment bank, credit union builder, realtor or
diversified financial servicing conglomerate, etc.) and its (their)
relationship to the Company.
EMB Corporation is 100% owner of EMB Mortgage Corporation
-----------------------------------------------------------------
_________________________________________________________________
_________________________________________________________________
________________________________________________________________________________
<TABLE>
<CAPTION>
8) INSURANCE
<S> <C>
A) Fidelity Insurance Coverage: $ 300, 000 Name of Carrier: Reliance Insurance Company
-------- --------------------------
Deductible: $10,000 Renewal Date: 10/7/97 Policy Number: B274-6133
------ ------- ---------
Type(s): A,B,C Blanket Bond:______ Individual:_____ Direct Surety: ______ Other: ________
-----
B) Errors and Omissions Coverage: $1,000,000 Name of Carrier: American International Spec.
---------
Lines Insurance Company
Deductible: $10,000 Renewal Date: 9/20/97 Policy Number: 243-58-88
------ ------- ---------
Provides for coverage per mortgage________________________ Per Loss________________________
</TABLE>
FUNB ___________________________________________________________________________
Page 3 September 20, 1996
<PAGE>
FUNB ___________________________________________________________________________
C) Is a mortgage impairment, mortgagee interest or similar blanket policy
maintained?
Yes [X] No[_]
Name of Carrier: CMAC Deductible:$________________
-----------------
Renewal Date: 9/29/97 Policy Number: 36702-000
-------------------- --------------------
If no, please explain: _______________________________________________
D) Have there been any changes, reductions, or cancellations of the above
prior policies in the past twelve months?
Yes [_] No [X]
If yes,please explain: ______________________________________________
E) Do the foregoing policies protect First Union and its successors and
assigns as investor, against losses to First Union and its successors
and assigns resulting from dishonesty or fraud committed by any
partner, sole proprietor or major shareholder of the service?
Yes [_] No[_]
F) Does the policy name First Union and its successors and assigns as
investor as loss payee on payments for losses to First Union from acts
by the insured? Yes [_] No [_]
G) Does the insurance coverage listed meet all First Union's
requirements? Yes [_] No [_]
________________________________________________________________________________
9) LEGAL STATUS
List on an attachment any pending or threatened litigation; any taxes
assessed or proposed; any injunctions, consent decrees, court orders,
settlement agreements or other similar obligations; any other contingent or
accrued liabilities.
________________________________________________________________________________
10) AUDIT REQUIREMENTS
A) Attach the Company's year-end audited financial statements for the
prior two fiscal years. If such statements are not currently
available, the Company will deliver them to First Union or before
_____________________________________
B) Please provide copies of the most recent of the following items:
- Examination Report in conformity with the Uniform Single Audit
Program for Mortgage Bankers
- Parent company's most recent audited financial statement (if
applicable)
- Most recent audit letters/reviews of agencies (FHLMC, FNMA, HUD &
other)
C) In the past twelve months have any of the Company's selling or
servicing contracts been suspended or terminated? Yes [_] No [X]
If yes, please explain: ______________________________________________
FUNB ___________________________________________________________________________
Page 4 September 20, 1996
<PAGE>
FUNB ___________________________________________________________________________
D) In the past twelve months has the Company transferred any servicing
(including any transfers to affiliate(s))? Yes [_] No[_]
If yes, please explain:_______________________________________________
E) List name and address of any subservicer(s) that the Company is
currently using or contemplates using to perform servicing for First
Union.
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
________________________________________________________________________________
11) QUALITY CONTROL PLAN
Attach a current copy of the Company's Quality Control Plan
________________________________________________________________________________
12) WAREHOUSE LINE
A) List the name of the bank(s) providing the Company's warehouse
line(s). Please list the contact names at the banks involved.
Bank Contact Phone #
---- ------- -------
ICI Tom Golden 800--329--3038
-------------- --------------- ----------------
______________ _______________ ________________
______________ _______________ ________________
B) Total amount of the warehouse line(s): $______________
________________________________________________________________________________
13) ORIGINATION VOLUME
Total originations ($ volume) for previous fiscal year:
Commercial/
1-Unit 2-4 Unit Multifamily TOTAL
Fl-IA/VA ________ __________ ____________ __________
Conventional 73,892,884 1,685,000 75,577,884.00
---------- __________ ------------ -------------
Total ________ __________ ____________ __________
________________________________________________________________________________
14) SERVICING PORTFOLIO
Mortgage Servicing Portfolio as of: 0 $(____________)
----------
FUNB ___________________________________________________________________________
Page 5 September 20, 1996
<PAGE>
FUNB ___________________________________________________________________________
<TABLE>
<CAPTION>
Fixed Rate ARMs Total
---------- ---- -----
$ Volume # Loans # Volume # Loans $ Volume # Loans
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
FNMA
FHLMC
GNMA
Held in
Portfolio
Affiliate
First Union
Largest Private
2nd Largest
Private
3rd Largest
Private
Other Private
Total -------- ------- -------- ------- -------- -------
</TABLE>
Please attach a list of the 10 largest concentrations by state, in terms of
dollar volume and number of loans.
________________________________________________________________________________
15) DELINQUENCIES AND FORECLOSURES
Please indicate the most recent delinquency and foreclosure ratios on your
total servicing portfolio for all investors excluding loans held in
portfolio, as of___________________________
BY PERCENT OF TOTAL NUMBER OF LOANS:
<TABLE>
<CAPTION>
FHA/VA CONVENTIONAL TOTAL
DELINQUENCIES
-------------
<S> <C> <C> <C>
60 days ________________
90 days
Total
</TABLE>
FUNB ___________________________________________________________________________
Page 6 September 20, 1996
<PAGE>
FUNB ___________________________________________________________________________
<TABLE>
<CAPTION>
FORECLOSURES ___________ ___________ None
--------
BY PERCENT OF TOTAL DOLLAR VOLUME OF LOANS:
FHA/VA CONVENTIONAL TOTAL
DELINQUENCIES
-------------
<S> <C> <C> <C>
60 days ___________ ___________ ___________
90 days ___________ ___________ ___________
Total ___________ ___________ ___________
FORECLOSURES 0
----------- ___________ ___________
</TABLE>
________________________________________________________________________________
16) BANK ACCOUNTS
A) As described in the attachment, please verify each account number and
depository institution established to maintain monies for First Union
loans.
B) Are there any exceptions? Yes [_] No [_]
If yes, please list the exceptions on an attachment.
________________________________________________________________________________
As an officer of the Company, I certify that all the above statements and
any attachments and explanatory material provided are true, correct and
complete as of the date hereof.
OFFICER SIGNATURE: ____________________________
OFFICER NAME: Joseph Brick
----------------------------
TITLE: President
----------------------------
DATE: ____________________________
FUNB ___________________________________________________________________________
Page 7 September 20, 1996
<PAGE>
FUNB ___________________________________________________________________________
EXHIBIT B
OFFICERS' CERTIFICATE
SEPTEMBER ,1997
----------- -
I, Joseph Brick, hereby certify to First Union National Bank of North
------------
Carolina (the "Purchaser"), that I am the duly elected President of EMB
--------- ---
Mortgage Corp. (the "Company") and further certify as follows:
- -------------
1. Set forth below is a true and correct copy of resolutions
authorizing the Company to sell and/or service the Mortgage Loans
subject to the Mortgage Loan Seller/Servicing Agreement between
the Company and the Purchaser (the "Agreement") and the FUNB
Seller Guide and the FUNB Servicer Guide, as the case may be:
The Company is hereby authorized to sell Mortgage Loans
to First Union National Bank of North Carolina ("Purchaser") from
time to time on a servicing released or servicing retained basis
pursuant to the terms of the Mortgage Loan Seller/Servicer
Agreement (the "Agreement"), all as more fully set forth in the
Agreement; and further the president, any vice president, any
assistant vice president, secretary or assistant secretary of the
Company are hereby authorized in the name of and on behalf of the
Company to enter into, execute, deliver and perform the
agreement, and the execution of the Agreement shall be conclusive
evidence that the Agreement is acceptable to and binding on the
Company; and further that the president, any vice president, any
assistant vice president, secretary or assistant secretary of the
Company are authorized to execute and deliver such further
certificates, documents, instruments and agreements or take such
other actions as are reasonably necessary and appropriate to
carry out the foregoing resolutions.
2. Each of the following persons who as an officer or representative
of the Company, signed the Agreement and any other document
delivered in connection with the Agreement, was, at the
respective times of such signing and delivery, and is now duly
elected or appointed, qualified, and acting as such officer or
representative, and the signature of such person, as set forth
below opposite his or her name, is his or her genuine signature.
3. Each person described in Section 10(j) of the Agreement,
including but not limited to the following persons, are the
authorized Representatives (as defined in the guide) of the
Company:
Name Title Signature
---- ----- ---------
Joseph Brick President
---------------- ------------- _________________
William V. Perry CEO
---------------- ------------- _________________
---------------- ------------- _________________
---------------- ------------- _________________
4. The sale and delivery of the Mortgage Loans from the Company to
the Purchaser is being made in good faith and without intent to
hinder, delay, or defraud present or future creditors of the
Company or to prefer one creditor of the Company to another.
5. As a result of the sale and delivery of the Mortgage Loans by the
Company to the Purchaser, the Company has neither committed an
act of insolvency nor will it be insolvent, and the Company has
no intent or belief that it will incur debts beyond its ability
to pay such debts as they mature.
6. The Company is not engaged or about to be engaged in business or
a transaction from which the property remaining with the Company
is unreasonably small capital.
7. There exists no default or breach under the Agreement on the
date hereof.
Capitalized terms used herein and not otherwise defined are, unless
the context otherwise requires, used as defined in the Agreement.
FUNB ___________________________________________________________________________
Page 1 September 20, 1996
<PAGE>
FUNB ___________________________________________________________________________
IN WITNESS WHEREOF, the undersigned has caused this certificate to be
executed by its duly authorized officer as of the day and year first above
written.
By: __________________________
Name:______________________
Title:_____________________
I, ____________________, _____________________ of ____________________
______________________________________________________________ (the "Company")
hereby certify that ________________________________________ is the duly
elected, qualified and acting _____________________ of the Company and that the
signature appearing above is his genuine signature.
IN WITNESS WHEREOF, I have hereunder signed my name as of the day and
year first above written.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
FUNB ___________________________________________________________________________
Page 2 September 20, 1996
<PAGE>
FUNB ___________________________________________________________________________
EXHIBIT C
FORM OF OPINION OF COUNSEL TO THE COMPANY
The opinion of counsel to the Company called for by the Agreement
shall be dated the Effective Date, shall be addressed to First Union
National Bank of North Carolina, shall be satisfactory in form and
substance to First Union National Bank of North Carolina and its counsel,
and together with appropriate assumptions and limitations shall be to the
effect that:
1. The Company has been duly organized under the laws of the State
of_________________ and is validly existing and in good standing under such
laws as of the date hereof. The Company has the necessary power and
authority and the legal right to own its.properties and assets and to
transact the business in which it is presently engaged and to own, transfer
and convey mortgage loans to the Purchaser.
2. The Company has the necessary power and authority and approvals
and is duly authorized to execute, deliver and perform the Agreement and
all other agreements or instruments contemplated thereby (the "Transfer
Documents") to which it is a party and to perform the obligations
contemplated thereby.
3. Neither the execution and delivery of the Transfer Documents to
which the Company is a party, nor the consummation of the transactions
contemplated by the Transfer Documents, (i) will violate, result in a
breach of, constitute a default under or conflict with any law, rule,
regulation, judgment, license, order, decree, injunction or permit, or any
indenture, loan agreement, mortgage, deed of trust, or other agreement or
instrument to which the Company is a party or by which the Company or its
assets may be bound or to which the Company may be subject, or (ii) violate
any provision of the Company's articles of incorporation or bylaws or (iii)
result in the imposition of any lien, charge or encumbrance upon the
Company's assets or upon the Mortgage Loans. No consent, approval,
authorization, license or order of any court, governmental authority or
third party is required in connection with the execution and delivery by
the Company of the Transfer Documents to which it is a party, or for the
consummation of the transactions contemplated thereby.
4. The Transfer Documents to which the Company is a party have been
duly and validly authorized, executed and delivered by the Company and are
the legal, valid and binding obligations of the Company, enforceable in
accordance with their respective terms except as may be limited by
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
affecting the enforcement of creditors' rights generally and by applicable
laws and principles of equity that may affect the availability of remedies
(whether such enforcement is considered in a proceeding in equity or at
law).
5. There are no actions, suits or legal, equitable, arbitration or
administrative proceedings pending, or threatened or expected, against the
Company or any of its officers or directors, which (i) seek to limit,
restrict, or prevent the consummation of the transactions contemplated in
the Transfer Documents, (ii) seek to prevent the sale of the Mortgage Loans
or the consummation of any of the other transactions contemplated by the
Transaction Documents or (iii) either in any one instance or in the
aggregate are likely to result in a material adverse change in the
business, operations, financial condition, properties, or assets of the
Company, or in any material impairment of the right or ability of the
Company to carry on its business substantially as now conducted, or in any
material liability on the part of the Company.
FUNB ___________________________________________________________________________
Page 1 September 20, 1996
<PAGE>
FUNB ___________________________________________________________________________
6. Immediately upon the transfer and assignment of the Mortgage
Loans to the Purchaser by the Company in the manner contemplated in the
FUNB Seller Guide, the Purchaser shall have good and indefeasible title to,
and the Purchaser shall be the sole owner of, and shall obtain all right,
title and interest of the Company in and to the Mortgage Loans, free and
clear of any claim, lien, charge, mortgage, encumbrance or rights of the
Company, creditors of the Company or others, subject to the proper
recordation of assignments of mortgages securing the Mortgage Loans.
7. The sale of the Mortgage Loans as and in the manner contemplated
in the Agreement is sufficient fully to transfer to the Purchaser all
right, title and interest of the Company as note holder and mortgagee.
FUNB ___________________________________________________________________________
Page 2 September 20, 1996
<PAGE>
EXHIBIT 10(R)
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
MORTGAGE PURCHASE AGREEMENT
---------------------------
THIS AGREEMENT (the "Agreement") is made and entered into this 10th day of
March, 1997, by and between RESOURCE BANCSHARES MORTGAGE GROUP, INC.
(hereinafter referred to as "Buyer") and EMB Mortgage Corporation (hereinafter
referred to as "Seller") in consideration of the mutual premises and conditions
hereinafter set forth.
1. Purchase and Sale of Mortgage Loans. From time to time pursuant to
-----------------------------------
this Agreement, Seller shall sell and Buyer shall buy mortgage loans on real
estate (hereinafter collectively called the "Mortgage Loans" and individually
the "Mortgage Loan"). This Agreement shall govern the sale and transfer of such
Mortgage Loans by Seller to Buyer and each such Mortgage Loan shall be subject
to the warranties, representations, and agreements set forth herein, subject,
however, to the terms and conditions of any separate written offering or
commitment letters applying to the Mortgage Loans.
All future purchases of Mortgage Loans by Buyer from Seller shall be
governed by the terms contained herein unless the parties shall agree in writing
before or at the time such purchases are made that the purchases shall be
governed by a different agreement. The purchase price and service release
premiums paid for each Mortgage Loan shall be established by written agreement
between the parties. The terms and conditions of any separate offering or
commitment letters signed by the parties hereto and pursuant to which the Buyer
shall agree to buy and the Seller shall agree to sell any Mortgage Loans shall
survive and be deemed to be part of this Agreement. To the extent that the terms
of this Agreement conflict with the terms and conditions of any such offering or
commitment letter, the terms and conditions of the offering or commitment letter
shall supersede the terms and conditions of this Agreement and this Agreement
shall be deemed modified and amended to conform to the terms and conditions of
such offering or commitment letter with respect to the Mortgage Loans purchased
thereunder. However, such modification and amendment shall be made only to the
extent of the non-conformity and all other terms and conditions of this
Agreement shall apply.
2. Definitions. Unless the context requires otherwise, the following
-----------
terms shall, for all purposes of this Agreement, have the meanings hereinafter
specified.
(a) The term "Mortgage Note" shall mean a valid and enforceable note or
evidence of indebtedness secured by a Mortgage (as hereinafter defined).
(b) The term "Mortgage" shall mean a valid and enforceable mortgage, deed
of trust or other security instrument creating a first lien upon described
real property that secures a Mortgage Note.
(c) The term "Mortgage Loan" shall mean (i) a Mortgage Note and Mortgage;
(ii) all
-1-
<PAGE>
documents, agreements, or instruments relating to the Mortgage Note and
Mortgage and Seller's rights and benefits therein; and (iii) Seller's
rights and benefits as owner of the Mortgage Note and Mortgage including,
without limitation, its right to receive payments thereunder.
3. Seller's Representations, Warranties, and Covenants. Seller
---------------------------------------------------
represents, warrants, and covenants as follows:
A. With respect to Seller:
(a) Seller is and will continue to be duly organized, validly
existing, and in good standing under the laws of the United States or under
the laws of the jurisdiction in which it was incorporated or organized, as
applicable, and has and will continue to maintain all licenses,
registrations, and certifications necessary to carry on its business as now
being conducted, and is and will continue to be licensed, registered,
qualified, and in good standing in each state where property securing a
Mortgage Loan is located if the laws of such state require licensing,
registration, or qualification in order to conduct business of the type
conducted by Seller.
(b) Seller has and will maintain the full corporate or partnership
power and authority to execute and deliver the documents contemplated by
this Agreement and to perform in accordance with each of the terms thereof
and the terms of the Correspondent Manual. The execution, delivery, and
performance of this Agreement by Seller and the consummation of the
transactions contemplated hereby, have been duly and validly authorized.
This Agreement is a legal valid, binding, and enforceable obligation of
Seller, and all requisite corporate or partnership action has been taken by
Seller to make this Agreement valid and binding upon Seller, and
enforceable in accordance with its terms.
(c) The consummation of the transactions contemplated by this
Agreement are in the ordinary course of business of Seller, and
the transfer, assignment, and conveyance of the Mortgage Notes and
Mortgages by Seller are not subject to the bulk transfer laws or any
similar statutory provisions in effect in any applicable jurisdiction.
(d) Neither the execution and delivery of this Agreement, the
acquisition and/or making of the Mortgage Loans by Seller, the sale of the
Mortgage Loans to Buyer or the transactions contemplated thereby, nor the
fulfillment of or compliance with the terms and conditions of this
Agreement, will conflict with or result in a breach of any of the terms,
conditions, or provisions of Seller's articles of incorporation, charter,
by-laws, partnership agreement, or other organizational documents, or of
any legal restriction or regulatory directive or any agreement or
instrument to which Seller is a party or by which it is bound.
(e) Seller has the ability to perform each and every obligation of
and/or satisfy each and every requirement imposed on Seller pursuant to
this Agreement, and no offset, counterclaim, or defense exists to the full
performance by Seller of the requirements of this Agreement.
-2-
<PAGE>
(f) There is no action, suit, proceeding, inquiry, review, audit, or
investigation pending or threatened by or against Seller that, either in
any one instance or in the aggregate, may result in any material adverse
change in the business, operations, financial condition, properties, or
assets of Seller, or in any material liability on the part of Seller, or
that would draw into question the validity or enforceability of this
Agreement or the Mortgage Loans or of any action taken or to be taken in
connection with the obligations of Seller contemplated in this Agreement,
or that would be likely to impair materially the ability of Seller to
perform under the terms of this Agreement.
(g) No consent, approval, authority, or order of any court or
governmental agency or body is required for the execution and performance
by Seller of, or compliance by Seller with, this Agreement, the sale of any
of the Mortgage Loans, or the consummation of any of the transactions
contemplated by this Agreement.
(h) Neither the Correspondent Application, this Agreement, nor any
statement, report, or other document furnished or to be furnished by Seller
pursuant to this Agreement contains any untrue statement of material fact
or omits to state a material fact necessary to make the statements
contained herein or therein not misleading.
(i) Seller has complied with, and has not violated any law, ordinance,
requirement, regulation, rule or other order applicable to its business or
properties, the violation of which might adversely affect the operations or
financial condition of Seller to consummate the transactions contemplated
by this Agreement.
(j) Seller will comply with all provisions of this Agreement and the
Correspondent Manual and will promptly notify Buyer of any occurrence, act,
or omission regarding Seller, the Mortgage Loan, the property securing the
Mortgage Loan, or the mortgagor of which Seller has knowledge, which
occurrence, act or omission may materially affect Seller, the Mortgage
Loan, the property securing the Mortgage Loan, or the mortgagor.
B. With respect to each Mortgage Loan offered for sale under this
Agreement:
(a) The Mortgage and the Mortgage Note have been duly executed by the
mortgagor and create valid and legally binding obligations of the
mortgagor, and the Mortgage has been duly acknowledged and recorded and is
a valid and prior first lien on the real property securing the Mortgage
Note that is superior to all other liens or other claims.
(b) The Seller is the sole owner of the Mortgage Loan and has absolute
authority to sell, transfer, and assign the same on the terms set forth
herein, and there has been no prior assignment, sale, or hypothecation of
the Mortgage Loan by the Seller.
(c) There are no actions, suits, or proceedings pending or threatened
against Seller in any court or before any administrative agency the adverse
outcome of which would have an effect on its title to any Mortgage Loan and
servicing rights that may be sold or purchased hereunder.
-3-
<PAGE>
(d) As to each Mortgage Loan purchased by Buyer, (i) the full
principal amount of the Mortgage Loan has been advanced to the mortgagor,
either by payment directly to him or by payment made on his request or
approval; (ii) the unpaid principal balance is as set forth on that certain
statement to be provided by Seller to Buyer pursuant to Section 4(g)
hereof, (iii) all costs, taxes, fees, and expenses incurred in making and
closing the Mortgage Loan and in recording and assigning the Mortgage have
been paid; (iv) no part of the mortgaged property has been released from
the lien of the Mortgage; (v) the terms of the Mortgage Loan have in no way
been changed or modified; (vi) all payments required under the terms of
the Mortgage Loan are current and are not in default including, but not
limited to, payments of principal and interest and escrow payments for
mortgage insurance, taxes, and hazard insurance; and (vii) unless otherwise
negotiated, on the date of delivery of the Mortgage Loan to Buyer, no more
than ten (10) months shall have elapsed following the closing of the
Mortgage Loan or recordation of the Mortgage, whichever shall have occurred
last.
(e) The Seller has not made or knowingly received from others any
direct or indirect advance of funds in connection with the Mortgage Loan on
behalf of the mortgagor. This warranty does not cover payment of interest
from the earlier of:
(i) the date of the Mortgage Note; or
(ii) the date on which the Mortgage Loan proceeds were disbursed; or
(iii) the date one month before the first installment of principal and
interest on the Mortgage Loan is due.
(f) Each Mortgage Loan that Seller represents to be insured by a
private mortgage insurance company is so insured with an insurer that has
either been approved by the Federal National Mortgage Association ("FNMA")
or by the Federal Home Loan Mortgage Corporation ("FHLMC") or otherwise
has been approved by the Buyer. Each Mortgage Loan that Seller represents
to be insured by the Federal Housing Administration ("FHA") or to be
guaranteed by the Veterans Administration ("VA") is so insured by FHA under
the National Housing Act or Title V of the Housing Act of 1949 or other
applicable laws or regulations or is so guaranteed by the VA under the
Servicemen's Readjustment Act of 1944 or Chapter 37 of Title 38 of the
United States Code or other applicable laws or regulations, and such
insurance or guaranty is valid and enforceable in accordance with its
terms.
(g) There is in force a paid-up mortgagee title insurance policy on
the Mortgage Loan (in an amount that is at least equal to the outstanding
principal balance of the Mortgage Loan) issued by a title insurance
company that has been approved by the Buyer, and there is an insured
closing agreement for each Mortgage Loan issued by the title insurance
company that issued the mortgagee title insurance policy. If the Mortgage
Loan is a graduated payment mortgage, the policy shall be for an amount at
least equal to the highest anticipated outstanding principal balance of
the Mortgage Loan. If the Mortgage Loan provides for or permits negative
amortization, the policy shall be for an
-4-
<PAGE>
amount that is not less than the highest allowable outstanding principal
balance of the Mortgage Loan. If the Mortgage Loan is a variable rate
mortgage loan, the policy shall contain a variable rate endorsement. If the
property secured by the Mortgage is located in a condominium or planned
unit development ("PUD"), the policy shall contain an appropriate
condominium or PUD endorsement. If the improvements on the property
secured by the Mortgage include a manufactured home, the policy shall
contain an ALTA 7 equivalent endorsement.
(h) There is a valid paid-up hazard insurance policy in force at the
time of the purchase of the Mortgage Loan by Buyer issued or written by an
insurance company approved by Buyer and with a Best's Key Rating Guide
financial size category of Class III and at least a "B" general
policyholder's rating. The hazard insurance policy shall be for an amount
at least equal to the full replacement value of the improvements on the
property secured by the Mortgage. Unless a higher maximum amount is
required by state law, the maximum deductible should be the lesser of
$1,000.00 or 1% of the policy face amount. The policy shall be of a type at
least as protective as fire and extended coverage and shall contain a
mortgagee clause and loss payable clause to the Buyer in the form of the
standard New York mortgagee clause, and shall contain suitable provisions
for payment on all present and future mortgages on such premises in order
of precedence. For properties in special flood hazard areas, there is in
force a flood insurance policy as required under applicable federal law and
regulations, the maximum available coverage has been obtained, and the
application for flood insurance or the original flood insurance policy will
be provided. If property securing the Mortgage Loan is located in a
condominium or PUD project, a certificate of insurance naming Buyer as the
insured plus a certified true copy of the Master Hazard and Liability
Policy will be provided.
(i) All applicable federal, state, and local laws, rules and
regulations have been complied with including, but not limited to, the Real
Estate Settlement Procedures Act and Regulation X, the Equal Credit
Opportunity Act and Regulation B, the Federal Truth-in-Lending Act and
Regulation Z, the Fair Credit Reporting Act, the Flood Disaster Protection
Act, the Fair Housing Act, and federal, state, and local laws, rules or
regulations, including, but not limited to, those relating to licensing and
those that prohibit or limit fees, charges, or costs that lenders may
impose on borrowers.
(j) There are no defenses, counterclaims, or rights of setoff
affecting any Mortgage Loan or affecting the validity or enforceability of
any private mortgage insurance or FHA insurance applicable to any Mortgage
Loan or any VA guaranty with respect to any Mortgage Loan.
(k) The assignment of the Mortgage Loan from the Seller to Buyer is
valid and sufficient to assign to and perfect in Buyer all of Seller's
right, title, and interest in and to the Mortgage Loan. The Mortgage Loan
is freely assignable and transferable by Buyer and the sale and transfer of
the Mortgage Loan from Seller to Buyer is free and clear of any and all
claims or encumbrances.
(1) The real property secured by the Mortgage has been improved as a
single-
-5-
<PAGE>
family (1-4 unit) dwelling or by a condominium/PUD unit that is approved
by the FHA, VA, FNMA, or FHLMC, as applicable to the related Mortgage Loan.
(m) All documents submitted by Seller pursuant to this Agreement are
genuine; the Mortgage, the Mortgage Note and any other documents submitted
by Seller to Buyer that Buyer requires to be original documents are
original documents; all certified copies of original documents are true
copies of the originals; and all other representations by Seller as to
each Mortgage Loan are true and correct and meet the applicable
requirements and specifications of this Agreement.
(n) Nothing involving the Mortgage Loan, the real property secured by
the Mortgage, the mortgagor, or the mortgagor's credit standing can
reasonably be expected to:
(i) cause private institutional investors to regard the Mortgage
Loan as an unacceptable investment; or
(ii) cause the Mortgage Loan to become delinquent; or
(iii) adversely affect the Mortgage Loan's value or marketability;
or
(iv) if the Mortgage Loan is an FHA or VA loan, render the
Mortgage Loan ineligible for inclusion in a GNMA or FNMA pool.
(o) No Mortgage Loan sold and purchased pursuant to this Agreement
shall have a payment past due more than thirty (30) days.
(p) As demonstrated by a survey of the real property secured by the
Mortgage, all improvements secured by the Mortgage are wholly within the
boundaries and comply with all building restriction laws or the mortgagee's
title insurance policy insuring the Mortgage affirmatively insures against
loss or damage by reason of any violation, variation, encroachment, or
other adverse circumstance disclosed by the survey.
(q) No Mortgage Loan sold and purchased pursuant to this agreement
shall have real estate taxes, assessments, etc. due within sixty (60) days
of the loan closing. In the event that real estate taxes, assessments, etc.
due within sixty (60) days of closing have not been paid, Seller shall be
liable to Buyer for an amount equal to any interest and penalty charged for
late payment.
(r) The property securing the Mortgage Loan is not damaged by fire,
wind or other cause of loss. There are no proceedings pending for the
partial or total condemnation of the property.
(s) The Mortgage Loan complies with any special investor requirements
and/or underwriting contingencies communicated to Seller prior to closing.
(t) In the event that FHA or VA loans are sold hereunder. Seller is an
-6-
<PAGE>
approved mortgagee in good standing with FHA or VA, as the case may be, and
Seller also has any further FHA or VA approvals required for origination,
closing, and sale to Buyer of the Mortgage Loans.
(u) There is no mechanic's or similar lien or claim that has been
filed for work, labor, or material (and no rights are outstanding that
under applicable law could give rise to such a lien or claim), affecting
the related property, which is or may be a lien prior to, or equal with,
the lien of the related Mortgage.
4. Delivery of Documents. Seller agrees to do all acts necessary to
---------------------
perfect title to the Mortgage Loans in Buyer and shall sell, assign, and deliver
to Buyer, with respect to the purchase of each such Mortgage Loan, the documents
set forth hereinafter, all subject to the approval of Buyer and its legal
counsel as to proper form and execution. No later than ten (10) business days
following the closing and disbursement (or at such earlier time as may be
required by Buyer in the Correspondent Manual), Seller shall forward to Buyer
the Mortgage Loan file including:
(a) The original Mortgage Note properly endorsed by Seller.
(b) The Mortgage, duly recorded and accompanied by a properly executed
assignment of the Mortgage and the Mortgage Note appropriate in the
jurisdiction in which the real property described in the Mortgage is
located and in recordable form or a certified "clocked-in" copy thereof.
The assignment is to be recorded at Seller's expense to perfect Buyer's
interest in the Mortgage.
(c) A signed copy of the most recently conducted report of appraisal
or certification of valuation of the property secured by the Mortgage. In
addition, if the Mortgage Loan is not an FHA insured loan or a loan
guaranteed at least 25% by the VA, Seller shall obtain and deliver to Buyer
a valid appraisal report of the real estate securing the Mortgage Loan,
which appraisal shall be made by a qualified appraiser approved by Buyer
who has no direct or indirect interest in the real estate securing the
Mortgage Loan.
(d) A mortgage title insurance binder, including copies of exceptions,
issued by a title insurance company approved by Buyer and in such form and
subject to such exceptions as are approved by Buyer and the Buyer's legal
counsel.
(e) A survey of the property secured by the Mortgage to the extent
required by applicable state law or required in order to enable Buyer to
sell the Mortgage to or place the Mortgage with the Federal National
Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation
("FHLMC"), or the Government National Mortgage Association ("GNMA").
(f) A hazard insurance policy with paid receipt issued or written by
an insurance company that has been approved by Buyer and meeting the
requirements set forth in Section 3(h) hereof.
(g) A statement showing the unpaid principal balance of the
Mortgage loan,
-7-
<PAGE>
the amount of periodic installments, and the date(s) to which principal,
interest, and any escrows have been paid; and, if requested by Buyer, a
ledger card or ledger history reflecting all receipts and disbursements
from the inception of the Mortgage Loan including the date of each receipt
or disbursement.
(h) A flood insurance policy or copy of the application, if
applicable, with a copy of letter requesting an endorsement naming Buyer as
mortgagee.
(i) With respect to any Mortgage Loan that is also secured by a junior
lien or second mortgage, such documentation as is required by Buyer to
indicate that the liens on the property securing the Mortgage do not exceed
applicable loan-to-value ratio requirements imposed by Buyer or any other
requirement relating to secondary financing as determined by FHA, VA,
FNMA, FHLMC, or by any other subsequent investor or purchaser of the
Mortgage Loan.
(j) A completed tax information sheet together with a copy of the
paid receipt.
(k) A copy of the Settlement Statement (HUD-1) and Truth-in-Lending
Disclosure Statement prepared in connection with the Mortgage Loan
indicating that the mortgagor has received the disclosures required by the
Truth-in-Lending Act and Real Estate Settlement Procedures Act and, when
applicable, any required adjustable rate mortgage disclosures.
(l) Seller shall deliver to Buyer such other follow-up documentation
as reasonably requested.
Buyer shall, within three (3) business days after receipt of the above
referenced documents, fund the purchase price of the Mortgage Loan being
purchased, net of any applicable discount points, purchase fees, escrow items,
or interim interest but including service release premiums and accrued interest,
by wire transfer of funds as directed by Seller.
No later than ninety (90) days following the purchase of the Mortgage
Loan by Buyer, Seller shall deliver to Buyer the following:
(a) The original recorded Mortgage.
(b) The original recorded assignments of the Mortgage and the
Mortgage Note.
(c) The final title insurance policy insuring the lien of the
Mortgage and including an indemnity from Seller against any changes in the
final title insurance policy.
(d) Any and all documents, agreements or instruments related to
the Mortgage or the Mortgage Note and Seller's right and benefits therein
(including but not limited to the FHA Mortgage Insurance Certificate or
the VA Loan Guaranty Certificate), all documents relating to the making
and closing of the Mortgage Loan and any other
-8-
<PAGE>
documents, agreements, or instruments related to the Mortgage Loan or
required by Buyer in order to perfect its right, title, and interest in and
to the Mortgage Loan or required by Buyer in order to enable Buyer to sell
the Mortgage Loan to or place the Mortgage Loan with GNMA, FNMA, FHLMC, or
a private investor.
In the event Seller shall fail to deliver a fully documented loan
package as specified hereinabove, Seller shall be subject to a delinquency
penalty of Twenty-Five and no/100 Dollars ($25.00) per missing document per
week, which penalty shall be paid by Seller within 30 days of Buyer's
request. In addition, Buyer reserves the right to withhold service release
premiums if required documentation is not received in a timely manner or if
the penalty described above is not paid in a timely manner. Buyer's rights
to demand payment of such a penalty and to withhold payment of service
release premiums shall be in addition to and not in lieu of Buyer's other
remedies hereunder (including the remedy of repurchase as provided in
Section 6), and Buyer's exercise of such rights shall not be deemed an
election of remedies or a waiver of such other remedies. Buyer shall be
entitled to offset against service release premiums or other amounts
payable to Seller any costs or expenses incurred by Buyer in resolving
Seller's documentation deficiencies.
Seller acknowledges and agrees: (1) that all documents in the
mortgage file and all other documents and records of whatever kind or
description (whether prepared by Seller or by others on behalf of Seller)
that are related to the origination, processing, closing, delivery, sale,
or servicing of any Mortgage Loan sold by Seller to Buyer hereunder (the
"Documents") will be, and will remain at all times, the property of Buyer;
(2) that any such Documents in the possession of Seller are retained by
Seller in a custodial capacity only; (3) that (except as required in the
ordinary course of business) Seller shall not transfer the Documents to a
party other than Buyer without Buyer's written permission; (4) that Seller
will permit Buyer, at any time, to inspect the Documents in the possession
of Seller; (5) that Seller shall transfer the Documents to Buyer (or
Buyer's designee) promptly upon Buyer's request; and (6) that Seller shall
be liable to Buyer for and shall indenmify Buyer and hold Buyer harmless
for any loss, damage, or expense (including court costs and reasonable
attorney fees) that Buyer may incur as a result of Seller's retention of
such Documents.
5. Escrow Deposits. Seller hereby transfers, assigns, and conveys
---------------
to Buyer all of Seller's right, title, and interest in and to all escrow
deposits and other trusts or escrowed funds held in connection with all
Mortgage Loans and related agreements, and all unreimbursed advances made
by the Seller for principal, interest, taxes, hazard insurance, mortgage
insurance or similar items in connection with the Mortgage or related
agreements, and all of Seller's right to collect, recover, and be
reimbursed for the same.
6. Repurchase of Mortgage Loans. Seller agrees to repurchase any
----------------------------
Mortgage Loan subject to this Agreement upon the terms and conditions
hereinafter set forth in the event that:
(a) Any misstatement of material fact is discovered by Buyer or
its representative or assigns or disclosed to Buyer or its
representative or assigns by
-9-
<PAGE>
inspection by Buyer or its representatives, or otherwise; or
(b) Any term of this Agreement is breached by the Seller; or
(c) Any representation or warranty of the Seller under Section 3
is determined by Buyer to have been false; or
(d) Any FHA insurance, VA guaranty, or private mortgage insurance
insuring or guaranteeing the loan secured by the Mortgage lapses as a
result of any act or omission by Seller or the failure by Seller to
obtain such insurance or guaranty within ninety (90) days from the
date of funding, or
(e) Buyer is required to repurchase any Mortgage Loan sold to
GNMA, FNMA, FHLMC, or other investor, due to a deficiency in or
omission with respect to the documents, instruments, and agreements
pertaining to any Mortgage Loan; or
(f) Seller does not comply with all of Buyer's underwriting
contingencies.
(g) Any material third party fraud or misrepresentation is
determined to exist through the post-closing quality control review by
Buyer or another investor. This includes, but is not limited to, any
misrepresentation of income, funds on deposit, or employment.
Except as provided below, the repurchase price for any Mortgage Loan
that Seller is required to repurchase from Buyer shall be an amount equal to the
then unpaid principal balance of the Mortgage Loan plus accrued interest through
the date of repurchase (plus any premium paid to Seller by Buyer for servicing),
and the costs and-expenses (including attorney's fees) incurred by Buyer in
connection with the repurchase.
In the event that Buyer is required to repurchase a Mortgage Loan sold
by Buyer to GNMA, FNMA, FHLMC, or any other investor, or pledged or placed by
Buyer in a mortgage pool for any of the reasons set forth in Subsections (a)
through (g) of this Section 6, the price to be paid by Seller to Buyer on
repurchase of the Mortgage Loan by Seller shall be an amount equal to the sum
Buyer was required to pay in order to repurchase the Mortgage Loan plus accrued
interest from the date of the repurchase of the Mortgage Loan by Buyer through
the date of the repurchase of the Mortgage Loan by Seller plus any service
release premium paid to Seller by Buyer plus any costs and expenses (including
reasonable attorney's fees) incurred by Buyer in connection with the
transaction.
7. Option to Repurchase or Indemnify as to Delinquent Loans. In the
--------------------------------------------------------
event that a Mortgage Loan purchased hereunder (other than a Mortgage Loan
underwritten by Buyer prior to purchase) becomes sixty (60) calendar days or
more delinquent during the first four (4) months following the first payment due
to Buyer and is subsequently recommended for
-10-
<PAGE>
foreclosure within twelve (12) months following the first payment due to Buyer,
then Seller shall either--
(i) repurchase such Mortgage Loan and the servicing rights related thereto
in the manner described in Section 6 above, or
(ii) indemnify Buyer in lieu of repurchase as follows: Seller shall deposit
with Buyer a foreclosure expense deposit of $2,500.00 and a foreclosure
processing fee of $500.00 and shall reimburse Buyer for the price paid for the
servicing rights for the related Mortgage Loan. Buyer will complete the
foreclosure process and file the claim with FHA, VA, or the applicable Private
Mortgage Insurance company. Seller shall be responsible for all losses, costs,
and expenses resulting from foreclosure and/or disposition of the property,
including but not limited to all of Buyer's out-of-pocket costs, Buyer's
unreimbursed cost of funds, and any losses resulting from any VA "no-bid" loan.
Upon determination of the final settlement amount, Buyer will furnish to Seller
an accounting of the claim and shall either (a) refund any unused portion of the
foreclosure expense deposit or (b) bill the Seller for payment of the excess of
all losses, costs and expenses over the foreclosure expense deposit. Seller
shall pay any amount billed within ten days of the billing date. It is expressly
understood and agreed that the foreclosure processing fee of $500.00 is designed
to compensate Buyer for its internal administrative costs in processing the
foreclosure and shall not be applied against other amounts for which Seller is
responsible. In the event that a VA Mortgage Loan becomes a "no-bid" loan, Buyer
will so advise Seller and will work with Seller to mitigate any eventual loss.
8. Refund of Service Release Premiums. If any Mortgage Loan is
-----------------------------------
prepaid within six (6) months following the date of purchase by Buyer, Seller
shall refund to Buyer all service release premiums received from Buyer with
respect to that Mortgage Loan.
9. Eligibility of Mortgage Loans for Sale or Transfer. Seller agrees
--------------------------------------------------
to take such action and to prepare, execute, assign, and deliver to Buyer such
documents, including but not limited to the Mortgage, assignment of the Mortgage
and Mortgage Note to Buyer, and Mortgage Note properly endorsed, in such form as
shall enable Buyer at Buyer's option to place or pledge any FHA insured or VA
guaranteed Mortgage Loan in a mortgage pool under the Government National
Mortgage Association's Mortgage-Backed Securities Program or to place or pledge
any conventional Mortgage Loan in a mortgage pool under the Federal National
Mortgage Association's Conventional Mortgage-Backed Securities Program or to
sell the Mortgage Loans to GNMA, FNMA, FHLMC, or a private investor.
10. Indemnification. Seller will indemnify, defend, and hold Buyer
---------------
harmless from and against any and all claims, losses, costs, or damages,
including, but not limited to, reasonable attorney's fees and expenses (i)
arising out of any act or omission of Seller or any employee or agent of Seller;
(ii) arising in connection with or out of the failure of Seller to comply with
any applicable statutes, rules, or regulations; or (iii) arising out of Seller's
failure to perform any of its obligations hereunder; or (iv) arising out of or
in connection with any falsity, incorrectness, or incompleteness in any material
respect of any representation or warranty made by Seller herein. Buyer may bill
Seller for, and Seller shall pay within ten days of billing, any
-11-
<PAGE>
amounts due to Buyer in connection with transactions under this Agreement
(including but not limited to amounts determined to be due as a result of
errors or adjustments in the funding of loans), and Buyer shall be entitled to
offset against service release premiums or other amounts payable to Seller any
such amounts due to Buyer.
Seller understands that Buyer may enter into commitments to sell mortgage-
backed securities to be based on or backed by the Mortgage Loans deliverable by
Seller to Buyer under this Agreement, or that Buyer otherwise may enter into
commitments to sell such Mortgage Loans to investors, and that Buyer may incur
claims, losses, expenses, and other liabilities if it repudiates, breaches, or
defaults under such commitments to sell mortgage-backed securities or to sell
such Mortgage Loans. If Seller enters into any agreement or commitment for the
sale of Mortgage Loans to Buyer hereunder, Seller agrees to indemnify Buyer and
hold Buyer harmless against any such claims, losses, expenses, and liabilities
that arise from Seller's failure to deliver any such Mortgage Loans, if closed,
to Buyer, in accordance with the provisions of the Correspondent Manual. Buyer
shall be entitled to offset against service release premiums or other amounts
payable to Seller any amounts due to Buyer as described above.
11. Financial Statements. Seller shall furnish to Buyer for as long as
--------------------
this Agreement is in effect, as soon as available, and in any event within
ninety (90) days after the end of each fiscal year of Seller, audited financial
statements of Seller consisting of a balance sheet as of the end of such fiscal
year together with related statements of income or loss and reinvested earnings
and changes in financial position of Seller for such fiscal year, prepared by
independent certified public accountants in accordance with generally accepted
accounting principles. In addition, Seller shall also provide to Buyer, from
time to time, upon reasonable request and sixty (60) days notice, any other
financial reports or statements required by Buyer.
12. Insurance. Seller shall maintain in full force Errors and
---------
Omissions and Fidelity Bond insurance coverage in such amounts as Buyer may
reasonably require to indemnify it from any loss or damage incurred in
connection with the transactions contemplated by this Agreement.
13. Assignment. Buyer shall have the right to assign this Agreement
----------
and its duties, obligations, or rights hereunder upon written notice to Seller.
In the event that Buyer sells or assigns all or part or its interest in any
Mortgage Loans that are subject to this Agreement to a third party, such third
party shall succeed to all of the rights of Buyer hereunder with respect to such
Mortgage Loans. Seller shall not have the right to assign this Agreement or any
of its duties, obligations, or rights hereunder without the prior written
consent of Buyer.
14. Events of Default. Each of the following shall constitute an
-----------------
Event of Default on the part of Seller under this Agreement: (1) any breach by
Seller of any of Seller's representations, warranties, or covenants set forth in
this Agreement; (ii) the failure of Seller to perform any of its obligations
under this Agreement; (iii) the occurrence of an act of insolvency or
bankruptcy concerning Seller; and (iv) Seller's failure to meet any capital,
leverage, or other financial standard imposed by any applicable regulatory
authority, or in Buyer's sole discretion, any material adverse change occurs in
the financial condition of Seller.
-12-
<PAGE>
15. Amendment/Termination. Buyer shall have the right to amend
---------------------
this Agreement with written notice to the Seller. At Buyer's request, Seller
shall acknowledge changes to the Agreement in writing, but Seller's failure to
provide written acknowledgment of any amendment shall not impair the
enforceability of such amendment. This Agreement may also be terminated with
respect to future purchases of Mortgage Loans by either party at any time by
giving written notice of termination to the other party. In addition, upon the
occurrence of any Event of Default as described in Section 14, and without
affecting any other rights or remedies available to Buyer under this Agreement
or at law or in equity, Buyer may immediately suspend all registrations and
lock-ins and may refuse to fund any or all Mortgage Loans, pending the cure, to
Buyer's satisfaction, of such Event of Default. Termination of this Agreement
shall not in any respect change, alter, or modify the obligations of Buyer and
Seller with respect to Mortgage Loans that have been purchased by Buyer from
Seller prior to the date of such termination or (except as provided in the
preceding sentence) with respect to Mortgage Loans that are the subject of
then outstanding written commitments or agreements between Buyer and Seller at
the time of such termination.
16. Notices. Any notice or demand that is required or permitted to
-------
be given by a provision of this Agreement shall be deemed to have been
sufficiently given if either served personally or sent by prepaid first class,
registered, or certified mail, addressed to the party at its address set forth
below:
Seller: EMB Mortgage Corporation
---------------------------------------------------------
575 Anton Boulevard #200
---------------------------------------------------------
Costa Mesa, CA 92626
---------------------------------------------------------
---------------------------------------------------------
Attn: Joseph K. Brick
-------------------------------------------------
Buyer: Resource Bancshares Mortgage Group, Inc.
Post Office Box 7486
Columbia, SC 29202-7486
Attn: Thomas S. Palmer
-------------------------------------------------
With Copy to: Resource Bancshares Mortgage Group, Inc.
Post Office Box 7486
Columbia, SC 29202-7486
Attn: David W. Johnson
Either party may change its address by written notice to the
other.
17. Correspondent Manual. In addition to all of the obligations
--------------------
and agreements specifically set forth herein, Seller hereby agrees to comply
with all of the provisions of the Correspondent Manual (including any policies
and procedures contained in program announcements, memoranda, or other similar
communications) delivered to Seller, as may be modified or amended from time to
time. Notwithstanding the provisions of Section 18,
-13-
<PAGE>
modifications and additions to the Correspondent Manual by Buyer shall not
require the signature of Seller to be effective and shall become effective upon
receipt.
18. Entire Agreement. This Agreement and the Correspondent Manual
----------------
contain the entire agreement of the parties with respect to the subject matter
hereof, and there are no representations, inducements, or other provisions other
than those expressed in writing and therein. All changes, additions, or
deletions to this Agreement must be made in writing and signed by each of the
parties hereto. This Agreement restates, amends, and supersedes any and all
prior Mortgage Purchase Agreements between the parties.
19. Survival of Provisions; Severability. All of the covenants,
------------------------------------
agreements, representations, and warranties made herein by the parties hereto
shall survive and continue in effect after the termination of the Agreement or
the consummation of the transactions contemplated hereby. All section headings
contained herein are for convenience only and shall not be construed as part of
this Agreement. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction, and, to this end, the provisions hereof are
severable. This Agreement may be executed in counterparts, all of which taken
together shall constitute one and the same instrument.
20. Governing Law, Jurisdiction and Venue. This Agreement shall be
-------------------------------------
governed by and construed in accordance with the laws of the State of South
Carolina and any applicable federal laws. Each of the parties irrevocably
submits to the jurisdiction of any state or federal court located in Richland
County, South Carolina, over any action, suit or proceeding to enforce or defend
any right under this Agreement or otherwise arising from any transaction
existing in connection with this Agreement, and each of the parties irrevocably
agrees that all claims in respect of any such action or proceeding shall be
heard or determined in such state or federal court. Each of the parties
irrevocably waives the defense of an inconvenient forum to the maintenance of
any such action or proceeding and any other substantive or procedural objection
it may have with respect to the maintenance of any such action or proceeding in
any such forum. Each of the parties agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in any other
jurisdiction by suit on the judgment or in any other manner provided by law.
Each of the parties further agrees not to institute any legal actions or
proceedings against the other party or any director, officer, employee,
attorney, agent or property of the other party, arising out of or relating to
this Agreement, in any court other than as hereinabove specified in this Section
20.
21. Attorney's Fees. In the event Seller defaults in any of its
---------------
warranties, representations, or obligations under this Agreement or in any
document or obligation relating to this Agreement, Seller shall pay Buyer its
reasonable attorney's fees incurred in enforcing its rights hereunder.
22. No Agency. This Agreement and transactions entered into pursuant
---------
hereto shall not create between Seller and Buyer a relationship of agency,
legal representation, joint venture, partnership, or employment, and Seller and
Buyer agree that neither party is in any way
-14-
<PAGE>
authorized to make any contract, agreement, warranty, or representation, or to
create any obligation, express or implied, on behalf of the other.
23. Change in Ownership of Seller. A sale or other transfer of a
-----------------------------
substantial portion of the assets of Seller or any change in the ownership of
a majority interest in Seller, whether by sale of assets, merger, consolidation,
sale of stock interest in Seller, or any other circumstances where the effect is
to pass ownership of a majority interest in Seller; shall be deemed an
assignment for purposes of Section 13.
24. Waiver. No modification or waiver of any provision of this
------
Agreement, nor any consent to any departure by Seller therefrom shall in any
event be effective unless the same shall be in writing, and then such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given. No notice to nor demand on the Seller in any case shall entitle the
Seller to any other or further notice or demand in the same, similar, or other
circumstances. Neither any failure nor any delay on the part of the Buyer in
exercising any right, power, or privilege hereunder shall operate as a waiver
thereof, nor shall a single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power, or
privilege.
25. Endorsement of Instruments. Seller hereby irrevocably
--------------------------
authorizes and empowers Buyer, without notice to Seller, whether in its name or
in the name of Seller, to endorse in the name of Seller any checks, drafts or
other orders payable to Seller for application to the respective Mortgage Loan,
and this authority shall be irrevocable until the Mortgage Loan has been fully
paid and discharged.
26. Acceptance. This Agreement shall become binding upon acceptance
----------
by Buyer at its home office in Columbia, South Carolina.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and sealed as of the day and year first above written.
SELLER
(CORPORATE SEAL) EMB MORTGAGE CORPORATION
[SIGNATURE ILLEGIBLE] By: /s/ Joseph K. Brick
- ---------------------------- --------------------------------------
Its: Secretary Its: President
----------------------- ------------------------------------
BUYER:
(CORPORATE SEAL) RESOURCE BANCSHARES MORTGAGE GROUP, INC.
ATTEST:
[SIGNATURE ILLEGIBLE] By: [SIGNATURE ILLEGIBLE]
- ---------------------------- --------------------------------------
Its: Vice President Its: Senior Vice President
----------------------- ------------------------------------
-16-
<PAGE>
ADDENDUM TO MORTGAGE PURCHASE AGREEMENT
FOR
UNDERWRITING SERVICES
This Addendum to Mortgage Purchase Agreement for Underwriting Services (the
"Addendum") is made and entered into this 25 day of March, 1997, by and between
RESOURCE BANCSHARES MORTGAGE GROUP, INC. (hereinafter referred to as "Buyer")
and EMB MORTGAGE CORPORATION (hereinafter referred to as "Seller").
WHEREAS, Buyer and Seller have previously entered into a Mortgage Purchase
Agreement (the "Agreement"), dated March 10, 1997, pursuant to which Seller has
agreed to sell and Buyer has agreed to purchase certain Mortgage Loans on the
terms and conditions contained in such Agreement; and
WHEREAS, Seller desires that Buyer or a third party contract underwriter
satisfactory to the Buyer (the "Third Party Underwriter") perform the
underwriting of certain conventional Mortgage Loans intended for sale to Buyer,
pursuant to the terms and conditions of this Addendum (the "Underwriting
Function"); and
WHEREAS, Buyer or the Third Party Underwriter is willing to perform this
Underwriting Function.
NOW, THEREFORE, in consideration of the benefits flowing to each party
hereunder, Buyer and Seller agree as follows:
1. Seller agrees that it will submit an original and copy of a complete
mortgage credit package, including all verifications, credit reports,
appraisals and other documentation necessary for the underwriting review to the
Third Party Underwriter with Buyer's transmittal sheet.
2. Seller agrees that its representations and warranties concerning
compliance with Buyer's underwriting contingencies for each Mortgage Loan in the
Agreement will remain in effect even though the underwriting is performed by the
Third Party Underwriter.
3. Seller agrees that Buyer is entitled to rely on the underwriting
decision of the Third Party Underwriter.
4. Buyer agrees that if the Third Party Underwriter denies the loan,
Buyer will send to Seller the adverse action statement required by the Equal
Credit Opportunity Act. If no credit is offered to the applicant by any lender,
or if credit is not accepted by the applicant, Seller shall deliver Buyer's
adverse action notice to the related applicant.
5. Seller agrees that if Buyer performs the Underwriting Function, and
denies the loan, its decision will govern, and Seller will not subsequently
submit the mortgage credit package to the Third Party Underwriter.
Page 1 of 2
<PAGE>
6. Seller agrees that it is obligated to pay to the Third Party
Underwriter the underwriting fee for each Mortgage Loan as set forth in Buyer's
procedures, as may he amended from time to time, for each Mortgage Loan
reviewed by the Third Party Underwriter pursuant to the terms of this Addendum,
and Seller indemnifies Buyer against any claim, loss, damages, costs and
expenses in connection with or resulting from Seller's failure to pay the
underwriting fee.
7. Except as expressly amended hereby, the terms of the Agreement shall
remain in full force and effect.
8. This Addendum may not be amended without the written consent of
Buyer and Seller.
9. This Addendum may be terminated by Buyer upon written notice to the
Seller, given by prepaid first class, registered, or certified mail.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be duly
executed and sealed as of the day and year first above written.
(CORPORATE SEAL) SELLER:
EMB MORTGAGE CORPORATION
[SIGNATURE ILLEGIBLE] /s/ Joseph K. Brick, Pres.
- --------------------------- --------------------------------------
Its: Secretary By: Joseph K. Brick, President
----------------------- -----------------------------------
Name and Title:_______________________
BUYER:
(CORPORATE SEAL) RESOURCE BANCSHARES MORTGAGE GROUP, INC.
ATTEST:
[SIGNATURE ILLEGIBLE] By: [SIGNATURE ILLEGIBLE]
- --------------------------- ----------------------------------
Its: Senior Vice President Name and Title: Senior Vice President
----------------------- -----------------------
Page 2 of 2
<PAGE>
-----------------
SPECIAL PROGRAM
-----------------
TABLE FUNDING PROGRAM
- ---------------------
In consideration of the agreement by Resource Bancshares Mortgage Group, Inc.
("RBMG") to extend table funding privileges to the Seller ("Correspondent"),
Seller must abide by the following procedures:
LOAN REGISTRATION
- -----------------
The correspondent must lock via FAX or telephone all loans at least 24 hours
prior to requesting table funding.
TABLE FUNDING
- -------------
The Table Closing Department will provide closing funds to agents/attorneys on
the day of disbursement. Requests for closing funds must be received by the
Table Closing Department 48 hours before 1:00 pm EST prior to the LOAN
DISBURSEMENT. This 48 hour notice applies to refinances as well as purchases.
NET FUNDING
- -----------
All loan closings will be NET FUNDED to the table. The net closing price due
--- ------
the correspondent (including any over par premium, service release premium and
interest credit) will be paid at the time of disbursement. All fees and any
discount points due RBMG will be deducted. In addition, escrows, interim
interest and buydown funds will be deducted from the loan proceeds. The Table
Funding Instructions form should be completed according to EXHIBIT TF-2.
If an adjustment to the net funding amount is deemed necessary before funds have
been disbursed, the correspondent must notify the Table Closing Department in
writing so that the net funding amount can be corrected. If an adjustment is
deemed necessary after disbursement (e.g. escrow amounts have increased) the
additional amount due RBMG must be remitted with the closed loan package.
Include the check for funds due RBMG and one copy of the check acco-fastened to
the right hand side of the close loan file.
REQUEST FOR TABLE FUNDING
- -------------------------
At least two (2) business days prior to loan disbursement and NO LATER THAN 1:OO
P.M. EST, the correspondent must fax to RBMG's Table Closing Department the
following documents:
<PAGE>
1) Table Funding Instructions Form (EXHIBIT TF-1)
2) Underwriting Approval (all PTCs must be cleared prior to requesting
funds)
3) Flood Data Services, Inc. Life-of-Loan Certification
Funds will be available on the day of disbursement. A Bank of New York check
will be shipped priority delivery to the closing agent's office by overnight
mail. Delivery is guaranteed by 10:30 a.m. in most areas. Wire transfers are
normally completed by 12:00 p.m. EST. Funding by wire transfer or official check
is available only in good funds states or when the borrower is purchasing a HUD
repossession.
INSURED CLOSING LETTER
- ----------------------
RBMG does not require the correspondent to fax an insured closing letter with
each request for table funds. However it will be the correspondent's
responsibility to obtain an insured closing letter on each closing
agent/attorney from the title insurance company issuing the title policy on the
loan. Failure to do so may result in a loss of protection in the event a closing
agent/attorney fails to follow the lender's closing instructions. RBMG will
continue to monitor Errors and Omissions and Fidelity Bond insurance
requirements as outlined in the Mortgage Purchase Agreement.
The Table Funding Instructions form provides a space on which the correspondent
will attest that an original and active insured closing letter is on file in the
correspondent's office.
COLLATERAL/LOAN DELIVERY REQUIREMENTS
- -------------------------------------
RBMG requires that the original Note, certified true copy of Assignment,
certified true copy of Security Instrument/Mortgage/Deed of Trust (with all
applicable riders) and Mortgage Information Sheet (Exhibit D) be delivered
within (2) business days of loan disbursement. See Chapter 3, Inventory Control,
Section 3.3, Delivery, for additional documents that may be applicable. The
remaining closed loan package must be received within five (5) business days of
disbursement. The loan documents must be accofastened in a file folder,
assembled in the order so noted on RBMG's Government and Conventional Closed
Loan Delivery Checklist (Exhibits C-1 and C-2). Send these documents to the
attention of INVENTORY CONTROL.
-----------------
DELAY/CANCELLATION OF LOAN CLOSING
- ----------------------------------
In the event a scheduled closing is delayed or canceled, it is the
correspondent's responsibility to notify RBMG's Table Closing Department via fax
immediately. In
<PAGE>
cases where the closing check has been sent to the closing agent, RBMG will
allow funds to be held for a maximum of two (2) calendar days provided that
approval has been obtained by the Funding Department Manager or Table Closing
Supervisor.
For those closings which are canceled or will be postponed for more than two (2)
calendar days the following procedures will apply:
Controlled Disbursement Check-
- -----------------------------
A completed Postponement/Stop Payment Request (Exhibit TF-3) must be faxed to
the Table Closing Department. It is the policy of RBMG that closing checks made
payable to an agent's trust account will be not stopped without direct
instructions to do so by the correspondent. At this time, a $25.00 stop payment
fee will be assessed.
Official Check-
- --------------
A completed Postponement/Stop Payment Request (Exhibit TF-3) must be faxed to
the Table Closing Department. The original unaltered check must be returned to
RBMG immediately by overnight mail. At this time, a $25.00 stop payment fee will
be assessed. Charges will be assessed at the rate of $10.00 per day from the
date of check until the date the original check is returned to RBMG.
Wire Transfer-
- -------------
A written Postponement/Stop Payment Request (Exhibit TF-3) must be faxed to the
Table Closing Department. RBMG'S wiring instructions appear on Exhibit TF-3. A
$25.00 returned wire fee will be assessed. Charges will be assessed at the rate
of $10.00 per day from the date of the wire until the date funds are returned by
wire transfer.
SUSPENSION OF TABLE FUNDING ACTIVITY
- ------------------------------------
RBMG reserves the right to suspend, alter, restrict or cancel any or all of the
table funding activities with just cause giving 24-hour written notification.
The suspension of this activity in no way releases the correspondent from the
terms of the lock-in commitment, delivery requirements, or Mortgage Purchase
Agreement.
RBMG RESERVES THE RIGHT TO HOLD ALL OR PART OF THE CORRESPONDENT'S SERVICE
RELEASE PREMIUM FROM THE CLOSING FUNDS IF THERE ARE BILLING OR OTHER MATTERS
UNRESOLVED.
<PAGE>
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
TABLE FUNDING ADDENDUM
TO
MORTGAGE PURCHASE AGREEMENT
This addendum is made part of the Mortgage Purchase Agreement between the
undersigned Seller and Buyer
Buyer
(Corporate Seal) BUYER:
Attest: Resource Bancshares Mortgage Group Inc.
[SIGNATURE ILLEGIBLE] By: [SIGNATURE ILLEGIBLE]
- -------------------------- ---------------------------------
Its: Vice President Its: Senior Vice President
---------------------- --------------------------------
Seller
(Corporate Seal) SELLER:
Attest: EMB Mortage Corporation
[SIGNATURE ILLEGIBLE] By: [SIGNATURE ILLEGIBLE]
- -------------------------- ---------------------------------
Its: A.V.P Its: President
---------------------- --------------------------------
<PAGE>
EXHIBIT 10(S)
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of November, 1997, by and between the following:
EMB CORPORATION, a Hawaii corporation (hereinafter "EMB");
LINDA K. GREGG, an individual residing in Utah (hereinafter "Ms.
Gregg").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, subject to the terms and conditions of this Agreement, EMB and Ms.
Gregg desire for EMB to purchase from Ms. Gregg, and for Ms. Gregg to sell to
EMB one thousand 1,000 shares of capital stock of Preferred Holding Group,
Incorporated, a Colorado corporation that is in process of changing its name to
EMB Financial Services, Inc. (hereinafter "PHG"), which shares represent all of
the issued and outstanding capital stock of PHG; and
WHEREAS, in order to attain the benefits of integrating the operations of
PHG with the operations of EMB and of obtaining continuity of the operations of
PHG, EMB desires that Douglas Gregg ("Mr. Gregg"), a current significant
employee of PHG, becomes an employee of EMB; and
WHEREAS, the Board of Directors of EMB deems it desirable and in the best
interests of EMB and its stockholders that EMB purchase an aggregate of one
thousand 1,000 shares of PHG from Ms. Gregg in consideration of the issuance by
EMB to Ms. Gregg, or nominee, of an aggregate of one hundred thousand (100,000)
shares of EMB common stock, such that PHG shall become a wholly-owned subsidiary
of EMB or be merged with and into EMB; and
WHEREAS, the Board of Directors of EMB deems it desirable and in the best
interests of EMB that PHG become a wholly-owned subsidiary of EMB or be merged
with and into EMB; and
WHEREAS, the Board of Directors of EMB has approved and adopted this
Agreement as a plan of reorganization within the meaning, and subject to the
provisions, of Section 368 and other applicable provisions of the Internal
Revenue Code of 1986, as amended, as a "B" reorganization; and
WHEREAS, Ms. Gregg has approved and adopted this Agreement as a plan of
reorganization within the meaning, and subject to the provisions, of Section 368
and other applicable provisions of the Internal Revenue Code of 1986, as
amended, as a "B" reorganization; and
WHEREAS, EMB and Ms. Gregg desire to provide for certain undertakings,
conditions, representations, warranties, and covenants in connection with the
transactions contemplated by this Agreement; and
-1-
<PAGE>
WHEREAS, the Board of Directors of EMB has approved and adopted this
Agreement, subject to the terms and conditions set forth herein; -
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereto do hereby agree as follows:
SECTION 1
DEFINITIONS
-----------
1.1 "Agreement" "EMB," "Mr. Gregg," "Ms. Gregg," and "PHG "respectively,
--------- ---------- ---------- ---
shall have the meanings defined on the cover page and in the foregoing preamble
and recitals to this Agreement.
1.2 "Closing Date" shall mean 10:00 A.M., Pacific Daylight Savings Time,
------------
November 1, 1997, at the offices of Arter & Hadden, 5 Park Plaza, Suite 1000,
Irvine, California 92614, the date on which the parties hereto shall close the
transactions contemplated herein.
1.3 "Mr. Gregg's Employment Agreement" shall mean the Employment
--------------------------------
Agreement between EMB and Mr. Gregg in substantially the form of Exhibit 1.3,
attached hereto.
1.4 "PHG Tax Returns" shall mean the Federal income tax returns of PHG
---------------
for its fiscal years ended December 31, 1989, through and including December 31,
1996, all of which are attached to the Agreement as Exhibit 1.4.
SECTION 2
AGREEMENT FOR PURCHASE AND SALE OF PHG STOCK
--------------------------------------------
2.1 Substantive Terms of the Purchase and Sale of PHG Stock.
-------------------------------------------------------
(a) Ms. Gregg shall sell and deliver to EMB one thousand 1,000
shares of the issued and outstanding capital stock of PHG in a form
enabling EMB then and there to become the record and beneficial owner
thereof;
(b) EMB and Mr. Gregg shall execute Mr. Gregg's Employment
Agreement;
(c) Ms. Gregg shall execute her Release Agreement in the form of
Exhibit 2.1(c) attached hereto;
(d) Ms. Gregg, or nominee, shall execute her Investment
Representation Letter in the form of Exhibit 2.1(d) attached hereto.
2.2 Issuance of EMB Common Stock. EMB shall sell and deliver to Ms. Gregg
----------------------------
100,000 shares of EMB common stock pursuant to an exception from the
registration require-
-2-
<PAGE>
ments of the Securities Act of 1933, as amended, and from qualification under
the Colorado Business Corporation Act. The certificate representing such shares
shall bear the following legend: "The securities represented by this certificate
have not been registered under the Securities Act of 1933, as amended (the
"Act"). Accordingly, no transfer of these securities or any interest therein may
be made except pursuant to an effective registration statement under the Act
unless the issuer has received an opinion of counsel satisfactory to it that
such transfer does not require registration under the Act."
SECTION 3
REPRESENTATIONS AND WARRANTIES OF EMB
-------------------------------------
EMB, in order to induce Ms. Gregg to execute this Agreement and to
consummate the transactions contemplated herein, represents and warrants to Ms.
Gregg as follows:
3.1 Organization and Qualification. EMB is a corporation duly organized,
------------------------------
validly existing, and in good standing under the laws of Hawaii, with all
requisite power and authority to own its property and to carry on its business
as it is now being conducted. EMB is duly qualified as a foreign corporation and
in good standing in each jurisdiction where the ownership, lease, or operation
of property or the conduct of business requires such qualification, except where
the failure to be in good standing or so qualified would not have a material,
adverse effect on the financial condition or business of EMB.
3.2 Ownership of EMB. EMB is authorized to issue two classes of stock of
----------------
up to 30,000,000 common shares, no par value per share, and of up to 5,000,000
preferred shares, no par value per share.
3.3 Authorization and Validity. EMB has the requisite power and is duly
--------------------------
authorized to execute and deliver and to carry out the terms of this Agreement.
The board of directors and stockholders of EMB have taken all action required by
law, its Articles of Incorporation and Bylaws, or otherwise to authorize the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, subject to the satisfaction or waiver of the
conditions precedent set forth in Section 8 of this Agreement. Assuming this
Agreement has been approved by all action necessary on the part of Ms. Gregg,
this Agreement is a valid and binding agreement of EMB.
3.4 No Defaults. EMB is not in default under or in violation of any
-----------
provision of its Articles of Incorporation or Bylaws. EMB is not in default
under or in violation of any material provision of any indenture, mortgage, deed
of trust, lease, loan agreement, or other agreement or instrument to which it is
a party or by which it is bound or to which any of its is subject, if such
default would have a material, adverse effect on the financial condition or
business of EMB. EMB is not in violation of any statute, law, ordinance, order,
judgment, rule, regulation, permit, franchise, or other approval or
authorization of any court or governmental agency or body having jurisdiction
over it or any of its properties which, if enforced, would have a material,
adverse effect on the financial condition or business of EMB. Neither the
execution and delivery of this Agreement, nor the consummation of the
transactions
-3-
<PAGE>
contemplated herein, will conflict with or result in a breach of or constitute a
default under any of the foregoing or result in the creation of any lien,
mortgage, pledge, charge, or encumbrance upon any asset of EMB and no consents
or waivers thereunder are required to be obtained in connection therewith in
order to consummate the transactions contemplated by this Agreement.
3.5 Proprietary Rights. EMB owns or is duly licensed to use such
------------------
trademarks and copyrights as are necessary to conduct its business as presently
conducted. The conduct of business by EMB does not infringe upon the trademarks
or copyrights of any third party, if such infringement would have a material,
adverse effect upon the financial condition or business of EMB.
3.6 Books of Account and Reports; Internal Controls.
-----------------------------------------------
(a) The books of account of EMB accurately reflect in all material
respects all of its items of income and expense, all of its assets,
liabilities, and accruals, and are prepared and maintained in form and
substance adequate for preparing audited financial statements, in
accordance with generally accepted accounting procedures as historically
and consistently applied by EMB. EMB has accurately prepared and filed all
reports required by any law or regulation to be filed by it, and it has
duly paid or accrued on its books of account all applicable duties and
charges due (or assessed against it) pursuant to such reports, none of
which is delinquent.
(b) EMB has devised and maintained a system of internal accounting
controls sufficient to provide reasonable assurances that transactions are
recorded as necessary (i) to permit preparation of financial statements in
conformity with generally accepted accounting principles and (ii) to
maintain accountability for assets and expenses.
3.7 Litigation. There are no actions, suits, proceedings, orders,
----------
investigations, or claims pending or, to the knowledge of EMB threatened against
or affecting EMB at law or in equity, or before or by any governmental
department, commission, board, bureau, agency, or instrumentality, which, if
adversely determined, would materially and adversely affect the financial
condition of EMB, or Which seek to prohibit, restrict, or delay the consummation
of the transactions contemplated hereby. EMB is not operating under or subject
to, or in default with respect to, any order, writ, injunction, or decree of any
court or federal, state, municipal, or other governmental department,
commission, board, agency, or instrumentality.
3.8 Insurance. EMB has insurance against losses or damages and other
---------
risks in amounts and of a character usually insured against by companies in the
same or similar business.
3.9 Documents. The copies of all agreements and other instruments that
---------
have been delivered by EMB to Ms. Gregg are true, correct, and complete copies
of such agreements and instruments and include all amendments thereto.
-4-
<PAGE>
3.10 Disclosure. The representations and warranties made by EMB herein and
----------
in any schedule, statement, certificate, or document furnished or to be
furnished by EMB to Ms. Gregg pursuant to the provisions hereof or in connection
with the transactions contemplated hereby, taken as a whole, do not and will not
as of their respective dates contain any untrue statements of a material fact,
or omit to state a material fact necessary to make the statements made not
misleading.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF MS. GREGG
-------------------------------------------
Ms. Gregg, in order to induce EMB to execute this Agreement and to
consummate the transactions contemplated herein, represents and warrants to EMB
as follows:
4.1 Organization and Qualification. PHG is a corporation duly organized,
------------------------------
validly existing, and in goad standing under the laws of the state of Colorado
with all requisite power and authority to own its property and assets and to
carry on its business as it is now being conducted. PHG is qualified as a
foreign corporation and is in good standing in each jurisdiction where the
ownership, lease, or operation of property or the conduct of its business
requires such qualification except where the failure to be in good standing or
so qualified would not have a material, adverse effect on the financial
condition and business of PHG.
4.2 Ownership of PHG. PHG is authorized to issue one class of stock of up
----------------
to 1,000 shares, no par value per share. At the date hereof, of such authorized
shares, 1,000 shares have been validly issued and are outstanding, fully paid,
and non-assessable, all of which are owned of record and beneficially by Ms.
Gregg. There are no options, warrants, or other securities exercisable or
convertible into or any calls, commitments, or agreements of any kind relating
to any unissued equity securities of PHG.
4.3 Validity. Ms. Gregg has the requisite power to execute and deliver
--------
and to carry out the terms of this Agreement. Assuming this Agreement has been
approved by all action necessary on the part of EMB, this Agreement is a valid
and binding agreement of Ms. Gregg.
4.4 Conduct and Transactions of PHG. During its current fiscal year, PHG
-------------------------------
conducted its operations in the ordinary course of business, consistent with
past practice and used its best efforts to maintain and preserve its properties,
key employees, and relationships with customers and suppliers. Without limiting
the foregoing, during such period PHG did not without the prior written consent
of EMB:
(a) Incur any liabilities except to maintain its facilities and
assets in the ordinary course of its business;
(b) Declare or pay any dividends on any shares of capital stock or
make any other distribution of assets to the holders thereof;
-5-
<PAGE>
(c) Issue, reissue, or sell, or issue options or rights to subscribe
to, or enter into any contract or commitment to issue, reissue, or sell,
any shares of capital stock or acquire or agree to acquire any shares of
capital stock;
(d) Amend its Articles of Incorporation (with the exception of such
amendment as is necessary for PHG to change its name to EMB Financial
Services, Inc.) or Bylaws or merge or consolidate with or into any other
corporation or sell all or substantially all of its assets or change in any
manner the rights of its capital stock or other securities;
(e) Pay or incur any obligation or liability, direct or contingent,
except in the ordinary course of its business;
(f) Incur any indebtedness for borrowed money, assume, guarantee,
endorse, or otherwise become responsible for obligations of any other
party, or make loans or advances to any other party except in the ordinary
course of its business;
(g) Increase in any manner the compensation, direct or indirect, of
any of its officers or executive employees, except as otherwise disclosed
in Exhibit 4.4(g), hereto; or
(h) Make any capital expenditures except in the ordinary course of
its business.
4.5 Compensation Due Employees. PHG will not have any outstanding
--------------------------
liability for payment of wages, payroll taxes, vacation pay (whether accrued or
otherwise), salaries, bonuses, pensions, contributions under any employee
benefit plans or other compensation, current or deferred, under any labor or
employment contracts, whether oral or written, based upon or accruing in respect
of those services of employees of PHG that have been performed prior to the
Closing Date, except as specified on Exhibit 4.6 hereto. On the Closing Date,
PHG will not have any unfunded, contingent, or other liability under any defined
benefits plan or any other retirement or retirement-type plan, whether such
plan(s) are to continue or are thereupon terminated, except for the normal on-
going obligations for future contributions under such plan(s) not related,
generally or specifically, to the termination of such plan(s) or except as
specified on Exhibit 4.5 hereto.
4.6 Union Agreements and Employment Agreements. PHG is not a party to any
------------------------------------------
union agreement or any organized labor dispute. PHG does not have any written or
verbal employment agreements with any of its employees.
4.7 Contracts and Leases. Except as listed in Exhibit 4.7 hereto, PHG is
--------------------
not a party to any written or oral leases, commitments, or any other agreements.
On the Closing Date, PHG shall have paid or performed in all material respects
all obligations required to be paid or performed by it to such date and will not
be in default under any document, contract, agreement, lease, or other
commitment to which it is a party.
-6-
<PAGE>
4.8 Insurance. PHG does not have insurance against losses or damages and
---------
other risks in amounts and of a character usually insured against by companies
in the same or similar business.
4.9 Liabilities. PHG does not have any liabilities.
-----------
4.10 Proprietary Rights. PHG owns or is duly licensed to use such
------------------
trademarks and copyrights as are necessary to conduct its business as presently
conducted. The conduct of business by PHG does not infringe upon the trademarks
or copyrights of any third party, if such infringement would have a material,
adverse effect upon the financial condition or business of PHG.
4.11 Internal Controls.
-----------------
(a) There have been no transactions except in accordance with
management's general or specific authorization.
(b) PHG has devised and maintained a system of internal accounting
controls sufficient to provide reasonable assurances that transactions are
recorded as necessary (i) to permit preparation of financial statements in
conformity with generally accepted accounting principles and (ii) to
maintain accountability for assets and expenses.
4.12 Contracts and Agreements. PHG is not a party to any material
------------------------
contracts or agreements in respect of the operation of its business.
4.13 Minute Books. The minute books of PHG contain true, complete, and
------------
accurate records of all meetings and other corporate actions of its shareholders
and Board of Directors, and true and accurate copies thereof have been delivered
to counsel for EMB. The signatures appearing on all documents contained therein
are the true signatures of the persons purporting to have signed the same.
4.14 Litigation. Except as set forth in Exhibit 4.14, there are no
----------
actions, suits, proceedings, orders, investigations, or claims (whether or not
purportedly on behalf of PHG) pending against or affecting PHG at law or in
equity or before or by any federal, state, municipal, or other governmental
department, commission, board, agency, or instrumentality, domestic or foreign,
nor has any such action, suit, proceeding, or investigation been pending or
threatened in writing during the 12-month period preceding the date hereof,
which, if adversely determined, would materially and adversely affect the
financial condition of PHG or which seeks to prohibit, restrict, or delay the
consummation of the stock sale contemplated hereby. PHG is not operating under
or subject to, or in default with respect to, any order, writ, injunction, or
decree of any court or federal, state, municipal, or other governmental
department, commission, board, agency, or instrumentality.
4.15 Taxes. At the Closing Date, all tax returns required to be filed with
-----
respect to the operations or assets of PHG prior to Closing Date shall have been
correctly prepared in all material respects and, with the exception of the
Company's Federal income tax return for its
-7-
<PAGE>
fiscal year ended December 31,1997, timely filed, and all taxes required to be
paid in respect of the periods covered by such returns shall have been paid in
full or adequate reserves have been established for the payment of such taxes.
Except as set forth in Exhibit 4.15, as of the Closing Date, PHG shall not have
requested any extension of time within which to file any tax returns, and all
known deficiencies for any tax, assessment, or governmental charge or duty shall
have been paid in full or adequate reserves have been established for the
payment of such taxes. The PHG Tax Returns are true and complete in all material
respects. No audits by federal or state authorities are currently pending or
threatened.
4.16 No Defaults. PHG is not in default under or in violation of any
-----------
provision of its Articles of Incorporation or Bylaws. PHG is not in default
under or in violation of any material provision of any material indenture,
mortgage, deed of trust, lease, loan agreement, or other agreement or instrument
to which it is a party or by which it is bound, or to which any of its
properties is subject, if such default would have a material, adverse effect on
the financial condition or business of PHG. PHG is not in violation of any
statute, law, ordinance, order, judgment, rule, regulation, permit, franchise,
or other approval or authorization of any court or governmental agency or body
having jurisdiction over it or any of its property which, if enforced, would
have a material, adverse effect on the financial condition or business of PHG.
Neither the execution and delivery of this Agreement, nor the consummation of
the transactions contemplated herein, will conflict with or result in a breach
of or constitute a default under any of the foregoing or result in the creation
of any lien, mortgage, pledge, charge, or encumbrance upon any asset of PHG and
no consents or waivers thereunder are required to be obtained in connection
therewith in order to consummate the transactions contemplated by this
Agreement, except for the agreements so indicated on Exhibit 4.16.
4.17 Material Change. Except as disclosed on Exhibit 4.17, there has been
---------------
no material change in the condition, financial or otherwise, of PHG as shown in
the PHG Tax Returns, except changes occurring in the ordinary course of
business, which changes have not materially, adversely affected its
organization, business, properties, or financial condition taken.
4.18 Documents. The copies of all agreements and other instruments that
---------
have been delivered by PHG to EMB are true, correct, and complete copies of such
agreements and instruments and include all amendments thereto.
4.19 Disclosure. The representations and warranties made by Ms. Gregg
----------
herein and in any schedule, statement, certificate, or document furnished or to
be furnished by PHG and/or Ms. Gregg to EMB pursuant to the provisions hereof or
in connection with the transactions contemplated hereby taken as a whole do not
and will not as of their respective dates contain any untrue statements of a
material fact, or omit to state a material fact necessary to make the statements
made not misleading.
-8-
<PAGE>
SECTION 5
INVESTIGATION; PRESS RELEASE
----------------------------
5.1 Investigation.
-------------
(a) EMB acknowledges that it has made an investigation of PHG during
the period from on or about July 15, 1997, through the Closing Date, to
confirm, among other things, the assets, liabilities, and status of
business of PHG and its cash position, accounts receivable, liabilities,
and mortgages in process. In the event of termination of this Agreement,
EMB will deliver to Ms. Gregg all documents, work papers, and other
materials and all copies thereof obtained by EMB, or on its behalf, from
PHG or Ms. Gregg, whether obtained before or after the execution hereof,
will not use, directly or indirectly, any confidential information obtained
from PHG or Ms. Gregg hereunder or in connection herewith, and will keep
all such information confidential and not used in any way detrimental to
PHG or Ms. Gregg except to the extent the same is publicly disclosed by PHG
or Ms. Gregg.
(b) Ms. Gregg and Mr. Gregg, jointly and severally, acknowledge that
each has made an investigation of EMB during the period from on or about
July 15, 1997, through the Closing Date, which has included, among other
things, the opportunity of discussions with executive officers of EMB, and
its accountants, investment bankers, and counsel. In the event of
termination of this Agreement, Ms. Gregg will deliver to EMB all documents,
work papers, and other materials and all copies thereof obtained by her, or
on her behalf, from EMB, whether obtained before or after the execution
hereof and will not use, directly or indirectly, any confidential
information obtained from EMB hereunder or in connection herewith, and will
keep all such information confidential and not used in any way detrimental
to EMB, except to the extent the same is publicly disclosed by EMB.
(c) Except in the event that any party hereto discovers in the
course of her or its respective investigation any breach of a
representation or warranty by the other party hereto and does not disclose
it to such other party prior to the Closing Date, no investigation pursuant
to this Section 5.1 shall affect or be deemed to modify any representation
or warranty made by any party hereto.
5.2 Press Release. EMB and Ms. Gregg shall agree with each other as to
-------------
the form and substance of any press releases and the filing of any documents
with any federal or state agency related to this Agreement and the transactions
contemplated hereby and shall consult with each other as to the form and
substance of other public disclosures related thereto; provided, however, that
nothing contained herein shall prohibit either party from making any disclosure
that her or its counsel deems necessary.
-9-
<PAGE>
SECTION 6
BROKERAGE
---------
6.1 Brokers and Finders. Neither EMB, PHG, any of their respective
-------------------
officers, directors, employees, or agents, nor Ms. Gregg has employed any
broker, finder, or financial advisor or incurred any liability for any fee or
commissions in connection with initiating the transactions contemplated herein.
Each party hereto agrees to indemnify and hold the other party harmless against
or in respect of any commissions, finder's fees, or brokerage fees incurred or
alleged to have been incurred with respect to initiating the transactions
contemplated herein as a result of any action of the indemnifying party.
SECTION 7
CLOSING AGREEMENTS AND POST-CLOSING
-----------------------------------
7.1 Closing Agreements. On the Closing Date, the following activities
------------------
shall occur, the following agreements shall be executed and delivered, and the
respective parties thereto shall have performed all acts that are required by
the terms of such activities and agreements to have been performed
simultaneously with the execution and delivery thereof as of the Closing Date:
(a) Ms. Gregg shall have executed and delivered documents to EMB
sufficient then and there to transfer record and beneficial ownership of
the 1,000 issued and outstanding capital stock of PHG to EMB;
(b) EMB and Mr. Gregg shall have executed and delivered Mr. Gregg's
Employment Agreement;
(c) Ms. Gregg shall have executed and delivered her Release
Agreement;
(d) Ms. Gregg shall have executed her Investment Representation
Letter; and
(e) EMB shall have delivered 100,000 shares of EMB common stock to
Ms. Gregg, or nominee.
7.2 PHG as a Subsidiary of EMB. Ms. Gregg acknowledges that, immediately
--------------------------
following the Closing Date, PHG will become a wholly-owned subsidiary of EMB or
be merged with and into EMB.
-10-
<PAGE>
SECTION 8
CONDITIONS PRECEDENT TO EMB'S OBLIGATIONS TO CLOSE
--------------------------------------------------
The obligations of EMB to consummate this Agreement are subject to
satisfaction on or prior to the Closing Date of the following conditions:
8.1 Representations and Warranties. The representations and warranties of
------------------------------
Ms. Gregg contained in this Agreement shall be true and correct in all material
respects on and as of the Closing Date, and Ms. Gregg shall have performed in
all material respects all of her obligations hereunder theretofore to be
performed.
8.2 Other. The joint conditions precedent in Section 10 hereof shall have
-----
been satisfied and all documents required for Closing shall be acceptable to
EMB's counsel.
SECTION 9
CONDITIONS PRECEDENT TO MS. GREGG'S OBLIGATIONS TO CLOSE
--------------------------------------------------------
The obligation of Ms. Gregg to consummate this Agreement is subject to the
satisfaction on or prior to the Closing Date of the following conditions:
9.1 Representations and Warranties. The representations and warranties of
------------------------------
EMB contained in this Agreement shall be true and correct in all material
respects on and as of the Closing Date, and EMB shall have performed in all
material respects all of its obligations hereunder theretofore to be performed.
9.2 Resolutions. EMB shall have furnished Ms. Gregg with a certified copy
-----------
of its resolutions duly adopted by its board of directors approving this
Agreement and the transactions contemplated hereby.
9.3 Other. The joint conditions precedent in Section 10 hereof shall have
-----
been satisfied.
SECTION 10
JOINT CONDITIONS PRECEDENT
--------------------------
The obligations of EMB and Ms. Gregg to consummate this Agreement shall be
subject to satisfaction or waiver in writing by all parties of each and all of
the following additional conditions precedent at or prior to the Closing Date:
10.1 Other Agreements. All of the agreements contemplated by Section 7.1
----------------
of this Agreement shall have been executed and delivered, and all acts required
to be performed thereunder as of the Closing Date shall have been duly
performed.
-11-
<PAGE>
10.2 Absence of Litigation. At the Closing Date, there shall be no action,
---------------------
suit, or proceeding pending or threatened against any of the parties hereto by
any person, governmental agency, or subdivision thereof, nor shall there be
pending or threatened any action in any court or administrative tribunal, which
would have the effect of inhibiting the consummation of the transactions
contemplated herein.
SECTION 11
INDEMNIFICATION
---------------
11.1 Subject to the limitations set forth in this Section 11, Ms. Gregg
shall indemnify and hold EMB harmless from and against the following (herein
called "Her Indemnified Obligations"):
(a) any and all liabilities, losses, damages, claims, costs, and
expenses of PHG of any nature, whether absolute, contingent, or otherwise,
existing at the Closing Date or arising out of any state of facts,
occurrence, or omission prior to the Closing Date to the extent not
disclosed in this Agreement or in any exhibits thereto, unless incurred in
connection with the transactions contemplated by this Agreement or in the
ordinary course of business of PHG during its current fiscal year; and
(b) any and all damage or deficiency resulting from any
misrepresentation, breach of any warranty, or nonfulfillment of any
agreement on the part of Ms. Gregg contained in this Agreement or in any
statement or certificate furnished or to be furnished to EMB pursuant
hereto or in connection with the transactions contemplated hereby; and
(c) any and all actions, suits, proceedings, demands, assessments,
or judgments, costs and expenses incident to any of the foregoing.
The liability of Ms. Gregg for Her Indemnified Obligations shall be subject to
the following limitations:
(i) Ms. Gregg shall not be liable for Her Indemnified
Obligations unless she has received written notice of a claim asserted
under Section 11.1 hereof on or before the expiration of the 24th
month following the Closing Date.
(ii) No such claim shall be asserted unless the aggregate of all
claims for Her Indemnified Obligations shall exceed $10,000.
11.2 EMB shall promptly give written notice to Ms. Gregg after EMB has
knowledge of any claim against Ms. Gregg as to which recovery may be sought
against her because of the indemnity set forth in Section 11.1 hereunder, or of
the commencement of any legal proceedings against EMB and/or PHG as to such
claim after EMB has knowledge of such proceedings, whichever shall first occur,
and shall permit Ms. Gregg to assume the defense of
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<PAGE>
any such claim or any litigation resulting from such claim. Failure by Ms. Gregg
to notify EMB of her election to defend any such action within 30 days after
notice thereof shall have been given to Ms. Gregg shall be deemed a waiver by
Ms. Gregg of her right to defend such action. If Ms. Gregg assumes the defense
of any such claim or litigation resulting therefrom, the obligations of Ms.
Gregg hereunder as to such claim shall be limited to taking all steps necessary
in the defense or settlement of such claim or litigation resulting therefrom and
to holding EMB and PHG harmless from and against any and all losses, damages,
and liabilities caused by or arising out of any settlement approved by Ms. Gregg
or any judgment in connection with such claim or litigation resulting therefrom.
Ms. Gregg shall not, in the defense of such claim or any litigation resulting
therefrom, consent to entry of any judgment except with the written consent of
EMB and PHG, nor shall Ms. Gregg enter into any settlement (except with the
written consent of EMB and PHG) which does not include as an unconditional term
thereof the giving by the claimant or the plaintiff to EMB and PHG of a release
from all liability in respect of such claim or litigation.
11.3 If Ms. Gregg shall not assume the defense of any such claim or
litigation resulting therefrom, EMB and PHG (the "Defending Entities") may
defend against such claim or litigation in such manner as they may deem
appropriate and unless Ms. Gregg shall deposit with the Defending Entities a sum
equivalent to the total amount demanded in such claim or litigation plus such
Defending Entities' estimate of the cost of defending the same, the Defending
Entities may settle such claim or litigation on such terms as they may deem
appropriate, in their reasonable judgment, and Ms. Gregg shall promptly
reimburse the Defending Entities for the aggregate amount of all expenses, legal
or otherwise, incurred by them in connection with the defense against or
settlement of such claim or litigation. If no settlement of such claim or
litigation is made, Ms. Gregg shall promptly reimburse the Defending Entities
for the aggregate amount of any judgment rendered with respect to such claim or
in such litigation and of all expenses, legal or otherwise, incurred by the
Defending Entities in the defense against such claim or litigation.
11.4 Subject to the limitations set forth in this Section 11, EMB shall
indemnify and hold Ms. Gregg harmless from and against the following (herein
called "EMB's Indemnified Obligations"):
(a) any and all damage or deficiency resulting from any
misrepresentation, breach of any warranty, or nonfulfillment of any
agreement on the part of EMB contained in this Agreement or in any
statement or certificate furnished or to be furnished to Ms. Gregg pursuant
hereto or in connection with the transactions contemplated hereby; and
(b) any and all actions, suits, proceedings, demands, assessments,
or judgments, costs and expenses incident to any of the foregoing.
The liability of EMB for EMB's Indemnified Obligations shall be subject to the
following limitations:
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<PAGE>
(i) EMB shall not be liable for EMB's Indemnified Obligations
unless EMB has received written notice of a claim asserted under
Section 11.5 hereof on or before the expiration of the 24th month
following the Closing Date.
(ii) No such claim shall be asserted unless the aggregate of
all claims for EMB's Indemnified Obligations shall exceed $10,000.
11.5 Ms. Gregg shall promptly give written notice to EMB after she has
knowledge of any claim against EMB or PHG as to which recovery may be sought
against EMB because of the indemnity set forth Section 11.5 hereunder, or of the
commencement of any legal proceedings against Ms. Gregg as to such claim after
Ms. Gregg has knowledge of such proceedings, whichever shall first occur, and
shall permit EMB to assume the defense of any such claim or any litigation
resulting from such claim. Failure by EMB to notify Ms. Gregg of its election to
defend any such action within 30 days after notice thereof shall have been given
to EMB shall be deemed a waiver by EMB of its right to defend such action. If
EMB assumes the defense of any such claim or litigation resulting therefrom, the
obligations of EMB hereunder as to such claim shall be limited to taking all
steps necessary in the defense or settlement of such claim or litigation
resulting therefrom and to holding Ms. Gregg harmless from and against any and
all losses, damages, and liabilities caused by or arising out of any settlement
approved by EMB or any judgment in connection with such claim or litigation
resulting therefrom. EMB shall not, in the defense of such claim or any
litigation resulting therefrom, consent to entry of any judgment except with the
written consent of Ms. Gregg, or enter into any settlement (except with the
written consent of Ms. Gregg), which does not include as an unconditional term
thereof the giving by the claimant or the plaintiff to Ms. Gregg of a release
from all liability in respect of such claim or litigation.
11.6 If EMB shall not assume the defense of any such claim or litigation
resulting therefrom, Ms. Gregg may defend against such claim or litigation in
such manner as she may deem appropriate and unless EMB shall deposit with Ms.
Gregg a sum equivalent to the total amount demanded in such claim or litigation
plus the estimate of Ms. Gregg of the cost of defending the same, Ms. Gregg may
settle such claim or litigation on such terms as she may deem appropriate, in
her reasonable judgment, and EMB shall promptly reimburse Ms. Gregg for the
aggregate amount of all expenses, legal or otherwise, incurred by Ms. Gregg in
connection with the defense against or settlement of such claim or litigation.
If no settlement of such claim or litigation is made, EMB shall promptly
reimburse Ms. Gregg for the aggregate amount of any judgment rendered with
respect to such claim or in such litigation and of all expenses, legal or
otherwise, incurred by Ms. Gregg in the defense against such claim or
litigation.
SECTION 12
CONFIDENTIALITY
---------------
12.1 Ms. Gregg acknowledges that she has, and will, acquire information
and materials from PHG and EMB (the "Companies") and knowledge about the
technology, business, products, strategies, customers, clients and suppliers of
the Companies and that all such
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<PAGE>
information, materials and knowledge acquired, are and will be trade secrets and
confidential and proprietary information of the Companies (collectively, such
acquired information, materials, and knowledge are hereinafter referred to as
"Confidential Information"). Ms. Gregg covenants to hold such Confidential
Information in strict confidence, not to disclose it to others or use it in any
way, commercially or otherwise, except in connection with the transactions
contemplated by this Agreement and not to allow any unauthorized person access
to such Confidential Information.
12.2 The Confidential information disclosed by the Companies to Ms. Gregg
shall remain the property of the disclosing party.
12.3 Ms. Gregg shall maintain in secrecy all Confidential Information
disclosed to her by any or all of the Companies using not less than reasonable
care. Ms. Gregg shall not use or disclose in any manner to any third party any
Confidential Information without the express written consent of the chief
executive officer of EMB unless or until the Confidential Information is:
(a) publicly available or otherwise in the public domain; or
(b) rightfully obtained by any third party without restriction; or
(c) disclosed by any of the Companies without restriction pursuant to
judicial action, or government regulations or other requirements.
12.4 The obligations of Ms. Gregg under Sections 12.1, 12.2, and 12.3 of
this Agreement shall expire one year from the date hereof as to Confidential
Information consisting of commercial and financial information and two years
from the date on which Ms. Gregg is no longer affiliated with any of the
Companies, except as a shareholder thereof, as to Confidential Information
consisting of technical information. For this purpose, technical information
shall include without limitation all developments, inventions, innovations,
designs, discoveries, trade secrets and know-how, whether or not patentable or
copyrightable.
12.5 Ms. Gregg hereby agrees that she will not intentionally bring into
the premises of either or both of the Companies, or use in any way for the
benefit of either or both of the companies, any confidential information that
Ms. Gregg has reason to believe is or may be the trade secret or confidential
information of a third party.
SECTION 13
TERMINATION AND WAIVER
----------------------
13.1 Termination. This Agreement may be terminated and abandoned on the
-----------
Closing Date by:
(a) the mutual consent in writing of the parties hereto;
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<PAGE>
(b) the Board of Directors of EMB if the conditions precedent in
Sections 8 and 10 of this Agreement have not been satisfied or waived by
the Closing Date; and
(c) Ms. Gregg if the conditions precedent in Sections 9 and 10 of
this Agreement have not been satisfied or waived by the Closing Date.
If this Agreement is terminated pursuant to Section 13.1, the parties
hereto shall not have any further obligations under this Agreement, and each
party shall bear all costs and expenses incurred by her or it.
SECTION 14
NATURE AND SURVIVAL OF REPRESENTATIONS, ETC.
-------------------------------------------
14.1 All statements contained in any certificate or other instrument
delivered by or on behalf of EMB or Ms. Gregg pursuant to this Agreement or in
connection with the transactions contemplated hereby shall be deemed
representations and warranties by such party. All representations and warranties
and agreements made by EMB or Ms. Gregg in this Agreement or pursuant hereto
shall survive the Closing Date hereunder until the expiration of the 12th month
following the Closing Date.
SECTION 15
MISCELLANEOUS
-------------
15.1 Notices. Any notices or other communications required or permitted
-------
hereunder shall be sufficiently given if written and delivered in person or sent
by registered mail, postage prepaid, addressed as follows:
to EMB: EMB Corporation
Attention: Chief Executive Officer
---------
3200 Bristol, Eighth Floor
Costa Mesa, California 92626
copy to: Arter & Hadden
Attention: Randolf W. Katz, Esq.
---------
5 Park Plaza, Suite 1000
Irvine, California 92614
to Ms. Gregg: Linda K. Gregg
1133 East 114S North
Orem, Utah 84097
or such other address as shall be furnished in writing by the appropriate
person, and any such notice or communication shall be deemed to have been given
as of the date so mailed.
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<PAGE>
15.2 Time of the Essence. Time shall be of the essence of this Agreement.
-------------------
15.3 Costs. Each party will bear the costs and expenses incurred by it in
-----
connection with this Agreement and the transactions contemplated hereby.
15.4 Entire Agreement and Amendment. This Agreement and documents
------------------------------
delivered at the Closing Date hereunder contain the entire agreement between the
parties hereto with respect to the transactions contemplated by this Agreement
and supersedes all other agreements, written or oral, with respect thereto. This
Agreement may be amended or modified in whole or in part, and any rights
hereunder may be waived, only by an agreement in writing, duly and validly
executed in the same manner as this Agreement or by the party against whom the
waiver would be asserted. The waiver of any right hereunder shall be effective
only with respect to the matter specifically waived and shall not act as a
continuing waiver unless it so states by its terms.
15.5 Counterparts. This Agreement may be executed in one or more
------------
counterparts each of which shall be deemed to constitute an original and shall
become effective when one or more counterparts have been signed by each party
hereto and delivered to the other party.
15.6 Governing Law. This Agreement shall be governed by, and construed and
-------------
interpreted in accordance with, the laws of the State of California.
15.7 Attorneys' Fees and Costs. In the event any party to this Agreement
-------------------------
shall be required to initiate legal proceedings to enforce performance of any
term or condition of this Agreement, including, but not limited to, the
interpretation of any term or provision hereof, the payment of monies or the
enjoining of any action prohibited hereunder, the prevailing party shall be
entitled to recover such sums, in addition to any other damages or compensation
received, as will reimburse the prevailing party for reasonable attorneys' fees
and court costs incurred on account thereof (including, without limitation, the
costs of any appeal) notwithstanding the nature of the claim or cause of action
asserted by the prevailing party.
15.8 Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the parties hereto and their respective heirs, executors,
personal representatives, successors, and assigns, as the case may be.
15.9 Access to Counsel. Each party hereto acknowledges that each has had
-----------------
access to legal counsel of her or its own choice and has obtained such advice
therefrom, if any, as such party has deemed necessary and sufficient prior to
the execution hereof. Each party hereto acknowledges that the drafting of this
Agreement has been a joint effort and any ambiguities or interpretative issues
that may arise from and after the execution hereof shall not be decided in favor
or, or against, any party hereto because the language reflecting any such
ambiguities or issues may have been drafted by any specific party or her or its
counsel.
15.10 Captions. The captions appearing in this Agreement are inserted for
--------
convenience of reference only and shall not affect the interpretation of this
Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
EMB CORPORATION
By: /s/ James E. Shipley
-------------------------------
James E. Shipley, President
____________________________________
LINDA K. GREGG
As to paragraph 5.1(b) only:
_____________________________________
DOUGLAS GREGG
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<PAGE>
TABLE OF CONTENTS TO EXHIBITS
(This Table of Contents is an Index of the Exhibits attached hereto and the
Summary Description herein does not purport to constitute a complete description
of the information required to be set forth in such Exhibits. Reference is made
to the Stock Purchase Agreement for a detailed description of information
required to be set forth in such Exhibits.)
<TABLE>
<CAPTION>
EXHIBIT SUMMARY DESCRIPTION
------- ------------------------------------------------------------
<S> <C>
1.3 Form of Mr. Gregg's Employment Agreement
1.4 PHG Tax Returns
2.1(c) Form of Ms. Gregg's Release Agreement
2.1(d) Form of Ms. Gregg's Investment Representation Letter
4.4(g) Increases in compensation of officers or executive employees
4.5 Compensation Due Employees
4.7 Contracts and Leases
4.14 Litigation pending or threatened
4.15 Extensions to file Federal income tax return
4.16 No Defaults
4.17 Material Change
</TABLE>
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, dated as of the 1st day of November, 1997 (hereinafter called
the "Effective Date"), by and between:
PREFERRED HOLDING GROUP, INCORPORATED, a Colorado corporation that is
in process of changing its name to EMB Financial Services, Inc.
(hereinafter "PHG"), and is a wholly owned subsidiary of EMB CORPORATION, a
Hawaii corporation (hereinafter "EMB"), with its offices at 1133 East 1145
North, Orem, Utah 84097; and
DOUGLAS GREGG, a resident of 1133 East 1145 North, Orem, Utah 84097
(hereinafter the "Employee").
1. Employment. PHG hereby employs the Employee for the term of this
----------
Agreement, and the Employee hereby accepts such employment upon the terms and
conditions hereinafter set forth.
2. Term. The term of this Agreement shall commence on the date hereof and
----
shall continue in effect thereafter for a period of two (2) years. This
Agreement shall be renewable at the end of its term for a period to be
negotiated and agreed between the parties hereto.
3. Compensation.
------------
3.1 Salary. For all services rendered by the Employee under this
------
Agreement, PHG shall pay the Employee a salary at the rate of Three Thousand
Five Hundred Dollars ($3,500) per month, subject to increase upon annual
approvals of the Board of Directors of PHG. Salary is payable semi-monthly.
3.2 Additional Compensation. Nothing herein shall be deemed to
-----------------------
preclude PHG from awarding additional compensation or benefits to the Employee
during the term of this Agreement, upon the approval of PHG's Board of
Directors, whether in the form of raises, bonuses, additional fringe benefits,
or otherwise.
3.3 Benefits. During the term of this Agreement, the Employee shall
--------
be entitled to receive all benefits applicable to executive officers of PHG of
equal positions, as designated from time to time by PHG's Board of Directors.
4. Duties. During the term of this Agreement, the Employee shall be
------
president of PHG, shall be responsible for the operations of PHG, shall consult
with, report to, and follow the guidelines and directions of the Board of
Directors of PHG as such Board requires, and shall perform such duties relating
to operating PHG as are required to be performed for its day-to-day operations,
as well as performing such long range planning as is required in the Employee's,
and such Board's, best judgment to maximize the future profitability of PHG and
EMB.
<PAGE>
5. Extent of Services. The Employee shall devote a sufficient quantity of
------------------
his working time, attention, and energies to the full performance of his duties
hereunder and to the business of PHG. The Employee may devote time to personal
and family investments if such investments do not conflict with his duties
hereunder regarding the business of PHG.
6. Disclosure of Information. The Employee recognizes and acknowledges
-------------------------
that PHG's trade secrets and proprietary processes as they may exist from time
to time are valuable, special, and unique assets of their businesses, access to
and knowledge of which are essential to the performance of the Employee's duties
hereunder. The Employee will not, during or after the term of his employment, in
whole or in part, disclose such secrets or processes to any person, firm,
corporation, association, or other entity (except PHG or its corporate
affiliates) for any reason or purpose whatsoever, nor shall the Employee make
use of any such property for his own purposes or for the benefit of any other
person, firm, corporation, or other entity (except PHG or its corporate
affiliates) under any circumstances.
7. Covenants Not to Solicit or Interfere. For a period of one year from
-------------------------------------
and after the termination of the Employee's employment hereunder, the Employee
shall not interfere with, disrupt, or attempt to disrupt the relationship,
contractual or otherwise, between PHG, or any division, subsidiary, or corporate
affiliate thereof, and any customer, supplier, lessor, lessee, or employee of
such company, division, subsidiary, or corporate affiliate. The term "customer,"
as used in this paragraph, shall mean any person, firm, or corporation that was
a customer of any of such company, or any division, subsidiary, or corporate
affiliate thereof, during the six-month period immediately preceding the
termination of employment hereunder.
8. Covenant Against Competition. In the event Employee elects to engage
----------------------------
in other business activities unrelated to PHG's during the term of this
Agreement, which activities are the same or substantially similar to the
businesses of PHG or any division, subsidiary, or corporate affiliate thereof,
the Employee shall advise PHG of such activities. Unless PHG shall consent to
such other business activities, during the term of this Agreement the Employee
shall not directly or indirectly compete with PHG or any division, subsidiary,
or corporate affiliate thereof in the business of such company or any division,
subsidiary, or corporate affiliate thereof whether such competition shall be as
an officer, director, owner, employee, partner, or consultant. For the purposes
of this Agreement, PHG's "business" shall be deemed to consist of corporate and
consumer finance and related services and operations. Notwithstanding anything
to the contrary set forth above, in the event the Employee elects to engage in a
business competitive to such company without its consent, he may elect to do so
by voluntarily terminating the obligations of PHG under this Agreement without
any further obligation to PHG.
9. Injunctive Relief. If there is a breach or threatened breach of the
-----------------
provisions of paragraphs 6, 7, or 8 of this Agreement, PHG be entitled
immediately to obtain an injunction restraining the Employee from such breach.
Nothing herein shall be construed as prohibiting PHG from pursuing any other
remedies for such breach or threatened breach.
10. Arbitration. Except as provided in paragraph 9, above, the parties
-----------
hereby submit all controversies, claims, and matters of difference arising as a
result of this Agreement or
<PAGE>
the transactions contemplated hereby to arbitration according to the rules and
practices of JAMS/Endispute from time to time in force. Such arbitration shall
be conducted in Orange County, California. This submission and agreement to
arbitrate shall be specifically enforceable. Arbitration may proceed in the
absence of any party if written notice (pursuant to the rules and regulations of
JAMS/Endispute) of the proceedings has been given to such party. The parties
agree to abide by all awards rendered in such proceedings. Such awards shall be
final and binding on all parties to the extent, and in the manner, provided by
California statute. All awards may be filed with the Clerk of the California
Superior Court for the County of Orange, California, as a basis of judgment and
of the issuance of execution for its collection and, at the election of the
party making such filing, with the Clerk of one or more other courts, state or
federal, having jurisdiction over the party against whom such an award is
rendered or his property.
11. Legal Cause. PHG may terminate its obligations under this Agreement
-----------
for "legal cause" in the event PHG's Board of Directors reasonably determines
that (i) the Employee has willfully and materially disregarded his duties
hereunder, provided that PHG's Board of Directors has provided prior written
notice to the Employee of such willful and material disregard, which is not
promptly corrected by Employee and provided that any duties assigned to the
Employee are consistent with this Agreement or (ii) the Employee has committed a
criminal act that has materially damaged PHG or its divisions, subsidiaries, or
corporate affiliates.
12. Notices. Any notice required or permitted to be given under this
-------
Agreement shall be sufficient if in writing and if sent by registered or
certified mail, return-receipt requested, postage prepaid, to the address
indicated above.
13. California Law to Govern. This Agreement shall be governed by and
------------------------
construed and enforced in accordance with the laws of the State of California.
14. Assignment. This agreement is personal to the Employee and shall not
----------
be assigned by him. The rights and obligations of PHG under this Agreement shall
inure to the benefit of and shall be binding upon the successors of PHG.
15. Entire Agreement. This instrument contains the entire agreement of the
----------------
parties hereto with respect to the transactions contemplated by this Agreement
and supersedes all other agreements, written or oral, with respect thereto. This
Agreement may be amended or modified in whole or in part, and any rights
hereunder may be waived, only by an agreement in writing, duly and validly
executed in the same manner as this Agreement or by the party against whom the
waiver would be asserted. The waiver of any right hereunder shall be effective
only with respect to the matter specifically waived and shall not act as a
continuing waiver unless it so states by its terms.
///
///
///
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
first hereinabove written in the City of Costa Mesa, State of California.
PREFERRED HOLDING GROUP,
INCORPORATED
/s/ Douglas Gregg
By: ________________________________ -----------------------------------
DOUGLAS GREGG
APPROVED AS TO FORM AND CONTENT
EMB CORPORATION
By: /s/ James E. Shipley
--------------------------------
James E. Shipley, President
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Form 10-KSB of our report dated December 3,
1997, relating to the financial statements of EMB Corporation and Subsidiary
(formerly called Pacific International, Inc.), which is contained therein.
/s/ Harlan & Boettger, LLP
San Diego, California
January 12, 1998
